UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 _______________________________  
FORM 20-F
  _______________________________   
(Mark One)
¨
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
ý
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
¨
SHELL COMPANY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report                 
For the transition period from                      to                     
Commission file number 1- 32479
  _______________________________  
TEEKAY LNG PARTNERS L.P.
(Exact name of Registrant as specified in its charter)
  _______________________________  
Republic of The Marshall Islands
(Jurisdiction of incorporation or organization)
4 th Floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM 08, Bermuda
Telephone: (441) 298-2530
(Address and telephone number of principal executive offices)
Edith Robinson
4 th Floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM 08, Bermuda
Telephone: (441) 298-2530
Fax: (441) 292-3931
(Contact information for company contact person)




Securities registered, or to be registered, pursuant to Section 12(b) of the Act.
Title of each class
 
Name of each exchange on which registered
Common Units
 
New York Stock Exchange
Series A Preferred Units
 
New York Stock Exchange
Series B Preferred Units
 
New York Stock Exchange
Securities registered, or to be registered, pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
  _______________________________  
Indicate the number of outstanding shares of each issuer’s classes of capital or common stock as of the close of the period covered by the annual report.    
79,360,719 Common Units
5,000,000 Series A Preferred Units
6,800,000 Series B Preferred Units


Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes   ý     No   ¨
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes   ¨     No   ý
Indicate by check mark if the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ý     No   ¨
Indicate by check mark if the registrant (1) has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   ý     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
ý
Accelerated Filer
¨
Non-Accelerated Filer
¨
Emerging growth company
¨
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards † provided pursuant to Section 13(a) of the Exchange Act. ¨  
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP
ý
International Financial Reporting Standards
as issued by the International Accounting
Standards Board
¨
Other
¨
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17   ¨         Item 18    ¨



If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes   ¨         No   ý
 



TEEKAY LNG PARTNERS L.P.
INDEX TO REPORT ON FORM 20-F
 
 
Page
 
 
Item 1.
Item 2.
Item 3.
 
 
Item 4.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 4A.
Item 5.
 
 
 
 
 
 
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 
 
 
Item 7.
 

1


 
Item 8.
 
 
 
 
 
Item 9.
Item 10.
 
 
 
 
 
 
 
Item 11.
Item 12.
 
 
 
 
 
Item 13.
Item 14.
Item 15.
Item 16A.
Item 16B.
Item 16C.
Item 16D.
Item 16E.
Item 16F.
Item 16G.
Item 16H.
 
 
 
 
 
Item 17.
Item 18.
Item 19.
 

2


PART I
This Annual Report should be read in conjunction with the consolidated financial statements and accompanying notes included in this report.

Unless otherwise indicated, references in this prospectus to “Teekay LNG Partners,” “we,” “us” and “our” and similar terms refer to Teekay LNG Partners L.P. and/or one or more of its subsidiaries, except that those terms, when used in this Annual Report in connection with the common or preferred units described herein, shall mean specifically Teekay LNG Partners L.P. References in this Annual Report to “Teekay Corporation” refer to Teekay Corporation and/or any one or more of its subsidiaries.

In addition to historical information, this Annual Report contains forward-looking statements that involve risks and uncertainties. Such forward-looking statements relate to future events and our operations, objectives, expectations, performance, financial condition and intentions. When used in this Annual Report, the words “expect,” “intend,” “plan,” “believe,” “anticipate,” “estimate” and variations of such words and similar expressions are intended to identify forward-looking statements. Forward-looking statements in this Annual Report include, in particular, statements regarding:
 
•
our distribution policy and our ability to make cash distributions on our units or any increases in quarterly distributions, and the impact of cash distribution reductions on our financial position;
•
our future financial condition and results of operations and our future revenues, expenses and capital expenditures, and our expected financial flexibility to pursue capital expenditures, acquisitions and other expansion opportunities, including vessel acquisitions;
•
our liquidity needs and meeting our going concern requirements, including our anticipated funds and sources of financing for liquidity and working capital needs and the sufficiency of cash flows, and our estimation that we will have sufficient liquidity for at least a one-year period;
•
our ability to obtain financing, including new bank financings, and to refinance existing indebtedness;
•
the expected timing, amounts and methods of financing for new projects;
•
growth prospects and future trends of the markets in which we operate;
•
our expectations regarding demand in the oil and gas industry;
•
liquefied natural gas (or LNG ), liquefied petroleum gas (or LPG ) and tanker market fundamentals, including the balance of supply and demand in the LNG, LPG and tanker markets, estimated growth in size of the world LNG and LPG fleets and spot LNG, LPG and tanker charter rates;
•
our expectations as to the useful lives of our vessels;
•
our expectations and estimates regarding future charter business, including with respect to minimum charter hire payments, revenues and our vessels’ ability to perform to specifications and maintain their hire rates in the future;
•
our expectations regarding the ability of Awilco LNG ASA (or Awilco ), and our other customers to make charter payments to us, and the ability of our customers to fulfill purchase obligations at the end of charter contracts, including obligations relating to two of our LNG carriers completing charters with Awilco in 2019;
•
our ability to maximize the use of our vessels, including the redeployment or disposition of vessels no longer under long-term charter or whose charter contract is expiring in 2019 and 2020;
•
the adequacy of our insurance coverage, less an applicable deductible;
•
the future resumption of an LNG plant in Yemen operated by Yemen LNG Company Limited (or YLNG ), the expected expiration of the current deferral arrangement with YLNG, the expected further agreement with YLNG to suspend the charter contracts, the expected repayment of deferred hire amounts on our two 52%-owned vessels, the Marib Spirit and Arwa Spirit , on charter to YLNG, and the expected reduction to our equity income in 2019 as a result of the charter payment deferral;
•
expected purchases and deliveries of newbuilding vessels, the newbuildings’ commencement of service under charter contracts, and estimated costs for newbuilding vessels;
•
expected deliveries of the LNG newbuilding vessels in connection with our joint venture with China LNG Shipping (Holdings) Limited;
•
expected funding of our proportionate share of the remaining shipyard installment payments for our joint venture with China LNG, CETS Investment Management (HK) Co. Ltd. and BW LNG Investments Pte. Ltd. (or the Pan Union Joint Venture );
•
the expected technical and operational capabilities of newbuildings, including the benefits of the M-type, Electronically Controlled, Gas Injection (or MEGI ) twin engines in certain LNG carrier newbuildings;
•
our ability to continue to derive a significant portion of our revenues and cash flow from a limited number of customers;
•
our ability to maintain long-term relationships with major LNG and LPG importers and exporters and major crude oil companies;
•
our ability to leverage to our advantage Teekay Corporation’s relationships and reputation in the shipping industry;
•
our continued ability to enter into long-term, fixed-rate time-charters with our LNG and LPG customers;

3


•
obtaining LNG and LPG projects that we or Teekay Corporation bid on;
•
our expectations regarding the schedule and performance of the receiving and regasification terminal in Bahrain, which will be owned and operated by a new joint venture, Bahrain LNG W.L.L., owned by us (30%), National Oil & Gas Authority (or Nogaholding ) (30%), Gulf Investment Corporation (or GIC ) (24%) and Samsung C&T (or Samsung ) (16%) (or the Bahrain LNG Joint Venture ), and our expectations regarding the charter of a floating storage unit (or FSU ) vessel for the project;
•
our ability to obtain all permits, licenses, and certificates with respect to the conduct of our operations;
•
the impact and expected cost of, and our ability to comply with, new and existing governmental regulations and maritime self-regulatory organization standards applicable to our business, including the expected cost to install ballast water treatment systems on our vessels and the switch to burning low sulphur fuel in compliance with the International Marine Organization (or IMO ) proposals and the effect of IMO 2020, a new regulation for a 0.50% global sulphur cap for marine fuels effective January 1, 2020 ;
•
the expected impact of heightened environmental and quality concerns of insurance underwriters, regulators and charterers;
•
the future valuation or impairment of our assets, including goodwill;
•
our hedging activities relating to foreign exchange, interest rate and spot market risks, and the effects of fluctuations in foreign exchange, interest rate and spot market rates on our business and results of operations;
•
the potential impact of new accounting standards guidance;
•
our and Teekay Corporation’s ability to maintain good relationships with the labor unions who work with us;
•
anticipated taxation of our partnership and its subsidiaries; and
•
our business strategy and other plans and objectives for future operations.

Forward-looking statements involve known and unknown risks and are based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially include, but are not limited to, those factors discussed in “Item 3 – Key Information: Risk Factors,” and other factors detailed from time to time in other reports we file with or furnish to the U.S. Securities and Exchange Commission (or the SEC ).

We do not intend to revise any forward-looking statements in order to reflect any change in our expectations or events or circumstances that may subsequently arise. You should carefully review and consider the various disclosures included in this Annual Report and in our other filings made with the SEC that attempt to advise interested parties of the risks and factors that may affect our business prospects and results of operations.
Item 1.
Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
Selected Financial Data
Set forth below is selected consolidated financial and other data of Teekay LNG Partners and its subsidiaries for the fiscal years 2014 through 2018, which have been derived from our consolidated financial statements. The following table should be read together with, and is qualified in its entirety by reference to, (a) “Item 5 – Operating and Financial Review and Prospects,” included herein, and (b) the historical consolidated financial statements and the accompanying notes and the Report of Independent Registered Public Accounting Firm therein (which are included herein), with respect to the consolidated financial statements for the years ended December 31, 2018, 2017 and 2016.

Our consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (or GAAP ).

(in thousands of U.S. Dollars, except unit, per unit and fleet data)
 
Year Ended
December 31,
2018
$
 
Year Ended
December 31,
2017
$
 
Year Ended
December 31,
2016
$
 
Year Ended
December 31,
2015
$
 
Year Ended
December 31,
2014
$
Income Statement Data:
 
 
 
 
 
 
 
 
 
 
Voyage revenues
 
510,762

 
432,676

 
396,444

 
397,991

 
402,928

Income from vessel operations (1)
 
147,809


148,649


153,181


181,372

 
183,823

Equity income (2)
 
53,546

 
9,789

 
62,307

 
84,171

 
115,478


4


Interest expense
 
(128,303
)
 
(80,937
)
 
(58,844
)
 
(43,259
)
 
(60,414
)
Interest income
 
3,760

 
2,915

 
2,583

 
2,501

 
3,052

Realized and unrealized gain (loss) on non-designated derivative instruments (3)
 
3,278

 
(5,309
)
 
(7,161
)
 
(20,022
)
 
(44,682
)
Foreign currency exchange gain (loss) (4)
 
1,371

 
(26,933
)
 
5,335

 
13,943

 
28,401

Other (expense) income (5)
 
(51,373
)
 
1,561

 
1,537

 
1,526

 
836

Income tax expense
 
(3,213
)
 
(824
)
 
(973
)
 
(2,722
)
 
(7,567
)
Net income
 
26,875


48,911


157,965


217,510

 
218,927

Non-controlling and other interests in net income
 
24,260

 
29,325

 
22,988

 
42,903

 
44,676

Limited partners’ interest in net income
 
2,615

 
19,586

 
134,977

 
174,607

 
174,251

Limited partners’ interest in net income per:
 
 
 
 
 
 
 
 
 
 
Common unit - basic
 
0.03

 
0.25

 
1.70

 
2.21

 
2.30

Common unit - diluted
 
0.03

 
0.25

 
1.69

 
2.21

 
2.30

Cash distributions declared per common unit
 
0.5600

 
0.5600

 
0.5600

 
2.8000

 
2.7672

Balance Sheet Data  (at end of period):
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
149,014

 
244,241

 
126,146

 
102,481

 
159,639

Restricted cash
 
73,850

 
95,194

 
117,027

 
111,519

 
45,997

Vessels and equipment (6)
 
3,329,523

 
2,905,712

 
2,215,983

 
2,108,160

 
1,989,230

Investment in and advances to equity-accounted joint ventures
 
1,116,133

 
1,094,596

 
1,037,726

 
883,731

 
891,478

Net investments in direct financing leases (7)
 
575,163

 
495,990

 
643,008

 
666,658

 
682,495

Total assets
 
5,384,781

 
5,019,299

 
4,315,474

 
4,052,980

 
3,947,275

Total debt and obligations related to capital leases
 
3,268,332

 
2,809,541

 
2,184,065

 
2,058,336

 
1,970,531

Partners’ equity
 
1,833,254

 
1,879,038

 
1,738,506

 
1,519,062

 
1,537,752

Total equity
 
1,882,597

 
1,931,423

 
1,777,412

 
1,543,679

 
1,547,371

Common units outstanding
 
79,360,719

 
79,626,819

 
79,571,820

 
79,551,012

 
78,353,354

Preferred units outstanding
 
11,800,000

 
11,800,000

 
5,000,000

 
—

 
—

Other Financial Data:
 
 
 
 
 
 
 
 
 
 
Net voyage revenues (8)
 
482,525

 
424,474

 
394,788

 
396,845

 
399,607

EBITDA (9)
 
279,009

 
233,302

 
310,741

 
353,243

 
377,983

Adjusted EBITDA (9)
 
492,275

 
424,436

 
445,341

 
442,463

 
466,965

Capital expenditures:
 
 
 
 
 
 
 
 
 
 
Expenditures for vessels and equipment (10)
 
686,305

 
714,529

 
344,987

 
191,969

 
194,255

Liquefied Natural Gas Fleet Data:
 
 
 
 
 
 
 
 
 
 
Consolidated:
 
 
 
 
 
 
 
 
 
 
Calendar-ship-days (11)
 
7,570

 
5,912

 
5,244

 
4,745

 
4,745

Average age of our fleet (in years at end of year)
 
7.8

 
8.9

 
9.7

 
10.2

 
9.2

Vessels at end of year (12)
 
23

 
18

 
15

 
13

 
13

Equity-Accounted: (13)
 
 
 
 
 
 
 
 
 
 
Calendar-ship-days (11)
 
6,912

 
5,920

 
5,840

 
5,840

 
5,840

Average age of our fleet (in years at end of year)
 
7.0

 
8.0

 
7.5

 
6.5

 
5.5

Vessels at end of year (12)
 
20

 
17

 
16

 
16

 
16

Liquefied Petroleum Gas Fleet Data:
 
 
 
 
 
 
 
 
 
 
Consolidated:
 
 
 
 
 
 
 
 
 
 
Calendar-ship-days (11)
 
2,555

 
2,445

 
2,196

 
2,190

 
1,874

Average age of our fleet (in years at end of year)
 
9.9

 
8.9

 
7.0

 
6.0

 
5.0

Vessels at end of year (12)
 
7

 
7

 
6

 
6

 
6

Equity-Accounted: (13)
 
 
 
 
 
 
 
 
 
 
Calendar-ship-days (11)
 
7,645

 
7,001

 
6,395

 
5,880

 
5,498

Average age of our fleet (in years at end of year)
 
7.9

 
9.1

 
9.6

 
10.4

 
10.8

Vessels at end of year (12)
 
22

 
20

 
19

 
16

 
15

Conventional Fleet Data:
 
 
 
 
 
 
 
 
 
 
Calendar-ship-days (11)
 
1,389

 
1,904

 
2,439

 
2,920

 
3,202

Average age of our fleet (in years at end of year)
 
12.0

 
12.6

 
11.7

 
9.5

 
8.5

Vessels at end of year
 
2

 
5

 
6

 
8

 
8

(1)
Income from vessel operations includes write-down of goodwill and write-down and loss on sale of vessels of $54.7 million, $50.6 million and $39.0 million for the years ended December 31, 2018, 2017 and 2016, respectively.

5


(2)
Equity income includes unrealized gains on non-designated derivative instruments, and any ineffectiveness of derivative instruments designated as hedges for accounting purposes of $9.4 million, $2.4 million, $7.3 million, $10.2 million and $1.6 million for the years ended December 31, 2018, 2017, 2016, 2015 and 2014, respectively. In addition, equity income for the year ended December 31, 2018 includes a gain of $5.6 million on our sale of our 50% ownership interest in our joint venture with Exmar NV (or Exmar ) (or the Excelsior Joint Venture ), which owned one LNG carrier, the Excelsior.
(3)
We entered into interest rate swap and swaption agreements to mitigate our interest rate risk from our floating-rate debt. We also have entered into an agreement with Teekay Corporation relating to the Toledo Spirit time-charter contract under which Teekay Corporation paid us any amounts payable to the charterer as a result of spot rates being below the fixed rate, and we paid Teekay Corporation any amounts payable to us as a result of spot rates being in excess of the fixed rate. The Toledo Spirit was sold in early 2019, and as a result, the derivative agreement ended at that time. With the exception of the interest rate swaps in our consolidated joint venture, Teekay Nakilat Corporation (or the Teekay Nakilat Joint Venture ), and for several interest rate swaps in certain of our equity-accounted joint ventures where we have applied hedge accounting, changes in the fair value of our derivatives are recognized immediately into income and are presented as realized and unrealized gain (loss) on derivative instruments in the consolidated statements of income. Please see “Item 18 – Financial Statements: Note 13 – Derivative Instruments and Hedging Activities.”
(4)
Under GAAP, all foreign currency-denominated monetary assets and liabilities, such as cash and cash equivalents, accounts receivable, restricted cash, accounts payable, accrued liabilities, advances from affiliates and long-term debt, are revalued and reported based on the prevailing exchange rate at the end of the period. Foreign exchange gains and losses include realized and unrealized gains and losses on our cross currency swaps. We entered into cross currency swaps concurrently with the issuance of our Norwegian Kroner (or NOK ) denominated bonds to economically hedge the foreign currency exposure on the payment of interest and principal of our NOK-denominated bonds. Our primary sources of foreign currency exchange gains and losses are our Euro-denominated term loans and NOK-denominated bonds. Euro-denominated term loans totaled, 169.0 million Euros ( $193.8 million ) at December 31, 2018, 194.1 million Euros ( $233.0 million ) at December 31, 2017, 208.9 million Euros ($219.7 million) at December 31, 2016, 227.7 million Euros ($241.8 million) at December 31, 2015 and 235.6 million Euros ($285.0 million) at December 31, 2014. Our NOK-denominated bonds totaled 3.1 billion NOK ( $353.0 million ) at December 31, 2018, 3.1 billion NOK ($377.9 million) at December 31, 2017, 3.2 billion NOK ($371.3 million) at December 31, 2016, 2.6 billion NOK ($294.0 million) at December 31, 2015 and 1.6 billion NOK ($214.7 million) at December 31, 2014.
(5)
Other (expense) income for the year ended December 31, 2018 includes a $53.0 million expense relating to the Teekay Nakilat Joint Venture recognizing an additional tax indemnification liability. Please see "Item 5 – Operating and Financial Review and Prospects: Significant Developments in 2018 and Early 2019 – Teekay Nakilat Capital Lease."
(6)
Vessels and equipment consist of (a) our vessels, at cost less accumulated depreciation, (b) vessels related to capital leases, at cost less accumulated depreciation and (c) advances on our newbuildings.
(7)
Certain of our external charters have been accounted for as direct financing leases. As a result, the vessels associated with the external charters accounted for as direct financing leases are not included as part of vessels and equipment. Please see "Item 18 – Financial Statements: Note 6 – Revenue – Net Investments in Direct Financing Leases."
(8)
Net voyage revenues is a non-GAAP financial measure. Consistent with general practice in the shipping industry, we use net voyage revenues (defined as voyage revenues less voyage expenses) as a measure of equating revenues generated from voyage charters to revenues generated from time-charters, which assists us in making operating decisions about the deployment of our vessels and their performance. Under time-charters the charterer pays the voyage expenses, whereas under voyage charter contracts the ship owner pays these expenses. Some voyage expenses are fixed, and the remainder can be estimated. If we, as the ship owner, pay the voyage expenses, we typically pass the approximate amount of these expenses on to our customers by charging higher rates under the contract or billing the expenses to them. As a result, although voyage revenues from different types of contracts may vary, the net voyage revenues are comparable across the different types of contracts. We principally use net voyage revenues because it provides more meaningful information to us than voyage revenues, the most directly comparable GAAP financial measure. Net voyage revenues are also widely used by investors and analysts in the shipping industry for comparing financial performance between companies and to industry averages. The following table reconciles net voyage revenues with voyage revenues:
(in thousands of U.S. Dollars)
 
Year Ended
December 31,
2018
 
Year Ended
December 31,
2017
 
Year Ended
December 31,
2016
 
Year Ended
December 31,
2015
 
Year Ended
December 31,
2014
Voyage revenues
 
510,762

 
432,676

 
396,444

 
397,991

 
402,928

Voyage expenses
 
(28,237
)
 
(8,202
)
 
(1,656
)
 
(1,146
)
 
(3,321
)
Net voyage revenues
 
482,525


424,474


394,788


396,845

 
399,607

(9)
EBITDA and Adjusted EBITDA are non-GAAP financial measures. EBITDA represents net income before interest, taxes, depreciation and amortization. Adjusted EBITDA represents EBITDA before write-down of goodwill and write-down and loss on sales of vessels, foreign currency exchange (gain) loss, amortization of in-process contracts included in voyage revenues net of offsetting vessel operating expenses, unrealized (gain) loss on non-designated derivative instruments, realized loss on interest rate swaps and Adjustments to Equity-Accounted EBITDA. EBITDA and Adjusted EBITDA are used as a supplemental financial performance measure by management and by external users of our financial statements, such as investors. EBITDA and Adjusted EBITDA assist our management and security holders by increasing the comparability of our fundamental performance from period to period and against the fundamental performance of other companies in our industry that provide EBITDA and Adjusted EBITDA information. This increased comparability is achieved by excluding the potentially disparate effects between periods or companies of interest expense, taxes, depreciation or amortization, amortization of in-process revenue contracts and realized and unrealized loss on derivative instruments relating to interest rate swaps, interest rate swaptions, and cross currency swaps, which items are affected by various and possibly changing financing methods, capital structure and historical cost basis and which items may significantly affect net income between periods. We believe that including EBITDA and Adjusted EBITDA benefits investors in (a) selecting between investing in us and other investment alternatives and (b) monitoring our ongoing financial and operational strength and health in assessing whether to continue to hold our equity or debt securities, as applicable.
Neither EBITDA nor adjusted EBITDA should be considered as an alternative to net income, operating income, or any other measure of financial performance presented in accordance with GAAP. EBITDA and Adjusted EBITDA exclude certain items that affect net income and these measures may vary among other companies. Therefore, EBITDA and Adjusted EBITDA as presented in this Annual Report may not be comparable to similarly titled measures of other companies.
The following table reconciles our historical consolidated EBITDA and Adjusted EBITDA to net income.

6


(in thousands of U.S. Dollars)
 
Year Ended
December 31,
2018
 
Year Ended
December 31,
2017
 
Year Ended
December 31,
2016
 
Year Ended
December 31,
2015
 
Year Ended
December 31,
2014
Reconciliation of “EBITDA” and “Adjusted EBITDA” to “Net income”:
 
 
 
 
 
 
 
 
 
 
Net income
 
26,875

 
48,911

 
157,965

 
217,510

 
218,927

Depreciation and amortization
 
124,378

 
105,545

 
95,542

 
92,253

 
94,127

Interest expense, net of interest income
 
124,543

 
78,022

 
56,261

 
40,758

 
57,362

Income tax expense
 
3,213

 
824

 
973

 
2,722

 
7,567

EBITDA
 
279,009


233,302


310,741


353,243

 
377,983

Write-down of goodwill and write-down and loss on sale of vessels
 
54,653

 
50,600

 
38,976

 
—

 
—

Foreign currency exchange (gain) loss
 
(1,371
)
 
26,933

 
(5,335
)
 
(13,943
)
 
(28,401
)
Amortization of in-process contracts included in voyage revenues, net of offsetting vessel operating expenses
 
(326
)
 
(1,113
)
 
(1,113
)
 
(1,113
)
 
(1,113
)
Unrealized (gain) loss on non-designated derivative instruments
 
(30,133
)
 
(13,448
)
 
(19,433
)
 
(12,375
)
 
2,096

Realized loss on interest rate swaps and swaptions
 
28,335

 
19,435

 
25,940

 
28,968

 
41,725

Adjustments to Equity-Accounted EBITDA (14)(15)
 
109,108

 
108,727

 
95,565

 
87,683

 
74,675

Other expense (5)
 
53,000

 
—

 
—

 
—

 
—

Adjusted EBITDA
 
492,275


424,436


445,341


442,463

 
466,965

(10)
Excludes expenditures for vessels and equipment from our equity-accounted joint ventures.
(11)
Calendar-ship-days are equal to the aggregate number of calendar days in a period that our vessels were in our possession during that period. In addition, the calendar-ship-days for our consolidated LNG fleet includes 119 days relating to the charter-in contract of the Magellan Spirit from our 52%-owned joint venture with Marubeni Corporation (or the Teekay LNG-Marubeni Joint Venture ).
(12)
Liquefied Natural Gas
For 2018, 2017, 2016 and 2015, the number of vessels indicated does not include one, six, nine and 11 LNG carrier newbuilding(s), respectively, in our consolidated LNG fleet and five, nine, 10 and 10 LNG carrier newbuildings, respectively, in our equity-accounted LNG fleet.
Liquefied Petroleum Gas
For 2017, 2016 and 2015, the number of vessels indicated does not include three, four and seven LPG carrier newbuildings, respectively, in our equity-accounted LPG fleet.
(13)
Equity-accounted vessels in our LNG fleet include (i) six LNG carriers (or the MALT LNG Carriers ) relating to the Teekay LNG-Marubeni Joint Venture, (ii) four LNG carriers (or the RasGas 3 LNG Carriers ) relating to our joint venture with QGTC Nakilat (1643-6) Holdings Corporation, (iii) four LNG carriers relating to the Angola Project (or the Angola LNG Carriers ) in our joint venture with Mitsui & Co. Ltd. and NYK Energy Transport (Atlantic) Ltd., (iv) one LNG carrier at December 31, 2018 and two LNG carriers from 2017 to 2014 (or the Exmar LNG Carriers ) relating to our LNG joint venture with Exmar, (v) three and one LNG carrier(s) (or the Pan Union LNG Carriers ) relating to the Pan Union Joint Venture from 2018 and 2017, respectively, and (vi) two ARC7 LNG carriers relating to our 50/50 joint venture with China LNG (Holdings) Limited (or the Yamal LNG Joint Venture ) in 2018. Equity-accounted vessels in our LPG fleet include 22, 20, 19, 16, and 15 LPG carriers (or the Exmar LPG Carriers ) from 2018, 2017, 2016, 2015, and 2014, respectively, relating to our LPG joint venture with Exmar. The figures in the selected financial data for our equity-accounted vessels are at 100% and not based on our ownership percentages.
(14)
Adjusted Equity-Accounted EBITDA is a non-GAAP financial measure. Adjusted Equity-Accounted EBITDA represents equity income after Adjustments to Equity Income. Adjustments to Equity Income consist of depreciation and amortization, interest expense net of interest income, income tax (recovery) expense, amortization of in-process revenue contracts, foreign currency exchange (gain) loss, write-down and loss (gain) on sales of vessels, gain on sale of equity-accounted investment, unrealized gain on non-designated derivative instruments and realized loss on interest rate swaps, in each case related to our equity-accounted entities, on the basis of our ownership percentages of such entities. Neither Adjusted Equity-Accounted EBITDA nor Adjustments to Equity-Accounted EBITDA should be considered as an alternative to equity income or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjustments to Equity-Accounted EBITDA exclude some, but not all, items that affect equity income and these measures may vary among other companies. Therefore, Adjustments to Equity-Accounted EBITDA as presented in this Annual Report may not be comparable to similarly titled measures of the other companies.
(15)
Adjustments relating to equity income from our equity-accounted joint ventures are as follows:

7


(in thousands of U.S. Dollars)
 
Year Ended
December 31,
2018
 
Year Ended
December 31,
2017
 
Year Ended
December 31,
2016
 
Year Ended
December 31,
2015
 
Year Ended
December 31,
2014
Reconciliation of “Adjusted Equity-Accounted EBITDA” to “Equity Income”:
 
 
 
 
 
 
 
 
 
 
Equity income
 
53,546

 
9,789

 
62,307

 
84,171

 
115,478

Depreciation and amortization
 
52,883

 
54,453

 
52,095

 
48,702

 
45,885

Interest expense, net of interest income
 
69,186

 
51,442

 
39,849

 
37,376

 
36,916

Income tax (recovery) expense
 
(261
)
 
504

 
352

 
315

 
(155
)
Amortization of in-process revenue contracts
 
(3,847
)
 
(4,307
)
 
(5,482
)
 
(7,153
)
 
(8,295
)
Foreign currency exchange (gain) loss
 
(391
)
 
369

 
125

 
(527
)
 
(441
)
Write-down and loss (gain) on sales of vessels
 
257

 
5,500

 
4,861

 
1,228

 
(16,923
)
Gain on sale of equity-accounted investment (2)
 
(5,563
)
 
—

 
—

 
—

 
—

Unrealized gain on non-designated derivative instruments
 
(9,076
)
 
(7,491
)
 
(6,963
)
 
(10,945
)
 
(1,563
)
Realized loss on interest rate swaps
 
5,920

 
8,257

 
10,728

 
18,687

 
19,251

Adjustments to Equity-Accounted EBITDA
 
109,108


108,727


95,565


87,683

 
74,675

Adjusted Equity-Accounted EBITDA
 
162,654


118,516


157,872


171,854

 
190,153




8


RISK FACTORS
Some of the following risks relate principally to the industry in which we operate and to our business in general. Other risks relate principally to the securities market and to ownership of our common or preferred units. The occurrence of any of the events described in this section could materially and adversely affect our business, financial condition, operating results and ability to pay distributions on, and the trading price of, our common and preferred units.
We may not have sufficient cash from operations to enable us to pay distributions on our common and preferred units.
The amount of cash we can distribute on our common and preferred units principally depends upon the amount of cash we generate from our operations, which may fluctuate based on, among other things:

•
the rates we obtain from our charters;
•
the expiration of charter contracts;
•
the charterers' options to terminate charter contracts or repurchase vessels;
•
the level of our operating costs, such as the cost of crews and insurance;
•
the continued availability of LNG and LPG production, liquefaction and regasification facilities;
•
the number of unscheduled off-hire days for our fleet and the timing of, and number of days required for, scheduled dry docking of our vessels;
•
delays in the delivery of newbuildings and the beginning of payments under charters relating to those vessels;
•
prevailing global and regional economic and political conditions;
•
currency exchange rate fluctuations;
•
the effect of governmental regulations and maritime self-regulatory organization standards on the conduct of our business; and
•
limitation of obtaining cash distributions from joint venture entities due to similar restrictions within the joint venture entities.

The actual amount of cash we will have available for distribution also will depend on factors such as:

•
the level of capital expenditures we make, including for maintaining vessels, building new vessels, acquiring existing vessels and complying with regulations;
•
our debt service requirements and restrictions on distributions contained in our debt instruments;
•
fluctuations in our working capital needs;
•
our ability to make working capital borrowings, including to pay distributions to unitholders; and
•
the amount of any cash reserves, including reserves for future capital expenditures, anticipated future credit needs and other matters, established by Teekay GP L.L.C., our general partner (or our General Partner ), in its discretion.

The amount of cash we generate from our operations may differ materially from our profit or loss for the period, which will be affected by non-cash items. As a result of this and the other factors mentioned above, we may make cash distributions during periods when we record losses and may not make cash distributions during periods when we record net income.
Our ability to grow may be adversely affected by our cash distribution policy.
Our cash distribution policy, which is consistent with our partnership agreement, requires us to distribute each quarter all of our Available Cash (as defined in our partnership agreement, which takes into account cash reserves for, among other things, future capital expenditures and credit needs). Accordingly, our growth may not be as fast as businesses that reinvest their Available Cash to expand ongoing operations.

In determining the amount of cash available for distribution, the Board of Directors of our General Partner, which makes the determination on our behalf, approves the amount of cash reserves to set aside, including reserves for future maintenance capital expenditures, anticipated future credit needs, working capital and other matters. We also rely upon external financing sources, including commercial borrowings and proceeds from debt and equity offerings, to fund our capital expenditures. Accordingly, to the extent we do not have sufficient cash reserves or are unable to obtain financing, our cash distribution policy may significantly impair our ability to meet our financial needs or to grow.

Although global crude oil prices have experienced moderate recovery since falling from the highs reached in mid-2014, prices have not returned to those same highs. The decline in oil prices also contributed to depressed natural gas prices. Lower oil prices may negatively affect both the competitiveness of natural gas as a fuel for power generation and the market price of natural gas, to the extent that natural gas prices are benchmarked to the price of crude oil. These declines in energy prices, combined with other factors beyond our control, have adversely affected energy and master limited partnership capital markets and available sources of financing for our capital expenditures and debt repayment obligations. On November 13, 2018, our General Partner announced that quarterly common unit distributions would increase by

9


36 percent to $0.19 per unit, commencing with the first quarter of 2019 distribution to be paid in May 2019 as part of a balanced capital allocation strategy, however, our distribution policy is subject to certain restrictions and may be changed by the Board of Directors of our General Partner.
Our ability to repay or refinance our debt obligations and to fund our capital expenditures will depend on certain financial, business and other factors, many of which are beyond our control. To the extent we are unable to finance these obligations and expenditures with cash from operations or by issuing debt or equity securities, our ability to make cash distributions may be diminished or our financial leverage may increase, or our unitholders may be diluted. Our business may be adversely affected if we need to access other sources of funding.
To fund our existing and future debt obligations and capital expenditures, we will be required to use cash from operations, incur borrowings, and/or seek to access other financing sources. Our access to potential funding sources and our future financial and operating performance will be affected by prevailing economic conditions and financial, business, regulatory and other factors, many of which are beyond our control. If we are unable to access additional bank financing and generate sufficient cash flow to meet our debt, capital expenditure and other business requirements, we may be forced to take actions such as:

•
restructuring our debt;
•
seeking additional debt or equity capital;
•
selling assets;
•
reducing distributions;
•
reducing, delaying or cancelling our business activities, acquisitions, investments or capital expenditures; or
•
seeking bankruptcy protection.

Such measures might not be successful, available on acceptable terms or enable us to meet our debt, capital expenditure and other obligations. Some of such measures may adversely affect our business and reputation. In addition, our financing agreements may restrict our ability to implement some of these measures.

Use of cash from operations and possible future sale of certain assets will reduce cash available for distribution to unitholders. Our ability to obtain bank financing or to access the capital markets for future offerings may be limited by our financial condition at the time of any such financing or offering as well as by adverse market conditions. Even if we are successful in obtaining necessary funds, the terms of such financings could limit our ability to pay cash distributions to unitholders or operate our business as currently conducted. In addition, incurring additional debt may significantly increase our interest expense and financial leverage, and issuing additional equity securities may result in significant unitholder dilution and would increase the aggregate amount of cash required to maintain our quarterly distributions to unitholders.
We make substantial capital expenditures to maintain the operating capacity of our fleet, which reduce our cash available for distribution. In addition, each quarter our General Partner is required to deduct estimated maintenance capital expenditures from operating surplus, which may result in less cash available for distribution to unitholders than if actual maintenance capital expenditures were deducted.
We must make substantial capital expenditures to maintain, over the long term, the operating capacity of our fleet. These maintenance capital expenditures include capital expenditures associated with dry docking a vessel, modifying an existing vessel or acquiring a new vessel to the extent these expenditures are incurred to maintain the operating capacity of our fleet. These expenditures could increase as a result of changes in:

•
the cost of labor and materials;
•
customer requirements;
•
increases in the size of our fleet;
•
governmental regulations and maritime self-regulatory organization standards relating to safety, security or the environment; and
•
competitive standards.

In addition, our actual maintenance capital expenditures vary significantly from quarter-to-quarter based on, among other things, the number of vessels dry docked during that quarter. Certain repair and maintenance items are more efficient to complete while a vessel is in dry dock. Consequently, maintenance capital expenditures will typically increase in periods when there is an increase in the number of vessels dry docked. Our significant maintenance capital expenditures reduce the amount of cash we have available for distribution to our unitholders.

Our partnership agreement requires our General Partner to deduct estimated, rather than actual, maintenance capital expenditures from operating surplus (as defined in our partnership agreement) each quarter in an effort to reduce fluctuations in operating surplus. The amount of estimated maintenance capital expenditures deducted from operating surplus is subject to review and change by the conflicts committee of our General Partner’s Board of Directors at least once a year. In years when estimated maintenance capital expenditures are higher than actual maintenance capital expenditures – as we expect will be the case in the years we are not required to make expenditures for mandatory dry dockings – the amount of cash available for distribution to unitholders will be lower than if actual maintenance capital expenditures were

10


deducted from operating surplus. If our General Partner underestimates the appropriate level of estimated maintenance capital expenditures, we may have less cash available for distribution in future periods when actual capital expenditures begin to exceed our previous estimates.
We make substantial capital expenditures to expand the size of our fleet or gas business and generally are required to make significant installment payments for acquisitions of newbuilding vessels or for construction of receiving and regasification terminals prior to their delivery or completion and generation of revenue.
We make substantial capital expenditures to increase the size of our fleet or gas business. Please read “Item 5 – Operating and Financial Review and Prospects,” f or additional information about our newbuilding acquisitions. As at December 31, 2018, we had six LNG carrier newbuildings scheduled for delivery during 2019, and one LNG receiving and regasification terminal under construction scheduled for completion in 2019. The obligations of us and our equity-accounted joint ventures to purchase the newbuilding vessels is not conditional upon our or their ability to obtain financing for such purchases. In January 2019, we had $636 million of financing in place, including the sale-leaseback financing completed on the Yamal Spirit in January 2019 and our proportionate share of financings in our equity-accounted joint ventures, against $652 million related to our proportionate share of the estimated remaining cost for our newbuilding vessels and our LNG receiving and regasification terminal under construction as of December 31, 2018. Please read "Item 5 – Contractual Obligations and Contingencies."
Our substantial capital expenditures may reduce our cash available for distribution to our unitholders. Funding of any capital expenditures with debt may significantly increase our interest expense and financial leverage, and funding of capital expenditures by issuing additional equity securities may result in significant unitholder dilution. Our failure to obtain the funds for necessary future capital expenditures could have a material adverse effect on our business, results of operations and financial condition and on our ability to make cash distributions to unitholders.

We and Teekay Corporation regularly evaluate and pursue opportunities to provide the marine transportation requirements for new or expanding LNG and LPG projects. The award process relating to LNG transportation opportunities typically involves various stages and takes several months to complete. Neither we nor Teekay Corporation may be awarded charters relating to any of the projects we or it pursues. If any LNG project charters are awarded to Teekay Corporation, it must offer them to us pursuant to the terms of an omnibus agreement entered into in connection with our initial public offering. If we elect pursuant to the omnibus agreement to obtain Teekay Corporation’s interests in any projects Teekay Corporation may be awarded, or if we bid on and are awarded contracts relating to any LNG and LPG project, we will need to incur significant capital expenditures to buy Teekay Corporation’s interest in these LNG and LPG projects or to build the LNG and LPG carriers.

To fund the remaining portion of existing or future capital expenditures, we will be required to use cash from operations or incur borrowings or raise capital through the sale of debt or additional equity securities. Use of cash from operations will reduce cash available for distributions to unitholders. Our ability to obtain bank financing or to access the capital markets for future offerings may be limited by our financial condition at the time of any such financing or offering as well as by adverse market conditions resulting from, among other things, general economic conditions and contingencies and uncertainties that are beyond our control. Our failure to obtain the funds for future capital expenditures could have a material adverse effect on our business, results of operations and financial condition and on our ability to make cash distributions. Even if we are successful in obtaining necessary funds, the terms of such financings could limit our ability to pay distributions to our unitholders. In addition, incurring additional debt may significantly increase our interest expense and financial leverage, and issuing additional equity securities may result in significant unitholder dilution and would increase the aggregate amount of cash required to maintain our current level of quarterly distributions to unitholders, which could have a material adverse effect on our ability to make cash distributions.

In addition, although delivery of the completed vessel will not occur until much later (approximately two to three years from the time the order is placed), we typically must pay an initial installment up-front upon signing the purchase contract. During the construction period, we generally are required to make installment payments on newbuildings prior to their delivery, in addition to incurring financing, miscellaneous construction and project management costs, but we do not derive any income from the vessel until after its delivery. If we finance these payments by issuing debt or equity securities, we will increase the aggregate amount of interest or cash required to maintain our current level of quarterly distributions to unitholders prior to generating cash from the operation of the newbuilding.
Our substantial debt levels may limit our flexibility in obtaining additional financing, refinancing credit facilities upon maturity, pursuing other business opportunities and paying distributions.
As at December 31, 2018 , our consolidated debt, obligations related to capital leases and advances from affiliates totaled $3.3 billion and we had the capacity to borrow an additional $175.6 million under our revolving credit facilities. These facilities may be used by us for general partnership purposes. If we obtain debt financing for existing newbuilding orders or we are awarded contracts for new LNG or LPG projects, our consolidated debt and obligations related to capital leases will increase, perhaps significantly. We will continue to have the ability to incur additional debt, subject to limitations in our credit facilities. Our level of debt could have important consequences to us, including the following:

•
our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired, or such financing may not be available on favorable terms, if at all;
•
we will need a substantial portion of our cash flow to make principal and interest payments on our debt, reducing the funds that would otherwise be available for operations, future business opportunities and distributions to unitholders;
•
our debt level may make us more vulnerable than our competitors with less debt to competitive pressures or a downturn in our industry or the economy generally; and

11


•
our debt level may limit our flexibility in responding to changing business and economic conditions.

Our ability to service our debt and obligations related to capital leases depends upon, among other things, our future financial and operating performance, which is affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. If our operating results are not sufficient to service our current or future indebtedness or obligations related to capital leases, we will be forced to take actions such as further reducing distributions, reducing, canceling or delaying our business activities, acquisitions, investments or capital expenditures, selling assets, seeking to restructure or refinance our debt, seeking additional debt or equity capital or seeking bankruptcy protection. We may not be able to effect any of these remedies on satisfactory terms, or at all.
Financing agreements containing operating and financial restrictions may restrict our business and financing activities.
The operating and financial restrictions and covenants in our financing arrangements and any future financing agreements could adversely affect our ability to finance future operations or capital needs or to pursue and expand or pursue our business activities. For example, these financing arrangements may restrict our ability to:

•
incur or guarantee indebtedness;
•
change ownership or structure, including mergers, consolidations, liquidations and dissolutions;
•
make dividends or distributions when in default of the relevant loans;
•
make certain negative pledges and grant certain liens;
•
sell, transfer, assign or convey assets;
•
make certain investments; and
•
enter into new lines of business.

Some of our financing arrangements require us to maintain a minimum level of tangible net worth, to maintain certain ratios of vessel values as it relates to the relevant outstanding principal balance, to maintain a minimum level of aggregate liquidity, to maintain leverage below a maximum level and require certain of our subsidiaries to maintain restricted cash deposits. Please read "Item 5 – Operating and Financial Review and Prospects: Credit Facilities." Our ability to comply with covenants and restrictions contained in debt instruments may be affected by events beyond our control, including prevailing economic, financial and industry conditions. If market or other economic conditions deteriorate, compliance with these covenants may be impaired. If restrictions, covenants, ratios or tests in the financing agreements are breached, a significant portion or all of the obligations may become immediately due and payable, and the lenders’ commitment to make further loans may terminate. This could lead to cross-defaults under other financing agreements and result in obligations becoming due and commitments being terminated under such agreements. A default under financing agreements could also result in foreclosure on any of our vessels and other assets securing related loans.

Furthermore, the termination of any of our charter contracts by our customers could result in the repayment of the debt facilities to which the chartered vessels relate.

Restrictions in our debt agreements may prevent us from paying distributions.

The payment of principal and interest on our debt and obligations related to capital leases reduces cash available for distribution on our units. In addition, our financing agreements prohibit the payment of distributions upon the occurrence of the following events, among others:

•
failure to pay any principal, interest, fees, expenses or other amounts when due;
•
failure to notify the lenders of any material oil spill or discharge of hazardous material, or of any action or claim related thereto;
•
breach or lapse of any insurance with respect to vessels securing the facility;
•
breach of certain financial covenants;
•
failure to observe any other agreement, security instrument, obligation or covenant beyond specified cure periods in certain cases;
•
default under other indebtedness;
•
bankruptcy or insolvency events;
•
failure of any representation or warranty to be materially correct;
•
a change of control, as defined in the applicable agreement; or
•
a material adverse effect, as defined in the applicable agreement.
We derive a substantial majority of our revenues from a limited number of customers, and the loss of any customer, charter or vessel, or any adjustment to our charter contracts could result in a significant loss of revenues and cash flow.

12


We have derived, and believe that we will continue to derive, a significant portion of our revenues and cash flow from a limited number of customers. Please read “Item 18 – Financial Statements: Note 4 – Segment Reporting.”

We could lose a customer or the benefits of a time-charter if:

•
the customer fails to make charter payments because of its financial inability, disagreements with us or otherwise;
•
we agree to reduce the charter payments due to us under a charter because of the customer’s inability to continue making the original payments;
•
the customer exercises certain rights to terminate the charter, purchase or cause the sale of the vessel or, under some of our charters, convert the time-charter to a bareboat charter (some of which rights are exercisable at any time);
•
the customer terminates the charter because we fail to deliver the vessel within a fixed period of time, the vessel is lost or damaged beyond repair, there are serious deficiencies in the vessel or prolonged periods of off-hire, or we default under the charter; or
•
under some of our time-charters, the customer terminates the charter because of the termination of the charterer’s sales agreement or a prolonged force majeure event affecting the customer, including damage to or destruction of relevant facilities, war or political unrest preventing us from performing services for that customer.

In June 2017, we reached an agreement with Awilco to defer a portion of charter hire and extend the two LNG carrier bareboat charter contracts that were originally due to expire in November 2017 and August 2018 to December 2019, which would also include related purchase obligations on both vessels due at that time. However, there is no assurance that Awilco will be able to generate enough operating cash flows or have the ability to raise enough equity to pay for the charter hire deferrals and associated purchase obligations for the two LNG carriers. Further, two of the six MALT LNG Carriers in the Teekay LNG-Marubeni Joint Venture, the Marib Spirit and Arwa Spirit , are currently under long-term charter contracts with YLNG. Due to the political unrest in Yemen, YLNG decided to temporarily close operation of its LNG plant in Yemen in 2015. As a result, commencing January 1, 2016, the Teekay LNG-Marubeni Joint Venture agreed to successive deferral arrangements with YLNG pursuant to which a portion of the charter payments were deferred. Concurrent with the anticipated expiry of the most current deferral arrangement, which is expected to occur within the first half of 2019, the Teekay LNG-Marubeni Joint Venture intends to enter into a further agreement with YLNG pursuant to which the Teekay-LNG Marubeni Joint Venture and YLNG will suspend the two charter contracts for a period of up to three years. Should the LNG plant in Yemen resume operations during such suspended term, it is intended that YLNG will be required to repay the deferred amounts plus interest over a period of installments. However, there is no assurance if or when the LNG plant will resume operations and, accordingly, if YLNG will be able to repay all or any portion of the deferred amounts.

If we lose a key LNG time-charter, we may be unable to redeploy the related vessel on terms as favorable to us due to the long-term nature of most LNG time-charters and the lack of an established LNG spot market. If we are unable to redeploy a LNG carrier, we will not receive any revenues from that vessel, but we may be required to pay expenses necessary to maintain the vessel in proper operating condition. In addition, if a customer exercises its right to purchase a vessel, we would not receive any further revenue from the vessel and may be unable to obtain a substitute vessel and charter. This may cause us to receive decreased revenue and cash flows from having fewer vessels operating in our fleet. Any compensation under our charters for a purchase of the vessels may not adequately compensate us for the loss of the vessel and related time-charter.

If we lose a key conventional tanker customer, we may be unable to obtain other long-term conventional charters and may become subject to the volatile spot market, which is highly competitive and subject to significant price fluctuations. If a customer exercises its right under some charters to purchase or force a sale of the vessel, we may be unable to acquire an adequate replacement vessel or may be forced to construct a new vessel. Any replacement newbuilding would not generate revenues during its construction and we may be unable to charter any replacement vessel on terms as favorable to us as those of the terminated charter.

The loss of certain of our customers, time-charters or vessels, or a decline in payments under our charters, could have a material adverse effect on our business, results of operations and financial condition and our ability to make cash distributions to unitholders.
We depend on Teekay Corporation and certain of our joint venture partners to assist us in operating our business and competing in our markets.
Pursuant to certain services agreements between us and certain of our operating subsidiaries, on the one hand, and certain direct and indirect subsidiaries of Teekay Corporation and certain of our joint venture partners, on the other hand, the Teekay Corporation subsidiaries and certain of our joint venture partners provide to us various services including, in the case of operating subsidiaries, substantially all of their managerial, operational and administrative services (including vessel maintenance, crewing for some of our vessels, purchasing, shipyard supervision, insurance and financial services) and other technical and advisory services, and in the case of Teekay LNG Partners L.P., various administrative services. Our operational success and ability to execute our growth strategy depend significantly upon Teekay Corporation’s and certain of our joint venture partners’ satisfactory performance of these services. Our business will be harmed if Teekay Corporation or certain of our joint venture partners fail to perform these services satisfactorily or if Teekay Corporation or certain of our joint venture partners stop providing these services to us.

Our ability to compete for the transportation requirements of certain LNG and LPG projects, enter into new charter contracts, secure financings and expand our customer relationships depends in part on our ability to leverage our relationships with Teekay Corporation, our joint venture partners and their respective reputation and relationships in the shipping industry. If Teekay Corporation or certain of our joint venture partners suffer material damage to their reputation or relationships it may harm our ability to:

13



•
renew existing charters upon their expiration;
•
obtain new charters;
•
successfully interact with shipyards during periods of shipyard construction constraints;
•
obtain financing on commercially acceptable terms; or
•
maintain satisfactory relationships with our employees and suppliers.

If our ability to do any of the things described above is impaired, it could have a material adverse effect on our business, results of operations and financial condition and our ability to make cash distributions to unitholders.

Our operating subsidiaries may also contract with certain subsidiaries of Teekay Corporation and certain of our joint venture partners to have newbuildings constructed on behalf of our operating subsidiaries and to incur the construction-related financing. Our operating subsidiaries would purchase the vessels on or after delivery based on an agreed-upon price. None of our operating subsidiaries currently has this type of arrangement with Teekay Corporation or any of its affiliates or any joint venture partners.
Significant declines in natural gas and oil prices may adversely affect our growth prospects and results of operations.
Although global crude oil and gas prices have experienced moderate recovery since the highs of mid-2014, prices have not returned to those same highs and remain volatile due to global and regional geopolitical, economic and strategic risks and changes. A further decline in oil prices may adversely affect our business, results of operations and financial condition and our ability to make cash distributions, as a result of, among other things:

•
a reduction in exploration for or development of new natural gas reserves or projects, or the delay or cancellation of existing projects as energy companies lower their capital expenditures budgets, which may reduce our growth opportunities;
•
a reduction in both the competitiveness of natural gas as a fuel for power generation and the market price of natural gas, to the extent that natural gas prices are benchmarked to the price of crude oil;
•
lower demand for vessels of the types we own and operate, which may reduce available charter rates and revenue to us upon redeployment of our vessels following expiration or termination of existing contracts or upon the initial chartering of vessels, or which may result in extended periods of our vessels being idle between contracts;
•
customers potentially seeking to renegotiate or terminate existing vessel contracts, or failing to extend or renew contracts upon expiration, or seeking to negotiate cancelable contracts;
•
the inability or refusal of customers to make charter payments to us or to our joint ventures, due to financial constraints or otherwise; or
•
declines in vessel values, which may result in losses to us upon vessel sales or impairment charges against our earnings.
Our growth depends on continued growth in demand for LNG and LPG shipping.
Our growth strategy focuses on expansion in the LNG and LPG shipping sectors. Accordingly, our growth depends on continued growth in world and regional demand for LNG and LPG and marine transportation of LNG and LPG, as well as the supply of LNG and LPG. Demand for LNG and LPG and for the marine transportation of LNG and LPG could be negatively affected by a number of factors, such as:

•
increases in the cost of natural gas derived from LNG relative to the cost of natural gas generally;
•
increase in the cost of LPG relative to the cost of naphtha and other competing petrochemicals;
•
increases in the production of natural gas in areas linked by pipelines to consuming areas, the extension of existing, or the development of new, pipeline systems in markets we may serve, or the conversion of existing non-natural gas pipelines to natural gas pipelines in those markets;
•
decreases in the consumption of natural gas due to increases in its price relative to other energy sources or other factors making consumption of natural gas less attractive;
•
additional sources of natural gas, including shale gas;
•
availability of alternative energy sources; and
•
negative global or regional economic or political conditions, particularly in LNG and LPG consuming regions, which could reduce energy consumption or its growth.

Reduced demand for LNG and LPG shipping would have a material adverse effect on our future growth and could harm our business, results of operations and financial condition.
Changes in the LPG markets could result in decreased demand for our LPG vessels operating in the spot market.

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We have several LPG carriers that operate in the LPG spot market and are either owned by us or owned or chartered-in by Exmar LPG BVBA (or the Exmar LPG Joint Venture ), a joint venture entity formed pursuant to a joint venture agreement made in February 2013 between us and Belgium-based Exmar to own and charter-in LPG carriers with a primary focus on the mid-size gas carrier segment. The charters in the spot market operate for short durations and are priced on a current, or “spot,” market rate. The LPG spot market is volatile and fluctuates based upon the many conditions and events that affect the price, production and transport of LPG, including competition from alternative energy sources and negative global or regional economic or political conditions. Any adverse changes in the LPG markets may impact our ability to enter into economically beneficial charters when our LPG carriers complete their existing short-term charters in the LPG spot market, which may reduce vessel earnings and impact our operating results.
Future adverse economic conditions, including disruptions in the global credit markets, could adversely affect our business, financial condition, and results of operations.
Economic downturns and financial crises in the global markets could produce illiquidity in the capital markets, market volatility, increased exposure to interest rate and credit risks and reduced access to capital markets. If global financial markets and economic conditions significantly deteriorate in the future, we may face restricted access to the capital markets or bank lending, which may make it more difficult and costly to fund future growth. Decreased access to such resources could have a material adverse effect on our business, financial condition and results of operations.
Future adverse economic conditions or other developments may affect our customers’ ability to charter our vessels and pay for our services and may adversely affect our business and results of operations.
Future adverse economic conditions or other developments relating directly to our customers may lead to a decline in our customers’ operations or ability to pay for our services, which could result in decreased demand for our vessels and services. Our customers’ inability to pay for any reason could also result in their default on our current contracts and charters. The decline in the amount of services requested by our customers or their default on our contracts with them could have a material adverse effect on our business, financial condition and results of operations.
Growth of the LNG market may be limited by infrastructure constraints and community environmental group resistance to new LNG infrastructure over concerns about the environment, safety and terrorism.
A complete LNG project includes production, liquefaction, regasification, storage and distribution facilities and LNG carriers. Existing LNG projects and infrastructure are limited, and new or expanded LNG projects are highly complex and capital-intensive, with new projects often costing several billion dollars. Many factors could negatively affect continued development of LNG infrastructure or disrupt the supply of LNG, including:

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increases in interest rates or other events that may affect the availability of sufficient financing for LNG projects on commercially reasonable terms;
•
decreases in the price of LNG, which might decrease the expected returns relating to investments in LNG projects;
•
the inability of project owners or operators to obtain governmental approvals to construct or operate LNG facilities;
•
local community resistance to proposed or existing LNG facilities based on safety, environmental or security concerns;
•
any significant explosion, spill or similar incident involving an LNG facility or LNG carrier; and
•
labor or political unrest affecting existing or proposed areas of LNG production.

If the LNG supply chain is disrupted or does not continue to grow, or if a significant LNG explosion, spill or similar incident occurs, it could have a material adverse effect on our business, results of operations and financial condition and our ability to make cash distributions to unitholders.
Our growth depends on our ability to expand relationships with existing customers and obtain new customers, for which we will face substantial competition.
One of our principal objectives is to enter into additional long-term, fixed-rate LNG and LPG charters. The process of obtaining new long-term charters is highly competitive and generally involves an intensive screening process and competitive bids, and often extends for several months. Shipping contracts are awarded based upon a variety of factors relating to the vessel operator, including:

•
shipping industry relationships and reputation for customer service and safety;
•
shipping experience and quality of ship operations (including cost effectiveness);
•
quality and experience of seafaring crew;
•
the ability to finance carriers at competitive rates and financial stability generally;
•
relationships with shipyards and the ability to get suitable berths;
•
construction management experience, including the ability to obtain on-time delivery of new vessels according to customer specifications;

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•
willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter for force majeure events; and
•
competitiveness of the bid in terms of overall price.

We compete for providing marine transportation services for potential energy projects with a number of experienced companies, including state-sponsored entities and major energy companies affiliated with the energy project requiring energy shipping services. Many of these competitors have significantly greater financial resources than we do or Teekay Corporation does. We anticipate that an increasing number of marine transportation companies – including many with strong reputations and extensive resources and experience – will enter the energy transportation sector. This increased competition may cause greater price competition for time-charters. As a result of these factors, we may be unable to expand our relationships with existing customers or to obtain new customers on a profitable basis, if at all, which would have a material adverse effect on our business, results of operations and financial condition and our ability to make cash distributions to unitholders.
Delays in deliveries of newbuildings, or in conversions or upgrades of existing vessels, or construction of LNG receiving and regasification terminals could harm our operating results and lead to the termination of related contracts.
As at April 1, 2019, we had a total of four newbuilding vessels under construction and an LNG receiving and regasification terminal under construction. The delivery of newbuildings or vessel conversions or upgrades or construction of receiving and regasification terminals we may order or undertake or otherwise acquire, could be delayed, which would delay our receipt of revenues under the contracts for these assets. In addition, under some of our charters if delivery of a vessel to our customer is delayed, we may be required to pay liquidated damages in amounts equal to or, under some charters, almost double, the hire rate during the delay. For prolonged delays, the customer may terminate the time-charter and, in addition to the resulting loss of revenues, we may be responsible for additional, substantial liquidated damages.

Our receipt of newbuildings or of vessel conversions or upgrades, or completion of the construction of LNG receiving and regasification terminals could be delayed because of:

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quality or engineering problems;
•
changes in governmental regulations or maritime self-regulatory organization standards;
•
work stoppages or other labor disturbances at the shipyard or construction site;
•
bankruptcy or other financial crisis of the builder;
•
a backlog of orders at the shipyard;
•
political or economic disturbances where our vessels or terminals are being or may be built;
•
weather interference or catastrophic event, such as a major earthquake or fire;
•
our requests for changes to the original vessel specifications;
•
shortages of or delays in the receipt of necessary construction materials, such as steel;
•
our inability to finance the purchase or construction of the vessels or terminals; or
•
our inability to obtain requisite permits or approvals.

If delivery of a vessel or the completion of an LNG receiving and regasification terminal is materially delayed, it could adversely affect our results or operations and financial condition and our ability to make cash distributions to unitholders.
We may be unable to charter or recharter vessels at attractive rates, which may lead to reduced revenues and profitability.
Our ability to charter or recharter our LNG and LPG carriers upon the expiration or termination of their current time charters and the charter rates payable under any renewal or replacement charters depend upon, among other things, the then current states of the LNG and LPG carrier markets. As of December 31, 2018, in our liquefied natural gas and liquified petroleum gas operating fleet, including the Magellan Spirit chartered-in from the Teekay LNG-Marubeni Joint Venture, we had zero and eight vessels, respectively, that were unchartered or trading in the spot market; we had four and 11 vessels, respectively, with charters scheduled to expire in 2019, excluding extension options; and two and five vessels, respectively, with charters scheduled to expire in 2020, excluding extension options. If charter rates are low when existing time charters expire, we may be required to recharter our vessels at reduced rates or even possibly at a rate whereby we incur a loss, which would harm our results of operations. Alternatively, we may determine to leave such vessels off-charter. The size of the current orderbooks for LNG carriers and LPG carriers is expected to result in the increase in the size of the world LNG and LPG fleets over the next few years. An over-supply of vessel capacity, combined with stability or any decline in the demand for LNG or LPG carriers, may result in a reduction of charter hire rates.
We may have more difficulty entering into long-term, fixed-rate LNG time-charters if the active short-term, medium-term or spot LNG shipping markets continue to develop.
LNG shipping historically has been transacted with long-term, fixed-rate time-charters, usually with terms ranging from 20 to 25 years. One of our principal strategies is to enter into additional long-term, fixed-rate LNG time-charters. In recent years, the amount of LNG traded on a

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spot and short-term basis (defined as contracts with a duration of 4 years or less) has been increasing. In 2018, spot and short-term trades accounted for approximately 30% of global LNG trade.

If the active spot, short-term or medium-term markets continue to develop, we may have increased difficulty entering into long-term, fixed-rate time-charters for our LNG carriers and, as a result, our cash flow may decrease and be less stable. In addition, an active short-term, medium-term or spot LNG market may require us to enter into charters based on changing market prices, as opposed to contracts based on a fixed rate, which could result in a decrease in our cash flow in periods when the market price for shipping LNG is depressed.
Over time, the value of our vessels may decline, which could adversely affect our operating results.
Vessel values for LNG and LPG carriers and conventional tankers can fluctuate substantially over time due to a number of different factors, including:

•
prevailing economic conditions in natural gas, oil and energy markets;
•
a substantial or extended decline in demand for natural gas, LNG, LPG or oil;
•
competition from more technologically advanced vessels;
•
increases in the supply of vessel capacity; and
•
the cost of retrofitting or modifying existing vessels, as a result of technological advances in vessel design or equipment, changes in applicable environmental or other regulation or standards, or otherwise.

Vessel values may decline from existing levels. If the operation of a vessel is not profitable, or if we cannot redeploy a chartered vessel at attractive rates upon charter termination, rather than continue to incur costs to maintain and finance the vessel, we may seek to dispose of it. Our inability to dispose of the vessel at a fair market value or the disposal of the vessel at a fair market value that is lower than its book value could result in a loss on its sale and adversely affect our results of operations and financial condition. Further, if we determine at any time that a vessel’s future useful life and earnings require us to impair its value on our financial statements, we may need to recognize a significant charge against our earnings.
We have recognized vessel and goodwill write-downs in the past and we may recognize additional write-downs in the future, which will reduce our earnings and net assets.
If we determine at any time that a vessel’s value or goodwill has been impaired, we may need to recognize an impairment charge that will reduce our earnings and net assets. We review our vessels for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable, which occurs when an asset's carrying value is greater than the estimated undiscounted future cash flows the asset is expected to generate over its remaining useful life. We review our goodwill for impairment annually and if a reporting unit's goodwill carrying value is greater than the estimated fair value, the goodwill attributable to that reporting unit is impaired.

A reduction in our net assets could result in a breach of certain financial covenants contained in our credit agreements, which could limit our ability to borrow additional funds under our credit facilities or require us to repay outstanding amounts. This could harm our business, results of operations, financial condition, ability to raise capital or ability to pay distributions.

For the write-downs that occurred during 2018, please read "Item 5 – Operating and Financial Review and Prospects: Management's Discussion and Analysis of Financial Condition and Results of Operations – Year Ended December 31, 2018 versus Year Ended December 31, 2017", "Item 18 – Financial Statements: Note 8 – Intangible Assets and Goodwill" and "Note 19 – Write-Down and Loss on Sales of Vessels."
Increased technological innovation in vessel design or equipment could reduce our charter hire rates and the value of our vessels.
The charter hire rates and the value and operational life of a vessel are determined by a number of factors, including the vessel’s efficiency, operational flexibility and physical life. Efficiency includes speed, fuel economy and the ability for LNG or LPG to be loaded and unloaded quickly. More efficient vessel designs, engines or other features may increase overall vessel efficiency. Flexibility includes the ability to access LNG and LPG storage facilities, utilize related docking facilities and pass through canals and straits. Physical life is related to the original design and construction, maintenance and the impact of the stress of operations. If new LNG or LPG carriers are built that are more efficient or flexible or have longer physical lives than our vessels, competition from these more technologically advanced LNG or LPG carriers could reduce recharter rates available to our vessels and the resale value of the vessels. As a result, our business, results of operations and financial condition could be harmed.
Actual results of new technologies or technologies upgrades may differ from expected results and affect our results of operations.
We have invested and are investing in technology upgrades such as MEGI twin engines and other equipment and designs for certain LNG carrier newbuildings, including, among other things, to improve fuel efficiency and vessel performance. These new engine designs and other equipment may not perform to expectations, which may result in performance issues or claims based on failure to achieve specification included in charter party agreements. Actual fuel consumption for our MEGI LNG carriers exceeds specified levels in certain charter party agreements, which may result in reimbursement by us to the charterer for the cost of the excess fuel consumed. The amount of the reimbursements generally will increase to the extent fuel prices increase, including as a result of the IMO 2020 regulations that will take effect

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January 1, 2020 and limit Sulphur content in vessel fuel oils. We are considering installing additional equipment to lower fuel consumption on these vessels and taking action against the shipbuilders for failure to deliver vessels that meet anticipated levels of fuel efficiency. Continued reimbursement obligations or unrecovered capital expenditures could harm our results of operations or financial condition.
We or our joint venture partners may be unable to deliver or operate an LNG receiving and regasification terminal.
We have contracted the construction of an LNG regasification and receiving terminal in Bahrain in which we will have a 30% ownership interest (please read “Item 18 – Financial Statements: Note 7a(i) – Equity-Accounted Investments”). We or our joint venture partners may be unable to operate a LNG receiving and regasification terminal properly, which could reduce the expected output of this terminal. As a result, our business, results of operations and financial condition could be harmed.
Climate change and greenhouse gas restrictions may adversely impact our operations and markets.
Due to concern over the risk of climate change, a number of countries have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions. These regulatory measures include, among others, adoption of cap and trade regimes, carbon taxes, increased efficiency standards, and incentives or mandates for renewable energy. Compliance with changes in laws, regulations and obligations relating to climate change could increase our costs related to operating and maintaining our vessels and require us to install new emission controls, acquire allowances or pay taxes related to our greenhouse gas emissions, or administer and manage a greenhouse gas emissions program. Revenue generation and strategic growth opportunities may also be adversely affected.
Adverse effects upon the oil and gas industry relating to climate change may also adversely affect demand for our services. Although we do not expect that demand for oil and gas will lessen dramatically over the short term, in the long term, climate change may reduce the demand for oil and gas or increased regulation of greenhouse gases may create greater incentives for use of alternative energy sources. Any long-term material adverse effect on the oil and gas industry could have a significant financial and operational adverse impact on our business that we cannot predict with certainty at this time.
We may be unable to make or realize expected benefits from acquisitions, and implementing our growth strategy through acquisitions may harm our business, financial condition and operating results.
Our growth strategy includes acquiring existing LNG and LPG carriers or LNG and LPG shipping businesses as the opportunities arise. Historically, there have been very few purchases of existing vessels and businesses in the LNG and LPG shipping industries. Factors that may contribute to a limited number of acquisition opportunities in the LNG and LPG shipping industries in the near term include the relatively small number of independent LNG and LPG fleet owners and the limited number of LNG and LPG carriers not subject to existing long-term charter contracts. In addition, competition from other companies could reduce our acquisition opportunities or cause us to pay higher prices.

Any acquisition of a vessel or business may not be profitable to us at or after the time we acquire it and may not generate cash flow sufficient to justify our investment. In addition, our acquisition growth strategy exposes us to risks that may harm our business, financial condition and operating results, including risks that we may:

•
fail to realize anticipated benefits, such as new customer relationships, cost-savings or cash flow enhancements;
•
be unable to hire, train or retain qualified shore and seafaring personnel to manage and operate our growing business and fleet;
•
decrease our liquidity by using a significant portion of our available cash or borrowing capacity to finance acquisitions;
•
significantly increase our interest expense or financial leverage if we incur additional debt to finance acquisitions;
•
incur or assume unanticipated liabilities, losses or costs associated with the business or vessels acquired; or
•
incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges.

Unlike newbuildings, existing vessels typically do not carry warranties as to their condition. While we generally inspect existing vessels prior to purchase, such an inspection would normally not provide us with as much knowledge of a vessel’s condition as we would possess if it had been built for us and operated by us during its life. Repairs and maintenance costs for existing vessels are difficult to predict and may be substantially higher than for vessels we have operated since they were built. These costs could decrease our cash flow and reduce our liquidity.
Marine transportation is inherently risky, and an incident involving significant loss of or environmental contamination by any of our vessels could harm our reputation and business.
Our vessels, crew and cargoes are at risk of being damaged, injured or lost because of events such as:

•
marine disasters;
•
bad weather or natural disasters;
•
mechanical failures;
•
grounding, fire, explosions and collisions;

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•
piracy (hijacking and kidnapping);
•
cyber attack;
•
human error; and
•
war and terrorism.

An accident involving any of our vessels could result in any of the following:

•
death or injury to persons, loss of property or environmental damage;
•
delays in the delivery of cargo;
•
loss of revenues from or termination of charter contracts;
•
governmental fines, penalties or restrictions on conducting business;
•
higher insurance rates; and
•
damage to our reputation and customer relationships generally.
Any of these results could have a material adverse effect on our business, financial condition and operating results. In addition, any damage to, or environmental contamination involving, oil production facilities serviced by our vessels could result in the suspension or curtailment of operations by our customer, which would in turn result in loss of revenues.
Our insurance may be insufficient to cover losses that may occur to our property or result from our operations.
The operation of LNG and LPG carriers and oil tankers is inherently risky. Although we carry hull and machinery (marine and war risks) and protection and indemnity insurance, all risks may not be adequately insured against, and any particular claim may not be paid. In addition, only certain of our LNG and LPG carriers carry insurance covering the loss of revenues resulting from vessel off-hire time based on its cost compared to our off-hire experience. Any significant off-hire time of our vessels could harm our business, operating results and financial condition. Any claims covered by insurance would be subject to deductibles, and since it is possible that a large number of claims may be brought, the aggregate amount of these deductibles could be material. Certain of our insurance coverage is maintained through mutual protection and indemnity associations, and as a member of such associations we may be required to make additional payments over and above budgeted premiums if member claims exceed association reserves.

We may be unable to procure adequate insurance coverage at commercially reasonable rates in the future. For example, more stringent environmental regulations have led in the past to increased costs for, and in the future may result in the lack of availability of, insurance against risks of environmental damage or pollution. A catastrophic oil spill, marine disaster or natural disasters could result in losses that exceed our insurance coverage, which could harm our business, financial condition and operating results. Any uninsured or underinsured loss could harm our business and financial condition. In addition, our insurance may be voidable by the insurers as a result of certain of our actions, such as our ships failing to maintain certification with applicable maritime regulatory organizations.

Changes in the insurance markets attributable to terrorist attacks or political change may also make certain types of insurance more difficult for us to obtain. In addition, the insurance that may be available may be significantly more expensive than our existing coverage.
Our and many of our customers’ substantial operations outside the United States expose us and them to political, governmental and economic instability, which could harm our operations.
Because our operations, and the operations of certain of our customers, are primarily conducted outside of the United States, they may be affected by economic, political and governmental conditions in the countries where we and they engage in business. Any disruption caused by these factors could harm our business or the business of these customers, including by reducing the levels of oil and gas exploration, development and production activities in these areas. We derive some of our revenues from shipping oil, LNG and LPG from politically and economically unstable regions, such as Angola and Yemen. Hostilities, strikes, or other political or economic instability in regions where we or these customers operate or where we or they may operate could have a material adverse effect on the growth of our business, results of operations and financial condition and ability to make cash distributions, or on the ability of these customers to make payments or otherwise perform their obligations to us. In addition, tariffs, trade embargoes and other economic sanctions by the United States or other countries against countries in which we operate or to which we trade may harm our business and ability to make cash distributions and a government could requisition one or more of our vessels, which is most likely during war or national emergency. Any such requisition would cause a loss of the vessel and could harm our cash flow and financial results. Please see above relating to our two vessels chartered out to YLNG “Item 3 – Risk Factors: We derive a substantial majority of our revenues from a limited number of customers, and the loss of any customer, charter or vessel, or any adjustment to our charter contracts could result in a significant loss of revenues and cash flow .”
Terrorist attacks, increased hostilities, political change or war could lead to further economic instability, increased costs and disruption of our business.
Terrorist attacks, the current conflicts in the Middle East, South East Asia, West Africa (Nigeria), Libya and elsewhere, and political change, may adversely affect our business, operating results, financial condition, ability to raise capital and future growth. Continuing hostilities in the

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Middle East, especially among Qatar, Saudi Arabia, UAE, Yemen and elsewhere may lead to additional armed conflicts or to further acts of terrorism and civil disturbance in the United States, or elsewhere, which may contribute to economic instability and disruption of LNG, LPG and oil production and distribution, which could result in reduced demand for our services or impact on our operations and or our ability to conduct business.

In addition, LNG, LPG and oil facilities, shipyards, vessels, pipelines and oil and gas fields could be targets of future terrorist attacks and warlike operations and our vessels could be targets of hijackers, terrorists or warlike operations. Any such attacks could lead to, among other things, bodily injury or loss of life, vessel or other property damage, increased vessel operational costs, including insurance costs, and the inability to transport LNG, LPG and oil to or from certain locations. Terrorist attacks, war, hijacking or other events beyond our control that adversely affect the distribution, production or transportation of LNG, LPG or oil to be shipped by us could entitle our customers to terminate our charter contracts, which would harm our cash flow and our business.

Terrorist attacks, or the perception that LNG or LPG facilities and carriers are potential terrorist targets, could materially and adversely affect expansion of LNG and LPG infrastructure and the continued supply and export of LNG and LPG involving the United States and other countries. Concern that LNG or LPG facilities may be targeted for attack by terrorists, as well as environmental concerns, has contributed to significant community resistance to the construction of a number of LNG or LPG facilities, primarily in North America. If a terrorist incident involving a LNG or LPG facility or LNG or LPG carrier did occur, in addition to the possible effects identified in the previous paragraph, the incident may adversely affect construction of additional LNG or LPG facilities in the United States and other countries or lead to the temporary or permanent closing of various LNG or LPG facilities currently in operation.
Acts of piracy on ocean-going vessels continue to be a risk, which could adversely affect our business.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea, Gulf of Guinea and the Indian Ocean off the coast of Somalia. While there continues to be a significant risk of piracy in the Gulf of Aden and Indian Ocean, recently there have been increases in the frequency and severity of piracy incidents off the coast of West Africa and a resurgent piracy risk in the Straits of Malacca, Sulu and Celebes Sea and surrounding waters. If these piracy attacks result in regions in which our vessels are deployed being named on the Joint War Committee Listed Areas, war risk insurance premiums payable for such coverage may increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew costs, including costs which may be incurred to the extent we employ on-board armed security guards and escort vessels, could increase in such circumstances. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, hijacking as a result of an act of piracy against our vessels, or an increase in cost or unavailability of insurance for our vessels, could have a material adverse impact on our business, financial condition and results of operations.
A cyber-attack could materially disrupt our business
We rely on information technology systems and networks in our operations and the administration of our business. Cyber-attacks have increased in number and sophistication in recent years. Our operations could be targeted by individuals or groups seeking to sabotage or disrupt our information technology systems and networks, or to steal data. A successful cyber-attack could materially disrupt our operations, including the safety of our operations, or lead to unauthorized release of information or alteration of information on our systems. Any such attack or other breach of our information technology systems could have a material adverse effect on our business and results of operations.
Our failure to comply with data privacy laws could damage our customer relationships and expose us to litigation risks and potential fines.
Data privacy is subject to frequently changing rules and regulations, which sometimes conflict among the various jurisdictions and countries in which we provide services and continue to develop in ways which we cannot predict, including with respect to evolving technologies such as cloud computing. The European Union has adopted the General Data Privacy Regulation (or GDPR ), a comprehensive legal framework to govern data collection, use and sharing and related consumer privacy rights which took effect in May 2018. The GDPR includes significant penalties for non-compliance. Our failure to adhere to or successfully implement processes in response to changing regulatory requirements in this area could result in legal liability or impairment to our reputation in the marketplace, which could have a material adverse effect on our business, financial condition and results of operations.
The ARC7 LNG carrier newbuildings for the Yamal LNG Project are customized vessels and our financial condition, results of operations and ability to make distributions on our units could be substantially affected if the Yamal LNG Project is abandoned.
On July 9, 2014, the Yamal LNG Joint Venture ordered six internationally-flagged icebreaker LNG carriers for a project located on the Yamal Peninsula in Northern Russia (or the Yamal LNG Project ), two of which newbuilding carriers delivered in 2018. The Yamal LNG Project is a joint venture between Russia-based Novatek OAO (or Novatek ) ( 50.1% ), France-based Total S.A. ( 20% ), China-based China National Petroleum Corporation ( 20% ) and Silk Road Fund ( 9.9% ).

The four remaining ARC7 LNG carrier newbuildings ordered by the Yamal LNG Joint Venture, which are scheduled for delivery during the remainder of 2019, are being specifically built for the Arctic requirements of the Yamal LNG Project and will have limited redeployment opportunities to operate as conventional trading LNG carriers if the project is abandoned or cancelled. If the project is abandoned or cancelled after commencement of operations, the Yamal LNG Joint Venture may be unable to reach an agreement with the shipyard allowing for the termination of the shipbuilding contracts (since no such optional termination right exists under these contracts), change the vessel specifications

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to reflect those applicable to more conventional LNG carriers and which do not incorporate ice-breaking capabilities, or find suitable alternative employment for the newbuilding vessels on a long-term basis with other LNG projects or otherwise.

The Yamal LNG Project may be abandoned for various reasons, including, among others:

•
failure to achieve expected operating results;
•
changes in demand for LNG;
•
adverse changes in Russian regulations or governmental policy relating to the project or the export of LNG;
•
technical challenges of completing and operating the complex project, particularly in extreme Arctic conditions;
•
labor disputes; or
•
environmental regulations or potential claims.

If the project is abandoned, proceeds if any, received from limited Yamal LNG project sponsor guarantees and potential alternative employment, if any, of the vessels and from potential sales of components and scrapping of the vessels likely would fall substantially short of the cost of the vessels to the Yamal LNG Joint Venture. Any such shortfall could have a material adverse effect on our financial condition, results of operations and ability to make cash distributions to unitholders.
Sanctions against key participants in the Yamal LNG Project could impede completion or performance of the Yamal LNG Project, which could have a material adverse effect on us.
The U.S. Treasury Department’s Office of Foreign Assets Control (or OFAC ) placed Russia-based Novatek, a 50.1% owner of the Yamal LNG Project, on the Sectoral Sanctions Identifications List. OFAC also previously imposed sanctions on an investor in Novatek and these sanctions also remain in effect. The current restrictions on Novatek prohibit U.S. persons (and their subsidiaries) from participating in debt financing transactions of greater than 60 days maturity with Novatek and, by virtue of Novatek’s 50.1% ownership interest, the Yamal LNG Project. The European Union also imposed certain sanctions on Russia. These sanctions require a European Union license or authorization before a party can provide certain technologies or technical assistance, financing, financial assistance, or brokering with regard to these technologies. However, the technologies being currently sanctioned by the EU appear to focus on oil exploration projects, not gas projects. In addition, OFAC and other governments or organizations may impose additional sanctions on Novatek, the Yamal LNG Project or other project participants, which may further hinder the ability of the Yamal LNG Project to receive necessary financing. Although we believe that we are in compliance with all applicable sanctions, laws and regulations, and intend to maintain such compliance, the scope of these sanctions laws may be subject to change. Future sanctions may prohibit the Yamal LNG Joint Venture from performing under its contracts with the Yamal LNG Project, which could have a material adverse effect on our financial condition, results of operations and ability to make cash distributions on our units.
Failure of the Yamal LNG Project to achieve expected results could lead to a default under the time-charter contracts by the charter party.
The charter party under the Yamal LNG Joint Venture’s time-charter contracts for the Yamal LNG Project is Yamal Trade Pte. Ltd., a wholly-owned subsidiary of Yamal LNG, the project’s sponsor. If the Yamal LNG Project does not achieve expected results, the risk of charter party default may increase. Any such default could adversely affect our results of operations and ability to make cash distributions on our units. If the charter party defaults on the time-charter contracts, we may be unable to redeploy the vessels under other time-charter contracts or may be forced to scrap the vessels.

We assume credit risk by entering into agreements with unrated entities.
Some of our vessels are chartered to unrated entities and some of these unrated entities will use revenue generated from the sale of the shipped gas to pay their shipping and other operating expenses, including the charter fees. The price of the gas may be subject to market fluctuations and the LNG supply may be curtailed by start-up delays and stoppages. If the revenue generated by the charterer is insufficient to pay the charter fees, we may be unable to realize the expected economic benefit from these charter agreements. In addition, some of our financing related to certain of our LNG carrier newbuildings are with unrated entities. Any inability of these entities to meet their obligations under the financing arrangements, could have an adverse effect on our liquidity and potentially delay the deliveries of certain of our LNG carrier newbuildings.

The marine energy transportation industry is subject to substantial environmental and other regulations, which may significantly limit our operations or increase our expenses.
Our operations are affected by extensive and changing international, national and local environmental protection laws, regulations, treaties and conventions in force in international waters, the jurisdictional waters of the countries in which our vessels operate, as well as the countries of our vessels’ registration, including those governing oil spills, discharges to air and water, and the handling and disposal of hazardous substances and wastes. Many of these requirements are designed to reduce the risk of oil spills and other pollution. In addition, we believe that the heightened environmental, quality and security concerns of insurance underwriters, regulators and charterers will lead to additional regulatory requirements, including enhanced risk assessment and security requirements and greater inspection and safety requirements on

21


vessels. We expect to incur substantial expenses in complying with these laws and regulations, including expenses for vessel modifications and changes in operating procedures.

These requirements can affect the resale value or useful lives of our vessels, require a reduction in cargo capacity, ship modifications or operational changes or restrictions, lead to decreased availability of insurance coverage for environmental matters or result in the denial of access to certain jurisdictional waters or ports, or detention in certain ports. Under local, national and foreign laws, as well as international treaties and conventions, we could incur material liabilities, including cleanup obligations, in the event that there is a release of petroleum or other hazardous substances from our vessels or otherwise in connection with our operations. We could also become subject to personal injury or property damage claims relating to the release of or exposure to hazardous materials associated with our operations. In addition, failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations, including, in certain instances, seizure or detention of our vessels. For further information about regulations affecting our business and related requirements on us, please read “Item 4 – Information on the Partnership: B. Operations - Regulations.”

Exposure to currency exchange rate fluctuations will result in fluctuations in our cash flows and operating results.
We are paid in Euros under some of our charters, and certain of our vessel operating expenses and general and administrative expenses currently are denominated in Euros, which is primarily a function of the nationality of our crew and administrative staff. We also make payments under two Euro-denominated term loans. If the amount of our Euro-denominated obligations exceeds our Euro-denominated revenues, we must convert other currencies, primarily the U.S. Dollar, into Euros. An increase in the strength of the Euro relative to the U.S. Dollar would require us to convert more U.S. Dollars to Euros to satisfy those obligations, which would cause us to have less cash available for distribution to unitholders. In addition, if we do not have sufficient U.S. Dollars, we may be required to convert Euros into U.S. Dollars for distributions to unitholders. An increase in the strength of the U.S. Dollar relative to the Euro could cause us to have less cash available for distribution in this circumstance. We have not entered into currency swaps or forward contracts or similar derivatives to mitigate this risk.

Because we report our operating results in U.S. Dollars, changes in the value of the U.S. Dollar relative to the Euro and Norwegian Kroner also result in fluctuations in our reported revenues and earnings. In addition, under U.S. accounting guidelines, all foreign currency-denominated monetary assets and liabilities such as cash and cash equivalents, accounts receivable, restricted cash, accounts payable, accrued liabilities, advances from affiliates and long-term debt, are revalued and reported based on the prevailing exchange rate at the end of the period. This revaluation historically has caused us to report significant unrealized foreign currency exchange gains or losses each period. The primary source for these gains and losses is our Euro-denominated term loans and our Norwegian Kroner-denominated (or NOK ) bonds.
Exposure to interest rate fluctuations will result in fluctuations in our cash flows and operating results.
We are exposed to the impact of interest rate changes primarily through our borrowings that require us to make interest payments based on LIBOR, EURIBOR or NIBOR. Significant increases in interest rates could adversely affect our operating margins, results of operations and our ability to service our debt. In addition, there is uncertainty as to the continued use of LIBOR in the future. LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. These reforms and other pressures may cause LIBOR to be eliminated or to perform differently than in the past. The consequences of these developments cannot be entirely predicted but could include an increase in the cost of our variable rate indebtedness and obligations. In accordance with our risk management policy, we use interest rate swaps to reduce our exposure to market risk from changes in interest rates. The principal objective of these contracts is to minimize the risks and costs associated with our floating-rate debt.

In addition, we are exposed to credit loss in the event of non-performance by the counterparties to the interest rate swap agreements. For further information about our financial instruments at December 31, 2018 , that are sensitive to changes in interest rates, please read "Item 11 – Quantitative and Qualitative Disclosures About Market Risk."
Many of our seafaring employees are covered by collective bargaining agreements and the failure to renew those agreements or any future labor agreements may disrupt our operations and adversely affect our cash flows.
A significant portion of our seafarers, and the seafarers employed by Teekay Corporation and its other affiliates that crew some of our vessels, are employed under collective bargaining agreements. While some of our labor agreements have recently been renewed, crew compensation levels under future collective bargaining agreements may exceed existing compensation levels, which would adversely affect our results of operations and cash flows. We may be subject to labor disruptions in the future if our relationships deteriorate with our seafarers or the unions that represent them. Our collective bargaining agreements may not prevent labor disruptions, particularly when the agreements are being renegotiated. Any labor disruptions could harm our operations and could have a material adverse effect on our business, results of operations and financial condition and our ability to make cash distributions to unitholders.
Teekay Corporation and certain of our joint venture partners may be unable to attract and retain qualified, skilled employees or crew necessary to operate our business, or may have to pay substantially increased costs for its employees and crew.
Our success depends in large part on Teekay Corporation’s and certain of our joint venture partners’ ability to attract and retain highly skilled and qualified personnel. In crewing our vessels, we require technically skilled employees with specialized training who can perform physically demanding work. The ability to attract and retain qualified crew members under a competitive industry environment continues to put upward pressure on crew manning costs.


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If we are not able to increase our charter rates to compensate for any crew cost increases, our financial condition and results of operations may be adversely affected. Any inability we experience in the future to hire, train and retain a sufficient number of qualified employees could impair our ability to manage, maintain and grow our business.
Due to our lack of diversification, adverse developments in our LNG or LPG marine transportation businesses could reduce our ability to make distributions to our unitholders.
We rely exclusively on the cash flow generated from our LNG and LPG carriers that operate in the LNG or LPG transportation businesses. Due to our lack of diversification, an adverse development in the LNG or LPG shipping industry would have a significantly greater impact on our financial condition and results of operations than if we maintained more diverse assets or lines of business.
Teekay Corporation and its affiliates may engage in competition with us.
Teekay Corporation and its affiliates and joint ventures, including its equity-accounted investee, Teekay Offshore Partners L.P. (or Teekay Offshore ), may engage in competition with us. Pursuant to an omnibus agreement between Teekay Corporation, Teekay Offshore, us and other related parties, Teekay Corporation, Teekay Offshore and their respective controlled affiliates (other than us and our subsidiaries) generally have agreed not to own, operate or charter LNG carriers without the consent of our General Partner. The omnibus agreement, however, allows Teekay Corporation, Teekay Offshore or any of such controlled affiliates to:
 
•
acquire LNG carriers and related time-charters as part of a business if a majority of the value of the total assets or business acquired is not attributable to the LNG carriers and time-charters, as determined in good faith by the Board of Directors of Teekay Corporation or the Board of Directors of Teekay Offshore’s general partner; however, if at any time Teekay Corporation or Teekay Offshore completes such an acquisition, it must offer to sell the LNG carriers and related time-charters to us for their fair market value plus any additional tax or other similar costs to Teekay Corporation or Teekay Offshore that would be required to transfer the LNG carriers and time-charters to us separately from the acquired business; or
•
own, operate and charter LNG carriers that relate to a bid or award for an LNG project that Teekay Corporation or any of its subsidiaries submits or receives; however, at least 180 days prior to the scheduled delivery date of any such LNG carrier, Teekay Corporation must offer to sell the LNG carrier and related time-charter to us, with the vessel valued at its “fully-built-up cost,” which represents the aggregate expenditures incurred (or to be incurred prior to delivery to us) by Teekay Corporation to acquire or construct and bring such LNG carrier to the condition and location necessary for our intended use, plus a reasonable allocation of overhead costs related to the development of such a project and other projects that would have been subject to the offer rights set forth in the omnibus agreement but were not completed.

If we decline the offer to purchase the LNG carriers and time-charters described above, Teekay Corporation or Teekay Offshore may own and operate the LNG carriers, but may not expand that portion of its business.

In addition, pursuant to the omnibus agreement, Teekay Corporation, Teekay Offshore or any of their respective controlled affiliates (other than us and our subsidiaries) may:

•
acquire, operate or charter LNG carriers if our General Partner has previously advised Teekay Corporation or Teekay Offshore that the Board of Directors of our General Partner has elected, with the approval of its conflicts committee, not to cause us or our subsidiaries to acquire or operate the carriers;
•
acquire up to a 9.9% equity ownership, voting or profit participation interest in any publicly traded company that owns or operates LNG carriers; and
•
provide ship management services relating to LNG carriers.

During 2018, there was a change in control of Teekay Offshore, which gives Teekay Offshore the right to elect to terminate the omnibus agreement. T ermination of the omnibus agreement could have an adverse effect on our business, results of operations and financial condition and our ability to make cash distributions to unitholders. We have not received any indication from Teekay Offshore that it intends to terminate the omnibus agreement.
Our General Partner and its other affiliates own a controlling interest in us and have conflicts of interest and limited fiduciary duties, which may permit them to favor their own interests to those of unitholders.
Teekay Corporation, which owns and controls our General Partner, indirectly owns our 2% general partner interest and as at December 31, 2018 owned 31.8% of our common units. T he directors and officers of our General Partner have a fiduciary duty to manage our General Partner in a manner beneficial to Teekay Corporation. Furthermore, certain directors and officers of our General Partner are directors or officers of affiliates of our General Partner . Conflicts of interest may arise between Teekay Corporation and its affiliates, including our General Partner, on the one hand, and us and our unitholders, on the other hand. As a result of these conflicts, our General Partner may favor its own interests and the interests of its affiliates over the interests of our unitholders. These conflicts include, among others, the following situations:

•
neither our partnership agreement nor any other agreement requires our General Partner or Teekay Corporation to pursue a business strategy that favors us or utilizes our assets, and Teekay Corporation’s officers and directors have a fiduciary duty to make decisions in the best interests of the shareholders of Teekay Corporation, which may be contrary to our interests;

23


•
executive officers of Teekay Gas Group Ltd., our recently formed subsidiary, and three of the directors of our General Partner also currently serve as officers or directors of Teekay Corporation;
•
our General Partner is allowed to take into account the interests of parties other than us, such as Teekay Corporation, in resolving conflicts of interest, which has the effect of limiting its fiduciary duty to our unitholders;
•
our General Partner has limited its liability and restricted its fiduciary duties under the laws of the Republic of the Marshall Islands, while also restricting the remedies available to our unitholders, and as a result of purchasing units, unitholders are treated as having agreed to the modified standard of fiduciary duties and to certain actions that may be taken by our General Partner, all as set forth in our partnership agreement;
•
our General Partner determines the amount and timing of our asset purchases and sales, capital expenditures, borrowings, issuances of additional partnership securities and reserves, each of which can affect the amount of cash that is available for distribution to our unitholders;
•
in some instances, our General Partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowing is to make incentive distributions to affiliates to Teekay Corporation;
•
our General Partner determines which costs incurred by it and its affiliates are reimbursable by us;
•
our partnership agreement does not restrict our General Partner from causing us to pay it or its affiliates for any services rendered to us on terms that are fair and reasonable or entering into additional contractual arrangements with any of these entities on our behalf;
•
our General Partner controls the enforcement of obligations owed to us by it and its affiliates; and
•
our General Partner decides whether to retain separate counsel, accountants or others to perform services for us.
The fiduciary duties of the officers and directors of our General Partner may conflict with those of the officers and directors of Teekay Corporation.
Our General Partner has limited fiduciary duties to manage our business in a manner beneficial to us and our partners. Our General Partner has a Corporate Secretary but does not have a Chief Executive Officer or a Chief Financial Officer. The Corporate Secretary and the non-independent director of our General Partner also serve as officers or directors of Teekay Corporation and/or other affiliates of Teekay Corporation. Consequently, these officers and directors may encounter situations in which their fiduciary obligations to Teekay Corporation or its other affiliates, on one hand, and us, on the other hand, are in conflict. The resolution of these conflicts may not always be in the best interest of us or our unitholders.
Because we are organized under the laws of the Marshall Islands, it may be difficult to serve us with legal process or enforce judgments against us, our directors or our management.
We are organized under the laws of the Marshall Islands, and all of our assets are located outside of the United States. In addition, certain of our General Partner's directors and officers are non-residents of the United States, and all or a substantial portion of the assets of these non-residents are located outside the United States. As a result, it may be difficult or impossible to bring an action against us or against these individuals in the United States. Even if successful in bringing an action of this kind, the laws of the Marshall Islands and of other jurisdictions may prevent or restrict the enforcement of a judgment against our assets or the assets of our general partner or its directors and officers.
As a Marshall Islands entity with our headquarters in Bermuda, and with a majority of our subsidiaries being Marshall Islands entities and also having subsidiaries in other offshore jurisdictions, our operations may be subject to economic substance requirements of the European Union, which could harm our business.
Finance ministers of the EU rate jurisdictions for tax transparency, governance, real economic activity and corporate tax rate. Countries that do not adequately cooperate with the finance ministers are put on a “grey list” or a “blacklist”. Various countries, including the Republic of the Marshall Islands and Bermuda, are currently on the blacklist.

EU member states have agreed upon a set of measures, which they can choose to apply against the listed countries, including increased monitoring and audits, withholding taxes, special documentation requirements and anti-abuse provisions. The European Commission has stated it will continue to support member states' efforts to develop a more coordinated approach to sanctions for the listed countries in 2019. EU legislation prohibits EU funds from being channelled or transited through entities in countries on the blacklist.

We are a Marshall Islands limited partnership with our headquarters in Bermuda. A majority of our subsidiaries are Marshall Islands entities and many of our subsidiaries are either organized or registered in Bermuda. It is difficult to determine how the EU blacklisting of these jurisdictions will affect our business. These jurisdictions have enacted or may enact economic substance laws and regulations with which we may be obligated to comply. We understand that recently-adopted Bermudian legislation requires each Bermudian-registered entity to maintain a substantial economic presence in Bermuda and provides that a registered entity that carries on a relevant activity may comply with the economic substance requirements if (i) it is directed and managed in Bermuda, (ii) its core income-generating activities are undertaken in Bermuda with respect to the relevant activity, (iii) it maintains adequate physical presence in Bermuda, (iv) it has adequate full-time employees in Bermuda with suitable qualifications and (v) it incurs adequate operating expenditures in Bermuda in relation to the relevant activity. We do not know what actions the Marshall Islands may take, if any, to remove itself from the list; whether the EU will remove the Marshall Islands or Bermuda from the list; how quickly the EU would react to any changes in legislation of the Marshall Islands, Bermuda or other applicable

24


jurisdictions; or how EU banks or other counterparties will react while we or any of our subsidiaries remain as entities organized and existing or registered under the laws of blacklisted countries. The effect of the EU blacklist, and any noncompliance by us with any legislation adopted by applicable countries to achieve removal from the list, could have a material adverse effect on our business, financial condition and operating results.
Our joint venture arrangements impose obligations upon us but limit our control of the joint ventures, which may affect our ability to achieve our joint venture objectives.
For financial or strategic reasons, we conduct a portion of our business through joint ventures. Generally, we are obligated to provide proportionate financial support for the joint ventures although our control of the business entity may be substantially limited. Due to this limited control, we generally have less flexibility to pursue our own objectives through joint ventures or to access available cash of the joint ventures than we would with our own subsidiaries. There is no assurance that our joint venture partners will continue their relationships with us in the future or that we will be able to achieve our financial or strategic objectives relating to the joint ventures and the markets in which they operate. In addition, our joint venture partners may have business objectives that are inconsistent with ours, experience financial and other difficulties that may affect the success of the joint venture or be unable or unwilling to fulfill their obligations under the joint ventures, which may affect our financial condition or results of operations.
Tax Risks
In addition to the following risk factors, you should read “Item 10 – Additional Information: Taxation” for a more complete discussion of the expected material U.S. federal and non-U.S. income tax considerations relating to us and the ownership and disposition of our units.
U.S. tax authorities could treat us as a “passive foreign investment company,” which could have adverse U.S. federal income tax consequences to U.S. holders.
A non-U.S. entity treated as a corporation for U.S. federal income tax purposes will be treated as a “passive foreign investment company” (or PFIC ), for such purposes in any taxable year for which either (a) at least 75% of its gross income consists of “passive income,” or (b) at least 50% of the average value of the entity’s assets is attributable to assets that produce or are held for the production of “passive income.” For purposes of these tests, “passive income” includes dividends, interest, gains from the sale or exchange of investment property and rents and royalties (other than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business). By contrast, income derived from the performance of services does not constitute “passive income.”

There are legal uncertainties involved in determining whether the income derived from our time-chartering activities constitutes rental income or income derived from the performance of services, including the decision in Tidewater Inc. v. United States, 565 F.3d 299 (5th Cir. 2009), which held that income derived from certain time-chartering activities should be treated as rental income rather than services income for purposes of a foreign sales corporation provision of the Internal Revenue Code of 1986, as amended (or the Code ). However, the Internal Revenue Service (or IRS ) stated in an Action on Decision (AOD 2010-01) that it disagrees with, and will not acquiesce to, the way that the rental versus services framework was applied to the facts in the Tidewater decision, and in its discussion stated that the time charters at issue in Tidewater would be treated as producing services income for PFIC purposes. The IRS’s statement with respect to Tidewater cannot be relied upon or otherwise cited as precedent by taxpayers. Consequently, in the absence of any binding legal authority specifically relating to the statutory provisions governing PFICs, there can be no assurance that the IRS or a court would not follow the Tidewater decision in interpreting the PFIC provisions of the Code. Nevertheless, based on our and our subsidiaries’ current assets and operations, we intend to take the position that we are not now and have never been a PFIC. No assurance can be given, however, that this position would be sustained by a court if contested by the IRS, or that we would not constitute a PFIC for any future taxable year if there were to be changes in our assets, income or operations.

If the IRS were to determine that we are or have been a PFIC for any taxable year during which a U.S. Holder (as defined below under "Item 10 – Additional Information: Material U.S. Federal Income Tax Considerations") held units, such U.S. Holder would face adverse tax consequences. For a more comprehensive discussion regarding the tax consequences to U.S. Holders if we are treated as a PFIC, please read "Item 10 – Additional Information: Material U.S. Federal Income Tax Considerations – United States Federal Income Taxation of U.S. Holders – Consequences of Possible PFIC Classification."
We are subject to taxes, which reduces our cash available for distribution to partners.
We or our subsidiaries are subject to tax in certain jurisdictions in which we or our subsidiaries are organized, own assets or have operations, which reduces the amount of our cash available for distribution. In computing our tax obligations in these jurisdictions, we are required to take various tax accounting and reporting positions on matters that are not entirely free from doubt and for which we have not received rulings from the governing authorities. We cannot assure you that upon review of these positions, the applicable authorities will agree with our positions. A successful challenge by a tax authority could result in additional tax imposed on us or our subsidiaries, further reducing the cash available for distribution. We have established reserves in our financial statements that we believe are adequate to cover our liability for any such additional taxes. We cannot assure you, however, that such reserves will be sufficient to cover any additional tax liability that may be imposed on our subsidiaries. In addition, changes in our operations or ownership could result in additional tax being imposed on us or on our subsidiaries in jurisdictions in which operations are conducted. For example, Teekay Corporation indirectly owns less than 50% of the value of our outstanding units but has voting control of us and therefore we believe that we do not satisfy the requirements of the exemption from U.S. taxation under Section 883 of the Code and our U.S. source income is subject to taxation under Section 887 of the Code. The amount

25


of such tax will depend upon the amount of income we earn from voyages into or out of the United States, which is not within our complete control.
Unitholders may be subject to income tax in one or more non-U.S. countries, including Canada, as a result of owning our units if, under the laws of any such country, we are considered to be carrying on business there. Such laws may require unitholders to file a tax return with, and pay taxes to, those countries.
Unitholders may be subject to tax in one or more countries, including Canada, as a result of owning our units if, under the laws of any such country, we are considered to be carrying on business there. If unitholders are subject to tax in any such country, unitholders may be required to file a tax return with, and pay taxes to, that country based on their allocable share of our income. We may be required to reduce distributions to unitholders on account of any withholding obligations imposed upon us by that country in respect of such allocation to unitholders. The United States may not allow a tax credit for any foreign income taxes that unitholders directly or indirectly incur.

Item 4. Information on the Partnership
A.
Overview, History and Development
Overview and History
Teekay LNG Partners L.P. is an international provider of marine transportation services for LNG, LPG and crude oil. We were formed in 2004 by Teekay Corporation (NYSE: TK), a portfolio manager of marine services to the global oil and natural gas industries, to expand its operations in the LNG shipping sector. Our primary strategy focuses on servicing our customers through our fleet of LNG and LPG carriers under medium to long-term, fixed-rate charters. In executing our strategy, we may engage in vessel or business acquisitions or enter into joint ventures and partnerships with companies that provide increased access to emerging opportunities from global expansion of the LNG and LPG sectors. We seek to leverage the expertise, relationships and reputation of Teekay Corporation and its affiliates to pursue these opportunities in the LNG and LPG sectors and may consider other opportunities to which our competitive strengths are well suited, including entering into the LNG receiving and regasification terminal business.

Please see “Item 5 – Operating and Financial Review and Prospects: Management’s Discussion and Analysis of Financial Condition and Results of Operations – Significant Developments in 2018 and Early 2019.”

As of December 31, 2018 , our fleet, excluding newbuildings, consisted of 43 LNG carriers (including the six MALT LNG Carriers, four RasGas 3 LNG Carriers, four Angola LNG Carriers, three Pan Union LNG Carriers, one Exmar LNG Carrier and two ARC7 LNG carriers (or the Yamal LNG Carriers ) that are all accounted for under the equity method), 29 LPG and multi-gas carriers (including the 22 Exmar LPG Carriers that are accounted for under the equity method), one Suezmax-class crude oil tanker, and one Handymax product tanker, all of which are double-hulled. Our fleet is relatively young and has an average age of approximately eight years for our LNG carriers, approximately eight years for our LPG and multi-gas carriers and approximately 12 years for our conventional tankers (Suezmax and Handymax), compared to world averages of 10 , 15  and 10 years, respectively, as of December 31, 2018 . As at December 31, 2018, we had six LNG carrier newbuildings scheduled for delivery in 2019, and one LNG receiving and regasification terminal under construction scheduled for completion in 2019.

Our fleets of LNG and LPG carriers (excluding newbuildings but including equity-accounted vessels) currently have approximately 7.2 million and 0.9 million cubic meters of total capacity, respectively. The aggregate capacity of our conventional tanker fleet is approximately 0.2 million deadweight tonnes (or dwt ).

We were formed under the laws of the Republic of The Marshall Islands as a limited partnership, Teekay LNG Partners L.P., on November 3, 2004, and maintain our principal executive offices at 4th Floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM 08, Bermuda. Our telephone number at such address is (441) 298-2530.
B.
Operations
Our Fleet and Our Charters
We generate revenues by charging customers for the transportation of their LNG, LPG and crude oil using our vessels. The majority of these services are provided through either a time-charter or bareboat charter contract, where vessels are chartered to customers for a fixed period of time at rates that are generally fixed but may contain a variable component based on inflation, interest rates or current market rates.

Our vessels and our regasification terminal under construction in Bahrain primarily operate under fixed-rate contracts with major energy and utility companies. As of December 31, 2018 , the average remaining term for these contracts, including assets under construction, was approximately 10 years for our LNG carriers and regasification terminal, approximately two years for our LPG carriers and approximately half a year for our conventional tanker (Handymax), subject, in certain circumstances, to termination or vessel purchase rights.

“Hire” rate refers to the basic payment from the customer for the use of a vessel. Hire is payable monthly, in advance, in U.S. Dollars or Euros, as specified in the charter. The hire rate generally includes two components – a capital cost component and an operating expense component. The capital cost component typically approximates the amount we are required to pay under vessel financing obligations and, for two of our conventional tankers, adjusts for changes in the floating interest rates relating to the underlying vessel financing. The operating expense

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component, which adjusts annually for inflation, is intended to compensate us for vessel operating expenses. In addition, we may receive additional revenues beyond the fixed hire rate when current market rates exceed specified amounts under our time-charter contracts for two of our Suezmax tankers.

Hire payments may be reduced or, under some charters, we must pay liquidated damages, if the vessel does not perform to certain of its specifications, such as if the average vessel speed falls below a guaranteed speed or the amount of fuel consumed to power the vessel under normal circumstances exceeds a guaranteed amount.

When a vessel is “off-hire” – or not available for service – the customer generally is not required to pay the hire rate and we are responsible for all costs. Prolonged off-hire may lead to vessel substitution or termination of the time-charter. A vessel will typically be deemed to be off-hire if it is in dry dock unless our contract specifies drydocking is not considered off-hire. We must periodically dry dock each of our vessels for inspection, repairs and maintenance and any modifications to comply with industry certification or governmental requirements. In addition, a vessel generally will be deemed off-hire if there is a loss of time due to, among other things: operational deficiencies; equipment breakdowns; delays due to accidents, crewing strikes, certain vessel detentions or similar problems; or our failure to maintain the vessel in compliance with its specifications and contractual standards or to provide the required crew.
Liquefied Natural Gas Segment
LNG Carriers
The LNG carriers in our liquefied natural gas segment compete in the LNG market. LNG carriers are usually chartered to carry LNG pursuant to time-charter contracts, where a vessel is hired for a fixed period of time and the charter rate is payable to the owner on a monthly basis. LNG shipping historically has been transacted with long-term, fixed-rate time-charter contracts. LNG projects require significant capital expenditures and typically involve an integrated chain of dedicated facilities and cooperative activities. Accordingly, the overall success of an LNG project depends heavily on long-range planning and coordination of project activities, including marine transportation. Most shipping requirements for new LNG projects continue to be provided on a long-term basis, though the levels of spot voyages (typically consisting of a single voyage), short-term time-charters and medium-term time-charters have grown in the past few years. The amount of LNG traded on a spot and short-term basis (defined as contracts with a duration of 4 years or less) has increased from approximately 10% of total LNG supply in 2010 to approximately 30% in 2018.

In the LNG market, we compete principally with other private and state-controlled energy and utilities companies that generally operate captive fleets, and independent ship owners and operators. Many major energy companies compete directly with independent owners by transporting LNG for third parties in addition to their own LNG. Given the complex, long-term nature of LNG projects, major energy companies historically have transported LNG through their captive fleets. However, independent fleet operators have been obtaining an increasing percentage of charters for new or expanded LNG projects as some major energy companies have continued to divest non-core businesses.

LNG carriers transport LNG internationally between liquefaction facilities and import terminals. After natural gas is transported by pipeline from production fields to a liquefaction facility, it is supercooled to a temperature of approximately negative 260 degrees Fahrenheit. This process reduces its volume to approximately 1/600 th of its volume in a gaseous state. The reduced volume facilitates economical storage and transportation by ship over long distances, enabling countries with limited natural gas reserves or limited access to long-distance transmission pipelines to import natural gas. LNG carriers include a sophisticated containment system that holds the LNG and provides insulation to reduce the amount of LNG that boils off naturally. The natural boil off is either used as fuel to power the engines on the ship or it can be reliquefied and put back into the tanks. LNG is transported overseas in specially built tanks in double-hulled ships to a receiving terminal, where it is offloaded and stored in insulated tanks. In regasification facilities at the receiving terminal, the LNG is returned to its gaseous state (or regasified ) and then shipped by pipeline for distribution to natural gas customers.

With the exception of the Arctic Spirit and Polar Spirit, which are the only two ships in the world that utilize the Ishikawajima Harima Heavy Industries Self Supporting Prismatic Tank IMO Type B (or IHI SPB ) independent tank technology, our fleet uses two of the Gaz Transport and Technigaz (or GTT ) membrane containment systems. The GTT membrane systems are used in the majority of LNG tankers now being constructed. New LNG carriers generally have an expected lifespan of approximately 35 to 40 years. Unlike the oil tanker industry, there are currently no regulations that require the phase-out from trading of LNG carriers after they reach a certain age. As at December 31, 2018 , our LNG carriers, excluding newbuilding vessels but including equity-accounted vessels, had an average age of approximately eight years, compared to the world LNG carrier fleet average age of approximately 10 years. In addition, as at that date, there were approximately 555 vessels in the world LNG fleet and approximately 136 additional LNG carriers under construction or on order for delivery through 2022.

The following table provides additional information about the LNG carriers in our operating fleet as of December 31, 2018 .
 
Vessel
 
Capacity
 
Delivery
 
Our 
Ownership
 
 Contract Type
 
Charterer
 
Expiration of
Charter (1)
 
 
(cubic meters)
 
 
 
 
 
 
 
 
 
 
Operating LNG carriers:
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 

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Hispania Spirit
 
137,814

 
2002
 
100%
 
Time-charter
 
Shell Spain LNG S.A.U.
 
Sep. 2022 (2)
Catalunya Spirit
 
135,423

 
2003
 
100%
 
Time-charter
 
Gas Natural SDG
 
Aug. 2023 (2)
Galicia Spirit
 
137,814

 
2004
 
100%
 
Time-charter
 
Uniòn Fenosa Gas
 
Jul. 2029 (3)
Madrid Spirit
 
135,423

 
2004
 
100%
 
Time-charter
 
Shell Spain LNG S.A.U.
 
Dec. 2024 (2)
Al Marrouna
 
149,539

 
2006
 
70%
 
Time-charter
 
Ras Laffan Liquefied
Natural Gas Company Ltd.
 
Oct. 2026 (4)
Al Areesh
 
148,786

 
2007
 
70%
 
Time-charter
 
Ras Laffan Liquefied
Natural Gas Company Ltd.
 
Jan. 2027 (4)
Al Daayen
 
148,853

 
2007
 
70%
 
Time-charter
 
Ras Laffan Liquefied
Natural Gas Company Ltd.
 
Feb. 2027 (4)
Tangguh Hiri
 
151,885

 
2008
 
69%
 
Time-charter
 
The Tangguh Production
Sharing Contractors
 
Jan. 2029
Tangguh Sago
 
155,000

 
2009
 
69%
 
Time-charter
 
The Tangguh Production
Sharing Contractors
 
May 2029
Arctic Spirit
 
87,305

 
1993
 
99%
 
Time-charter
 
Petrobras LNG Ltd.
 
May 2022
Polar Spirit
 
87,305

 
1993
 
99%
 
Time-charter
 
Petrobras LNG Ltd.
 
Apr. 2019
Wilforce
 
155,900

 
2013
 
99%
 
Bareboat
 
Awilco LNG ASA
 
Dec. 2019 (5)
Wilpride
 
155,900

 
2013
 
99%
 
Bareboat
 
Awilco LNG ASA
 
Dec. 2019 (5)
Creole Spirit
 
173,000

 
2016
 
100% –
Capital lease (6)
 
Time-charter
 
Cheniere Marketing, LLC
 
Feb. 2021
Oak Spirit
 
173,000

 
2016
 
100% –
Capital lease (6)
 
Time-charter
 
Cheniere Marketing, LLC 
 
Aug. 2021
Torben Spirit
 
173,400

 
2017
 
100% –
Capital lease (6)
 
Time-charter
 
Gas Natural SDG
 
Dec. 2021
Magellan Spirit
 
165,700

 
2009
 
100% –
 Chartered-in (13)
 
Time-charter
 
Trafigure Maritime Logistics Pte Ltd.
 
Mar. 2019
Macoma
 
173,000

 
2017
 
99% –
Capital lease (6)
 
Time-charter
 
Shell Tankers (Singapore) Private Ltd.
 
Oct. 2023 (8)
Murex
 
173,000

 
2017
 
99% –
Capital lease (6)
 
Time-charter
 
Shell Tankers (Singapore) Private Ltd.
 
Oct. 2024 (8)
Magdala
 
173,000

 
2018
 
99% –
Capital lease (6)
 
Time-charter
 
Shell Tankers (Singapore) Private Ltd.
 
Jan. 2026 (8)
Myrina
 
173,000

 
2018
 
99% –
Capital lease (6)
 
Time-charter
 
Shell Tankers (Singapore) Private Ltd.
 
May 2024 (8)
Megara
 
173,000

 
2018
 
99% –
Capital lease (6)
 
Time-charter
 
Shell Tankers (Singapore) Private Ltd.
 
Jul. 2026 (8)
Bahrain Spirit
 
173,000

 
2018
 
100%
 
Time-charter
 
Bahrain LNG W.L.L.
 
Jul. 2039
Sean Spirit
 
174,000

 
2018
 
100%
 
Time-charter
 
BP Gas Marketing Limited
 
Dec. 2025 (15)
Equity-Accounted
 
 
 
 
 
 
 
 
 
 
 
 
Al Huwaila
 
214,176

 
2008
 
40%
 
Time-charter
 
Ras Laffan Liquefied
Natural Gas Company Ltd.
 
May 2033 (2)
Al Kharsaah
 
214,198

 
2008
 
40%
 
Time-charter
 
Ras Laffan Liquefied
Natural Gas Company Ltd.
 
Jun. 2033 (2)
Al Shamal
 
213,536

 
2008
 
40%
 
Time-charter
 
Ras Laffan Liquefied
Natural Gas Company Ltd.
 
May 2033 (2)

28


Al Khuwair
 
213,101

 
2008
 
40%
 
Time-charter
 
Ras Laffan Liquefied
Natural Gas Company Ltd.
 
Jul. 2033 (2)
Excalibur
 
138,034

 
2002
 
49%
 
Time-charter
 
Excelerate Energy LP
 
Mar. 2022
Soyo
 
160,400

 
2011
 
33%
 
Time-charter
 
Angola LNG Supply Services LLC
 
Aug. 2031 (2)
Malanje
 
160,400

 
2011
 
33%
 
Time-charter
 
Angola LNG Supply Services LLC
 
Sep. 2031 (2)
Lobito
 
160,400

 
2011
 
33%
 
Time-charter
 
Angola LNG Supply Services LLC
 
Oct. 2031 (2)
Cubal
 
160,400

 
2012
 
33%
 
Time-charter
 
Angola LNG Supply Services LLC
 
Jan. 2032 (2)
Meridian Spirit
 
165,700

 
2010
 
52%
 
Time-charter
 
Total E&P Norge AS Mansel Limited
 
Nov. 2030 (9)
Magellan Spirit
 
165,700

 
2009
 
52%
 
Time-charter
 
Teekay LNG Partners L.P. (13)
 
Sep. 2020
Marib Spirit
 
165,500

 
2008
 
52%
 
Time-charter
 
Yemen LNG Company Limited (10)
 
Mar. 2029 (9)
Arwa Spirit
 
165,500

 
2008
 
52%
 
Time-charter
 
Yemen LNG Company Limited (10)
 
Apr. 2029 (9)
Methane Spirit
 
165,500

 
2008
 
52%
 
Time-charter
 
Osaka Gas
 
Jul. 2020 (14)
Woodside Donaldson
 
165,500

 
2009
 
52%
 
Time-charter
 
Pluto LNG Party Limited
 
Jun. 2026 (11)
Pan Asia
 
174,000

 
2017
 
30%
 
Time-charter
 
Methane Services Limited
 
Oct. 2037 (12)
Pan Americas
 
174,000

 
2018
 
30%
 
Time-charter
 
Methane Services Limited
 
Jan. 2038 (12)
Pan Europe
 
174,000

 
2018
 
20%
 
Time-charter
 
Methane Services Limited
 
Jul. 2038 (12)
Eduard Toll
 
172,600

 
2018
 
50%
 
Time-charter
 
Yamal Trade PTE Ltd.
 
Dec. 2045 (2)
Rudolf Samoylovich
 
172,600

 
2018
 
50%
 
Time-charter
 
Yamal Trade PTE Ltd.
 
Dec. 2045 (2)
 
 
7,179,292

 
 
 
 
 
 
 
 
 
 
(1)
Each of our time-charters are subject to certain termination and purchase provisions.
(2)
The charterer has two options to extend the term for an additional five years each.
(3)
The charterer has one option to extend the term for an additional five years.
(4)
The charterer has three options to extend the term for an additional five years each.
(5)
The charterer has an option to extend or decrease the term for 60 days and to purchase the vessel on any purchase option date. If no purchase option has been exercised by the charterer during the charter period, the charterer has an obligation to purchase each vessel at a fixed price at the end of the charter period.
(6)
We are the lessee for these obligations related to capital leases and will be required to purchase the vessel after the end of the lease terms for a fixed price.
(7)
The charterer has four options to extend the term for an additional 180 days, 180 days, one year and one year, respectively.
(8)
The charterer has four options to extend the term for an additional three years each.
(9)
The charterer has three options to extend the term for one, five and five additional years, respectively.
(10)
Please see "Item 5 – Operating and Financial Review and Prospects: Management's Discussion and Analysis of Financial Condition and Results of Operations – Significant Developments in 2018 and early 2019: Charter Contracts for MALT LNG Carriers" relating to the status of this charter contract.
(11)
The charterer has four options to extend the term for an additional five years each.
(12)
The charterer has five options to extend the term for an additional two years each.
(13)
The Magellan Spirit is chartered-in from the Teekay LNG-Marubeni Joint Venture, until September 2020.
(14)
The charterer has one option to extend the term for an additional one year.
(15)
The charterer has the right to terminate the charter contract after seven years.

The following table provides information about our LNG carrier newbuildings as of December 31, 2018 . Charters for these vessels typically commence upon delivery of the vessels.


29


Vessel
 
Capacity
 
Scheduled Delivery Date
 
Shipyard
 
Our Ownership
 
Charterer
 
Length of Charter
 
 
 
(cubic meters)
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Yamal Spirit
 
174,000

 
Jan. 2019 (1)
 
HHI Sambo (2)
 
100%
 
Yamal Trade PTE. Ltd.
 
15 years
 
Equity-Accounted
 
 
 
 
 
 
 
 
 
 
 
 
 
Pan Africa
 
174,000

 
Jan. 2019 (1)
 
Hudong (3)
 
20%
 
Methane Services Limited
 
20 years (5)
 
Nikolay Yevgenov
 
172,600

 
Jun. 2019
 
DSME (4)
 
50%
 
Yamal Trade PTE Ltd.
 
26 years (6)
 
Vladimir Voronin
 
172,600

 
Aug. 2019
 
DSME (4)
 
50%
 
Yamal Trade PTE Ltd.
 
26 years (6)
 
Georgiy Ushakov
 
172,600

 
Oct. 2019
 
DSME (4)
 
50%
 
Yamal Trade PTE Ltd.
 
26 years (6)
 
Yakov Gakkel
 
172,600

 
Nov. 2019
 
DSME (4)
 
50%
 
Yamal Trade PTE Ltd.
 
26 years (6)
 
 
 
1,038,400

 
 
 
 
 
 
 
 
 
 
 

(1)
The Yamal Spirit and the Pan Africa delivered in January 2019.
(2)
Hyundai Samho Heavy Industries Co.
(3)
Hudong-Zhongua Shipbuilding (Group) Co. Ltd.
(4)
Daewoo Shipbuilding & Marine Engineering Co. Ltd.
(5)
The charterer has five options to extend the term for an additional two years each.
(6)
The charterer has two options to extend the term for an additional five years each.

The following table presents the percentage of our consolidated voyage revenues from LNG customers that accounted for more than 10% of our consolidated voyage revenues during 2018, 2017 and 2016.

 
 
Year Ended December 31,
 
 
2018
 
2017
 
2016
Royal Dutch Shell Plc (1)
 
23
%
 
12%
 
12%
Ras Laffan Liquefied Natural Gas Company Ltd.
 
14
%
 
16%
 
18%
Cheniere Marketing International LLP
 
12
%
 
14%
 
Less than 10%
The Tangguh Production Sharing Contractors
 
Less than 10%

 
11%
 
11%
(1)
Includes its subsidiaries Shell Spain LNG S.A.U. and Shell Tankers (Singapore) Private Ltd.

No other LNG customer accounted for 10% or more of our consolidated voyage revenues during any of these periods. The loss of any significant customer or a substantial decline in the amount of services requested by a significant customer could harm our business, financial condition and results of operations.
Other Assets
We have a 30% ownership interest in an LNG receiving and regasification terminal under construction in Bahrain. The construction of this terminal is expected to be completed in mid-2019 and will be operated under a 20-year agreement with National Oil & Gas Authority (or Nogaholding ).

Liquefied Petroleum Gas Segment
LPG and Multi-gas Carriers
LPG shipping involves the transportation of three main categories of cargo: liquid petroleum gases, including propane, butane and ethane; petrochemical gases, including ethylene, propylene and butadiene; and ammonia.

In the LPG market, we compete principally with independent ship owners and operators, and other private and state-controlled energy and chemical companies that generally operate captive fleets.

As of December 31, 2018 , our LPG and multi-gas carriers (including equity-accounted vessels) had an average age of approximately eight years, compared to the world LPG carrier fleet average age of approximately 15 years. As of that date, the worldwide LPG tanker fleet consisted of approximately 1,451 vessels and approximately 74 additional LPG vessels were on order for delivery through 2022. LPG carriers range in

30


size from approximately 100 to approximately 88,000 cubic meters. Approximately 47% of the vessels in the worldwide fleet are less than 5,000 cubic meters in size. New LPG carriers generally have an expected lifespan of approximately 30 to 35 years .

LPG carriers are mainly chartered to carry LPG on time-charters, contracts of affreightment or spot voyage charters. The two largest consumers of LPG are residential users and the petrochemical industry. Residential users, particularly in developing regions where electricity and gas pipelines are not developed, do not have fuel switching alternatives and generally are not LPG price sensitive. The petrochemical industry, however, has the ability to switch between LPG and other feedstock fuels depending on price and availability of alternatives.

The following table provides information about our LPG and multi-gas carriers in our operating fleet as of December 31, 2018 .
Vessel
 
Capacity
 
Delivery
 
Our Ownership
 
Contract Type
 
Charterer
 
Expiration of
Charter
 
 
(cubic meters)
 
 
 
 
 
 
 
 
 
 
Operating LPG carriers:
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
Pan Spirit
 
10,000

 
2009
 
99%
 
Spot
 
Spot market
 
—
Cathinka Spirit
 
10,000

 
2009
 
99%
 
Spot
 
Spot market
 
—
Camilla Spirit
 
10,000

 
2011
 
99%
 
Spot
 
Spot market
 
—
Unikum Spirit
 
12,000

 
2011
 
99%
 
Spot
 
Spot market
 
—
Vision Spirit
 
12,000

 
2011
 
99%
 
Spot
 
Spot market
 
—
Napa Spirit
 
10,200

 
2003
 
99%
 
Spot
 
Spot market
 
—
Sonoma Spirit
 
8,000

 
2003
 
99%
 
Spot
 
Spot market
 
—
Equity-Accounted
 
 
 
 
 
 
 
 
 
 
 
 
Temse
 
12,030

 
1995
 
50% –
Capital lease
 
Time-charter
 
An international fertilizer company
 
Jan. 2020
Libramont
 
38,455

 
2006
 
50%
 
Time-charter
 
An international fertilizer company
 
May 2026
Sombeke
 
38,447

 
2006
 
50%
 
Time-charter
 
An international fertilizer company
 
Jun. 2027
Touraine
 
39,270

 
1996
 
50%
 
Time-charter
 
An international energy company
 
Nov. 2019 (2)
Bastogne
 
35,229

 
2002
 
50%
 
Time-charter
 
An international energy company
 
Jun. 2019
Eupen
 
38,961

 
1999
 
50%
 
Spot
 
Spot market
 
—
Brussels
 
35,454

 
1997
 
50%
 
Time-charter
 
An international energy company
 
Jul. 2019
Antwerpen
 
35,223

 
2005
 
50% – Chartered-in
 
Time-charter
 
An international energy company
 
Mar. 2019
BW Tokyo
 
83,270

 
2009
 
50% – Chartered-in
 
Time-charter
 
An international trading company
 
Mar. 2019
Waregem
 
38,189

 
2014
 
50%
 
Time-charter
 
An international trading company
 
Nov. 2019 (3)
Warinsart
 
38,213

 
2014
 
50%
 
Time-charter
 
An international energy company
 
Feb. 2020 (3)
Waasmunster
 
38,245

 
2014
 
50%
 
Time-charter
 
An international energy company
 
Aug. 2019 (3)
Warisoulx
 
38,000

 
2015
 
50%
 
Time-charter
 
An international trading company
 
May 2019
Kaprijke
 
38,000

 
2015
 
50%
 
Time-charter
 
An international fertilizer company
 
Dec. 2025
Knokke
 
38,000

 
2016
 
50%
 
Time-charter
 
An international energy company
 
Mar. 2021 (4)
Kontich
 
38,000

 
2016
 
50%
 
Time-charter
 
An international energy company
 
Jul. 2021 (4)
Kortrijk
 
38,000

 
2016
 
50%
 
Time-charter
 
An international trading company
 
Dec. 2019
Kallo
 
38,000

 
2017
 
50% – Capital lease (1)
 
Time-charter
 
An international energy company
 
Jan. 2020 (3)

31


Kruibeke
 
38,000

 
2017
 
50% – Capital lease (1)
 
Time-charter
 
An international trading company
 
Feb. 2020 (3)
Kapellen
 
38,000

 
2018
 
50% – Capital lease (1)
 
Time-charter
 
An international energy company
 
Sep. 2019 (2)
Koksijde
 
38,000

 
2018
 
50% – Capital lease (1)
 
Time-charter
 
An international trading company
 
Jul. 2019
Wepion
 
38,000

 
2018
 
50%
 
Time-charter
 
An international energy company
 
Nov. 2020 (3)
 
 
923,186

 
 
 
 
 
 
 
 
 
 

(1)
Exmar LPG BVBA, in which we have a 50% ownership interest, is the lessee for these obligations related to capital leases and will be required to purchase the vessel after the end of the lease terms for a fixed price.
(2)
The charterer has one option to extend the term for an additional six months.
(3)
The charterer has one option to extend the term for an additional one year.
(4)
The charterer has one option to extend the term for an additional five years.

No LPG customer accounted for 10% or more of our consolidated voyage revenues during any of 2018, 2017, or 2016. The loss of any significant customer or a substantial decline in the amount of services requested by a significant customer could harm our business, financial condition and results of operations.
Conventional Tanker Segment
As of December 31, 2018, our conventional tankers had an average age of approximately 12 years, compared to the average age for the world conventional tanker fleet of approximately 10 years . New conventional tankers generally have an expected lifespan of approximately 25 to 30 years, based on estimated hull fatigue life.

The following table provides additional information about our conventional oil tankers in our operating fleet as of December 31, 2018 .

Tanker (1)
 
Capacity
 
Delivery
 
Our Ownership
 
Contract Type
Charterer
 
Expiration of
Charter
 
 
(dwt)
 
 
 
 
 
 
 
 
 
Operating Conventional tankers:
 
 
 
 
 
 
 
 
 
 
 
Toledo Spirit
 
159,342

 
2005
 
100% – Capital
lease (2)
 
Time-charter
CEPSA
 
Jan. 2019 (2)
Alexander Spirit
 
40,083

 
2007
 
100%
 
Time-charter
Caltex Australian Petroleum Pty Ltd.
 
Sep. 2019
 
 
199,425

 
 
 
 
 
 
 
 
 
(1)
The Toledo Spirit is a Suezmax tanker, and the Alexander Spirit is a Handymax tanker.
(2)
We were the lessee for this obligation related to capital lease. The charterer, Compania Espanole de Petroleos, S.A. (or CEPSA ), who is also the owner, had the right to terminate the time-charter contract 13 years after the original delivery date without penalty. CEPSA sold the Toledo Spirit in January 2019 and the associated charter contract with CEPSA concurrently terminated. Please read “Item 18 – Financial Statements: Note 5a – Chartered-in Vessels.”

No conventional tanker customer accounted for 10% or more of our consolidated voyage revenues during 2018, 2017, and 2016. The loss of any significant customer or a substantial decline in the amount of services requested by a significant customer could harm our business, financial condition and results of operations.
Business Strategies
Our primary long-term business objective is to expand our core businesses globally in order to service our customers' growing gas transportation requirements which we believe will add long-term value for our unitholders. Our operating cash flows remain largely stable and growing, supported by a large and well-diversified portfolio of fee-based contracts with high-quality counterparties.

We intend to achieve our long-term business objective, as stated above, by executing the following strategies:

•
Provide superior customer service by maintaining high reliability, safety, environmental and quality standards. LNG and LPG project operators seek LNG and LPG transportation partners that have a reputation for high reliability, safety, environmental and quality

32


standards. We seek to leverage our own and Teekay Corporation’s operational expertise to create a sustainable competitive advantage with consistent delivery of superior customer service.

•
Expand our LNG and LPG business globally . We seek to capitalize on opportunities emerging from the global expansion of the LNG and LPG sectors by selectively targeting:
•
projects that involve medium to long-term, fixed-rate charters;
•
cost-effective LNG and LPG newbuilding contracts;
•
joint ventures and partnerships with companies that may provide increased access to opportunities in attractive LNG and LPG importing and exporting geographic regions;
•
strategic vessel and business acquisitions; and
•
specialized projects in adjacent areas of the business, including floating storage units.
Safety, Management of Ship Operations and Administration
Teekay Corporation, through its subsidiaries, assists us in managing our ship operations, other than the vessels owned or chartered-in by our joint ventures with Exmar, which are commercially and technically managed by Exmar, and two of the Angola LNG Carriers, which are commercially and technically managed by NYK Energy Transport (Atlantic) Ltd. Safety and environmental compliance are our top operational priorities. We operate our vessels in a manner intended to protect the safety and health of the employees, the general public and the environment. We seek to manage the risks inherent in our business and are committed to eliminating incidents that threaten the safety and integrity of our vessels, such as groundings, fires, collisions and oil spills. In 2007, Teekay Corporation introduced a behavior-based safety program called “Safety in Action” to further enhance the safety culture in our fleet. We are also committed to reducing our emissions and waste generation. In 2008, Teekay Corporation introduced the Quality Assurance and Training Officers (or QATO ) program to conduct rigorous internal audits of our processes and provide the seafarers with onboard training. In 2010, Teekay Corporation introduced a safety leadership program for our employees titled “Operational Leadership, The Journey” which sets out Teekay Corporation's operational expectations, the responsibilities of individual employees and our commitment to empowering our employees to work safely and live Teekay Corporation’s vision through a positive and responsible attitude .

Key performance indicators facilitate regular monitoring of our operational performance. Targets are set on an annual basis to drive continuous improvement, and indicators are reviewed monthly to determine if remedial action is necessary to reach the targets .

Teekay Corporation has achieved certification under the standards reflected in International Standards Organization’s (or ISO ) 9001 for Quality Assurance, ISO 14001 for Environment Management Systems, Occupational Health and Safety Advisory Services 18001 for Occupational Health and Safety, and the IMO’s International Management Code for the Safe Operation of Ships and Pollution Prevention (or ISM Code ) on a fully integrated basis. As part of Teekay Corporation’s compliance with the ISM Code, all of our vessels’ safety management certificates are maintained through ongoing internal audits performed by our certified internal auditors and intermediate external audits performed by the classification society DNV-GL. Subject to satisfactory completion of these internal and external audits, certification is valid for five years.

In addition to our operational experience, Teekay Corporation’s in-house global shore staff performs, through its subsidiaries, the full range of technical, commercial and business development services for our LNG, LPG and conventional operations. The staff also provides administrative support to our operations in finance, accounting and human resources. We believe this arrangement affords a safe, efficient and cost-effective operation. Vessel management services are provided by subsidiaries of Teekay Corporation, located in various offices around the world. These include critical vessel management functions such as:

•
vessel maintenance (including repairs and dry docking) and certification ;
•
crewing by competent seafarers ;
•
procurement of stores, bunkers and spare parts ;
•
management of emergencies and incidents;
•
supervision of shipyard and projects during construction of newbuildings and conversions ;
•
insurance; and
•
financial management services.

These functions are supported by onboard and onshore systems for maintenance, inventory, purchasing and budget management.

In addition, Teekay Corporation’s day-to-day focus on cost control is applied to our operations. In 2003, Teekay Corporation and two other shipping companies established a purchasing cooperation agreement called the TBW Alliance, which leverages the purchasing power of the combined fleets, mainly in such commodity areas as marine lubricants, coatings and chemicals and gases. Through our arrangements with Teekay Corporation, we benefit from this purchasing alliance.


33


We believe that the generally uniform design of some of our existing and newbuilding vessels and the adoption of common equipment standards provide operational efficiencies, including with respect to crew training and vessel management, equipment operation and repair, and spare parts ordering.
Risk of Loss, Insurance and Risk Management
The operation of any ocean-going vessel carries an inherent risk of catastrophic marine disasters, death or injury of persons and property losses caused by adverse weather conditions, mechanical failures, human error, war, terrorism, piracy and other circumstances or events. In addition, the transportation and transfer/lightering of crude oil, petroleum products, LNG and LPG are subject to the risk of spills and to business interruptions due to political circumstances in foreign countries, hostilities, labor strikes, sanctions and boycotts. The occurrence of any of these events may result in loss of revenues or increased costs.

We carry hull and machinery (marine and war risks) and protection and indemnity insurance coverage to protect against most of the accident-related risks involved in the conduct of our business. Hull and machinery insurance covers loss of or damage to a vessel due to marine perils such as collision, grounding and weather. Protection and indemnity insurance indemnifies us against liabilities incurred while operating vessels, including injury to our crew or third parties, cargo loss and pollution. The current maximum amount of our coverage for pollution is $1 billion per vessel per incident. We also carry insurance policies covering war risks (including piracy and terrorism) and, for some of our LNG carriers, loss of revenues resulting from vessel off-hire time due to a marine casualty.

We believe that our current insurance coverage is adequate to protect against most of the accident-related risks involved in the conduct of our business and that we maintain appropriate levels of environmental damage and pollution insurance coverage. However, we cannot guarantee that all covered risks are adequately insured against, that any particular claim will be paid or that we will be able to procure adequate insurance coverage at commercially reasonable rates in the future. More stringent environmental regulations have resulted in increased costs for, and may result in the lack of availability of, insurance against risks of environmental damage or pollution.

In our operations, we use Teekay Corporation’s thorough risk management program that includes, among other things, risk analysis tools, maintenance and assessment programs, a seafarers' competence training program, seafarers' workshops and membership in emergency response organizations. We believe that we benefit from Teekay Corporation’s commitment to safety and environmental protection because certain of its subsidiaries assist us in managing our vessel operations.
Flag, Classification, Audits and Inspections
Our vessels are registered with reputable flag states, and the hull and machinery of all of our vessels have been “Classed” by one of the major classification societies and members of International Association of Classification Societies Ltd. (or IACS ): Bureau Veritas (or BV ), Lloyd’s Register of Shipping, the American Bureau of Shipping or DNV-GL.

The applicable classification society certifies that the vessel’s design and build conforms to the applicable Class rules and meets the requirements of the applicable rules and regulations of the country of registry of the vessel and the international conventions to which that country is a signatory. The classification society also verifies throughout the vessel’s life that it continues to be maintained in accordance with those rules. In order to validate this, the vessels are surveyed by the classification society, in accordance to the classification society rules, which in the case of our vessels follows a comprehensive five-year special survey cycle, renewed every fifth year. During each five-year period the vessel undergoes annual and intermediate surveys, the scrutiny and intensity of which is primarily dictated by the age of the vessel. As our vessels are modern and we have enhanced the resiliency of the underwater coatings of each vessel hull and marked the hull to facilitate underwater inspections by divers, their underwater areas are inspected in a dry-dock at five-year intervals. In-water inspection is carried out during the second or third annual inspection (e.g. during an Intermediate Survey).

In addition to class surveys, the vessel’s flag state also verifies the condition of the vessel during annual flag state inspections, either independently or by additional authorization to class. Also, port state authorities of a vessel’s port of call are authorized under international conventions to undertake regular and spot checks of vessels visiting their jurisdiction.

Processes followed onboard are audited by either the flag state or classification society acting on behalf of the flag state to ensure that they meet the requirements of the ISM Code. We also follow an internal process of internal audits undertaken annually at each office and vessel.

We follow a comprehensive inspections and audit regime supported by our sea staff, shore-based operational and technical specialists and members of our QATO program. We carry out two internal inspections and one internal audit annually, which helps ensure us that:

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our vessels and operations adhere to our operating standards;
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the structural integrity of the vessel is being maintained;
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machinery and equipment is being maintained to give reliable service;
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we are optimizing performance in terms of speed and fuel consumption; and
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our vessel’s appearance supports our brand and meets customer expectations.


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Our customers also often carry out vetting inspections under the Ship Inspection Report Program, which is a significant safety initiative introduced by the Oil Companies International Marine Forum to specifically address concerns about sub-standard vessels. The inspection results permit charterers to screen a vessel to ensure that it meets their general and specific risk-based shipping requirements.

We believe that the heightened environmental and quality concerns of insurance underwriters, regulators and charterers will generally lead to greater scrutiny, inspection and safety requirements on all vessels in the oil tanker, LNG and LPG carrier markets and will accelerate the scrapping or phasing out of older vessels throughout these markets.

Overall, we believe that our relatively new, well-maintained and high-quality vessels provide us with a competitive advantage in the current environment of increasing regulation and customer emphasis on quality of service.
Regulations
General
Our business and the operation of our vessels are significantly affected by international conventions and national, state and local laws and regulations in the jurisdictions in which our vessels operate, as well as in the country or countries of their registration. Because these conventions, laws and regulations change frequently, we cannot predict the ultimate cost of compliance or their impact on the resale price or useful life of our vessels. Additional conventions, laws, and regulations may be adopted that could limit our ability to do business or increase the cost of our doing business and that may materially affect our operations. We are required by various governmental and quasi-governmental agencies to obtain permits, licenses and certificates with respect to our operations. Subject to the discussion below and to the fact that the kinds of permits, licenses and certificates required for the operations of the vessels we own will depend on a number of factors, we believe that we will be able to continue to obtain all permits, licenses and certificates material to the conduct of our operations.
International Maritime Organization (or IMO)
The IMO is the United Nations’ agency for maritime safety and prevention of pollution. IMO regulations relating to pollution prevention for oil tankers have been adopted by many of the jurisdictions in which our tanker fleet operates. Under IMO regulations and subject to limited exceptions, a tanker must be of double-hull construction in accordance with the requirements set out in these regulations, or be of another approved design ensuring the same level of protection against oil pollution. All of our tankers are double-hulled.

Many countries, but not the United States, have ratified and follow the liability regime adopted by the IMO and set out in the International Convention on Civil Liability for Oil Pollution Damage, 1969, as amended (or CLC ). Under this convention, a vessel’s registered owner is strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil (e.g. crude oil, fuel oil, heavy diesel oil or lubricating oil), subject to certain defenses. The right to limit liability to specified amounts that are periodically revised is forfeited under the CLC when the spill is caused by the owner’s actual fault or when the spill is caused by the owner’s intentional or reckless conduct. Vessels trading to contracting states must provide evidence of insurance covering the limited liability of the owner. In jurisdictions where the CLC has not been adopted, various legislative regimes or common law governs, and liability is imposed either on the basis of fault or in a manner similar to the CLC.

IMO regulations also include the International Convention for Safety of Life at Sea (or SOLAS ), including amendments to SOLAS implementing the International Ship and Port Facility Security Code (or ISPS ), the ISM Code, the International Convention on Load Lines of 1966, and, specifically with respect to LNG and LPG carriers, the International Code for Construction and Equipment of Ships Carrying Liquefied Gases in Bulk (the IGC Code ). SOLAS provides rules for the construction of and the equipment required for commercial vessels and includes regulations for their safe operation. Flag states which have ratified the convention and the treaty generally employ the classification societies, which have incorporated SOLAS requirements into their class rules, to undertake surveys to confirm compliance.

SOLAS and other IMO regulations concerning safety, including those relating to treaties on training of shipboard personnel, lifesaving appliances, radio equipment and the global maritime distress and safety system, are applicable to our operations. Non-compliance with IMO regulations, including SOLAS, the ISM Code, ISPS and the IGC Code, may subject us to increased liability or penalties, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to or detention in some ports. For example, the United States Coast Guard (or USCG ) and European Union authorities have indicated that vessels not in compliance with the ISM Code will be prohibited from trading in U.S. and European Union ports. The ISM Code requires vessel operators to obtain a safety management certification for each vessel they manage, evidencing the ship owner’s development and maintenance of an extensive safety management system. Each of the existing vessels in our fleet is currently ISM Code-certified, and we expect to obtain safety management certificates for each newbuilding vessel upon delivery.

LNG and LPG carriers are also subject to regulation under the IGC Code. Each LNG and LPG carrier must obtain a certificate of compliance evidencing that it meets the requirements of the IGC Code, including requirements relating to its design and construction. Each of our LNG and LPG carriers is currently IGC Code compliant, and each of the shipbuilding contracts for our LNG carrier newbuildings and for the LPG carrier newbuildings requires IGC Code compliance prior to delivery. Amendments to the IGC Code, aligning wheelhouse window fire-rating requirements with those in SOLAS chapter II-2, were adopted in 2016 and are expected to enter into force on January 1, 2020.
 
In addition, the International Code of Safety for Ships using Gases or other Low-flashpoint Fuels (or the IGF Code ), which entered into force on January 1, 2017, is mandatory for ships fueled by gases or other low-flashpoint fuels, and sets out mandatory provisions for the arrangement, installation, control and monitoring of machinery, equipment and systems using low-flashpoint fuel.

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Annex VI of the IMO’s International Convention for the Prevention of Pollution from Ships (or MARPOL ) (or Annex VI ) sets limits on sulfur oxide and nitrogen oxide (or NOx ) emissions from ship exhausts and prohibits emissions of ozone depleting substances, emissions of volatile compounds from cargo tanks and the incineration of specific substances. Annex VI also includes a world-wide cap on the sulfur content of fuel oil and allows for special "emission control areas" (or ECAs ) to be established with more stringent controls on sulfur emissions.

Annex VI provides for a three-tier reduction in NOx emissions from marine diesel engines, with the final tier (or Tier III ) to apply to engines installed on vessels constructed on or after January 1, 2016 and which operate in the North American ECA or the U.S. Caribbean Sea ECA as well as ECAs designated in the future by the IMO. In October 2016 the IMO’s Marine Environment Protection Committee (or MEPC ) approved the designation of the North Sea (including the English Channel) and the Baltic Sea as ECAs for NOx emissions; these ECAs and the related amendments to Annex VI of MARPOL (with some exceptions) entered into effect on January 1, 2019. This requirement will be applicable for new ships constructed on or after January 1, 2021 if they visit the Baltic or North Sea (including the English Channel) and requires the future trading area of a ship to be assessed at the contract stage. There are exemption provisions to allow ships with only Tier II engines, to navigate in a NOx Tier III ECA if the ship is departing from a shipyard where the ship is newly built or visiting a shipyard for conversion/repair/maintenance without loading/unloading cargoes.

Effective January 1, 2020, Annex VI imposes a global limit for sulphur in fuel oil used on board ships of 0.50% m/m (mass by mass), regardless of whether a ship is operating outside a designated ECA. To comply with this new standard, ships may utilize different fuels containing low or zero sulphur (e.g. LNG or biofuels), or utilize exhaust gas cleaning systems, known as “scrubbers.” Amendments to the information to be included in bunker delivery notes relating to the supply of marine fuel oil to ships fitted with alternative mechanisms to address sulphur emission requirements (e.g. scrubbers) became effective January 1, 2019. At present, we have not installed any scrubbers on our existing fleet and we intend to switch over to burning low sulphur fuel from January 1, 2020.
  
As of March 1, 2018, amendments to Annex VI impose new requirements on ships of 5,000 gross tonnage and above to collect fuel oil consumption data for ships, as well as certain other data including proxies for transport work; the amendments also set forth criteria for determining whether cargo residues are harmful to the marine environment and a new Garbage Record Book format

IMO regulations required that, as of January 1, 2015, all vessels operating within ECAs worldwide recognized under MARPOL Annex VI must comply with 0.1% sulfur requirements. In addition, LSMGO is more expensive than HFO and this impacts the costs of operations. Our exposure to increased cost is in our spot trading vessels, although our competitors bear a similar cost increase as this is a regulatory item applicable to all vessels. All required vessels in our fleet trading to and within regulated low sulfur areas are able to comply with fuel requirements. The global cap on the sulfur content of fuel oil is currently 3.5%, to be reduced to 0.5% by January 1, 2020.

The IMO has issued guidance regarding protecting against acts of piracy off the coast of Somalia. We comply with these guidelines.

The IMO's Ballast Water Management Convention entered into force on September 8, 2017. As of December 31, 2018, there were 79 contracting states to the convention. The convention stipulates two standards for discharged ballast water. The D-1 standard covers ballast water exchange while the D-2 standard covers ballast water treatment. The convention requires the implementation of either the D-1 or D-2 standard. There will be a transitional period from the entry into force to the International Oil Pollution Prevention (or IOPP ) renewal survey in which ballast water exchange (reg. D-1) can be employed. The IMO’s Marine Environment Protection Committee (or MEPC ) agreed to a compromise on the implementation dates for the D-2 discharge standard: ships constructed on or after September 8, 2017 must comply with the D-2 standard upon delivery. Existing ships should be D-2 compliant on the first IOPP renewal following entry into force if the survey is completed on or after September 8, 2019, or a renewal IOPP survey is completed on or after September 8, 2014 but prior to September 8, 2017. Ships should be D-2 compliant on the second IOPP renewal survey after September 8, 2017 if the first renewal survey after that date is completed prior to September 8, 2019 and if the previous two conditions are not met. Vessels will be required to meet the discharge standard D-2 by installing an approved Ballast Water Management System (or BWMS ). Besides the IMO convention, ships sailing in U.S. waters are required to employ a type-approved BWMS which is compliant with USCG regulations. The USCG has approved a number of BWMS - Alfa Laval (Sweden), Ocean Saver (Norway), Sunrui (China), Optimarin (Norway), Ecochlor (USA), Erma First (Greece), Hyundai Heavy Industries Co. Ltd. (Korea), Qingdao Headway Technology Co. Ltd. (China), and JFE Engineering Corporation (Japan), out of which first two makers are under Teekay’ s approved list for retrofit. We estimate that the installation of approved BWMS may cost between $2 million and $3 million per vessel.
Amendments to MARPOL Annex VI that makes the data collection system for fuel oil consumption of ships mandatory were adopted at the 70th session of the MEPC held in October 2016 and entered into force on March 1, 2018. The amendments require operators to update the vessels Ship Energy Efficiency Management Plan (or SEEMP ) to include a part II describing the ship specific methodology that will be used for collecting and measuring data for fuel oil consumption, distance travelled, hours underway, ensuring data quality is maintained and the processes that will be used to report the data to the Administration. This must be verified as compliant on or before December 31, 2018, with the first data collection period being for the 2019 calendar year. A Confirmation of Compliance will be issued by the administration/registered organization, which must be kept on board the ship.
The IMO has also adopted an International Code for Ships Operating in Polar Waters ( or Polar Code ) which deals with matters regarding the design, construction, equipment, operation, search and rescue and environmental protection in relation to ships operating in waters surrounding the two poles. The Polar Code includes both safety and environmental provisions. The Polar Code and related amendments entered into force in January 2017. The Polar Code is mandatory for new vessels built after January 1, 2017. For existing ships, this code will be applicable from the first intermediate or renewal survey, whichever occurs first, beginning on or after January 1, 2018.

MARPOL Annex I also states that oil residue may be discharged directly from the sludge tank to the shore reception facility through standard discharge connections. They may also be discharged to the incinerator or to an auxiliary boiler suitable for burning the oil by means of

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a dedicated discharge pump. Amendments to Annex I expand on the requirements for discharge connections and piping to ensure residues are properly disposed of. Annex I is applicable for existing vessels with a first renewal survey beginning on or after January 1, 2017.

Amendments to MARPOL Annex V were adopted at the 70th session of the MEPC held in October 2016 and entered into force on March 1, 2018. The changes include criteria for determining whether cargo residues are harmful to the marine environment and a new Garbage Record Book (or GRB ) format with a new garbage category for e-waste. Solid bulk cargo as per regulation VI/1-1.2 of SOLAS, other than grain, shall now be classified as per the criteria in the new Appendix I of MARPOL Annex V , and the shipper shall then declare whether or not the cargo is harmful to the marine environment. A new form of the GRB has been included in Appendix II to MAROL Annex V. The GRB is now divided into two parts: Part I - for all garbage other than cargo residues, applicable to all ships. PART II - for cargo residues only applicable to ships carrying solid bulk cargo. These changes are reflected in the vessels latest revised GRB .

MSC 91 adopted amendments to SOLAS Regulation II-2/10 to clarify that a minimum of two-way portable radiotelephone apparatus for each fire party for fire-fighters' communication shall be carried on board. These radio devices shall be of explosion proof type or intrinsically safe type. All existing ships built before July 1, 2014 should comply with this requirement by the first safety equipment survey after July 1, 2018. All new vessels constructed (keel laid) on or after July 1, 2014 must comply with this requirement at the time of delivery. Amendments to SOLAS Regulation II-1/2/-12 on protection against noise. Regulation II-2/1 and II 2/10 on firefighting and new Regulation XI-12-1 on harmonization of survey periods of cargo ships not subject to the ESP code become effective January 1, 2020.

As per MSC. 338(91), requirements have been highlighted for audio and visual indicators for breathing apparatus which will alert the user before the volume of the air in the cylinder has been reduced to no less than 200 liters. This applies to ships constructed on or after July 1, 2014. Ships constructed before July 1, 2014 must comply no later than July 1, 2019.

Cyber-related risks are operational risks that are appropriately assessed and managed in accordance with the safety management requirements of the ISM Code. Cyber risks are required to be appropriately addressed in our safety management system no later than the first annual verification of the company's Document of Compliance after January 1, 2021.

The IMO continues to review and introduce new regulations; as such, it is impossible to predict what additional requirements, if any, may be adopted by the IMO and what effect, if any, such regulations might have on our operations.

European Union (or EU )
The EU has adopted legislation that: bans from European waters manifestly sub-standard vessels (defined as vessels that have been detained twice by EU port authorities, in the preceding two years); creates obligations on the part of EU member port states to inspect minimum percentages of vessels using these ports annually; provides for increased surveillance of vessels posing a high risk to maritime safety or the marine environment; and provides the EU with greater authority and control over classification societies, including the ability to seek to suspend or revoke the authority of negligent societies.

Two regulations, that are part of the implementation of the Port State Control Directive, came into force on January 1, 2011 and introduce a ranking system (published on a public website and updated daily) displaying shipping companies operating in the EU with the worst safety records. The ranking is judged upon the results of the technical inspections carried out on the vessels owned be a particular shipping company. Those shipping companies that have the most positive safety records are rewarded by subjecting them to fewer inspections, while those with the most safety shortcomings or technical failings recorded upon inspection will in turn be subject to a greater frequency of official inspections to their vessels.

The EU has, by way of Directive 2005/35/EC, which has been amended by Directive 2009/123/EC, created a legal framework for imposing criminal penalties in the event of discharges of oil and other noxious substances from ships sailing in its waters, irrespective of their flag. This relates to discharges of oil or other noxious substances from vessels. Minor discharges shall not automatically be considered as offences, except where repetition leads to deterioration in the quality of the water. The persons responsible may be subject to criminal penalties if they have acted with intent, recklessly or with serious negligence and the act of inciting, aiding and abetting a person to discharge a polluting substance may also lead to criminal penalties.

The EU has adopted a Directive requiring the use of low sulfur fuel. Since January 1, 2015, vessels have been required to burn fuel with sulfur content not exceeding 0.1% while within EU member states’ territorial seas, exclusive economic zones and pollution control zones that are included in SOX Emission Control Areas. Other jurisdictions have also adopted similar regulations. Since January 1, 2014, the California Air Resources Board has required vessels to burn fuel with 0.1% sulfur content or less within 24 nautical miles of California. China also established emission control areas and continues to establish such areas, restricting the maximum sulfur content of the fuel to be used by vessels within those areas, which limits become progressively stricter over time. Since January 1, 2017, all core ports within the three China ECAs (e.g. Tianjin, Qinhuangdao, Tangshan, Huanghua, Shenzhen, Guangzhou, Zhuhai, Shanghai, Ningbo-Zhoushan, Suzhou and Nantong) have implemented the low sulfur bunker requirements. It is anticipated that commencing January 1, 2018 all ports within the three China ECAs will have implemented the low sulfur bunker requirements.

The EU Ship Recycling Regulation entered into force on December 30, 2013. It aims to prevent, reduce and minimize accidents, injuries and other negative effects on human health and the environment when ships are recycled and the hazardous waste they contain is removed. The legislation applies to all ships flying the flag of an EU country and to vessels with non-EU flags that call at an EU port or anchorage. It sets out responsibilities for ship owners and for recycling facilities both in the EU and in other countries. Each new ship is required to have on board an inventory of the hazardous materials (such as asbestos, lead or mercury) it contains in either its structure or equipment. The use of certain hazardous materials is forbidden. Before a ship is recycled, its owner must provide the company carrying out the work with specific information about the vessel and prepare a ship recycling plan. Recycling may only take place at facilities listed on the EU ‘List of facilities’. In 2014, the Council Decision 2014/241/EU authorized EU countries having ships flying their flag or registered

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under their flag to ratify or to accede to the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships. The EU Ship Recycling Regulation generally entered into force on December 31, 2018, with certain provisions applicable from December 31, 2020. Compliance timelines are as follows: EU-flagged new-buildings were required to have onboard a verified Inventory of Hazardous Materials (or IHM ) with a Statement of Compliance at the latest by December 31, 2018, existing EU-flagged vessels are required to have onboard a verified IHM with a Statement of Compliance at the latest by December 31, 2020, non-EU-flagged vessels calling at EU ports are also required to have onboard a verified IHM with a Statement of Compliance latest by December 31, 2020. The EU Commission adopted a European List of approved ship recycling facilities, as well as four further implementing decisions dealing with certification and other administrative requirements set out in the EU Ship Recycling Regulation .

China

China has also established ECAs in the Pearl River Delta, the Yangtze River Delta and the Bohai Sea area with restrictions limiting sulfur content not to exceed 0.5% in such ECAs, with such limit decreasing over time.

All the key ports within the three China ECAs (e.g. Tianjin, Qinhuangdao, Tangshan, Huanghua, Shenzhen, Guangzhou, Zhuhai, Shanghai, Ningbo-Zhoushan, Suzhou and Nantong) have implemented the low sulfur bunker requirements. 

Commencing January 1, 2018, ships berthing (excluding one hour after berthing and one hour before departure) at all ports within the China ECAs are required to use fuel with sulphur contents at or below 0.5%. These limitations applied to the entire period vessels are in port within China ECAs effective January 1, 2019.

China will complete an assessment of the effectiveness of the introduced measures by the end of 2019. Based on the results of such assessment possible further enforcement of regulations limiting SOx emission in ECA’s may be implemented reducing the sulfphur content to 0.1% for ships in the ECA, extending the boundaries of the ECAs or introducing new control measures.
United States
The United States has enacted an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills, including discharges of oil cargoes, bunker fuels or lubricants, primarily through the Oil Pollution Act of 1990 (or OPA 90 ) and the Comprehensive Environmental Response, Compensation and Liability Act (or CERCLA ). OPA 90 affects all owners, bareboat charterers, and operators whose vessels trade to the United States or its territories or possessions or whose vessels operate in United States waters, which include the U.S. territorial sea and 200-mile exclusive economic zone around the United States. CERCLA applies to the discharge of “hazardous substances” rather than “oil” and imposes strict joint and several liability upon the owners, operators or bareboat charterers of vessels for cleanup costs and damages arising from discharges of hazardous substances. We believe that petroleum products, LNG and LPG should not be considered hazardous substances under CERCLA, but additives to oil or lubricants used on LNG or LPG carriers might fall within its scope.

Under OPA 90, vessel owners, operators and bareboat charters are “responsible parties” and are jointly, severally and strictly liable (unless the oil spill results solely from the act or omission of a third party, an act of God or an act of war and the responsible party reports the incident and reasonably cooperates with the appropriate authorities) for all containment and cleanup costs and other damages arising from discharges or threatened discharges of oil from their vessels. These other damages are defined broadly to include:

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natural resources damages and the related assessment costs;
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real and personal property damages;
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net loss of taxes, royalties, rents, fees and other lost revenues;
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lost profits or impairment of earning capacity due to property or natural resources damage;
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net cost of public services necessitated by a spill response, such as protection from fire, safety or health hazards; and
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loss of subsistence use of natural resources.

OPA 90 limits the liability of responsible parties in an amount it periodically updates. The liability limits do not apply if the incident was proximately caused by violation of applicable U.S. federal safety, construction or operating regulations, including IMO conventions to which the United States is a signatory, or by the responsible party’s gross negligence or willful misconduct, or if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with the oil removal activities. Liability under CERCLA is also subject to limits unless the incident is caused by gross negligence, willful misconduct or a violation of certain regulations. We currently maintain for each of our vessels pollution liability coverage in the maximum coverage amount of $1 billion per incident. A catastrophic spill could exceed the coverage available, which could harm our business, financial condition and results of operations.

Under OPA 90, with limited exceptions, all newly built or converted tankers delivered after January 1, 1994 and operating in U.S. waters must be double-hulled. All of our tankers are double-hulled.

OPA 90 also requires owners and operators of vessels to establish and maintain with the USCG evidence of financial responsibility in an amount at least equal to the relevant limitation amount for such vessels under the statute. The USCG has implemented regulations requiring that an owner or operator of a fleet of vessels must demonstrate evidence of financial responsibility in an amount sufficient to cover the vessel in the fleet having the greatest maximum limited liability under OPA 90 and CERCLA. Evidence of financial responsibility may be demonstrated by insurance, surety bond, self-insurance, guaranty or an alternate method subject to approval by the USCG. Under the self-insurance provisions, the shipowner or operator must have a net worth and working capital, measured in assets located in the

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United States against liabilities located anywhere in the world, that exceeds the applicable amount of financial responsibility. We have complied with the USCG regulations by using self-insurance for certain vessels and obtaining financial guaranties from a third party for the remaining vessels. If other vessels in our fleet trade into the United States in the future, we expect to obtain guaranties from third-party insurers.

OPA 90 and CERCLA permit individual U.S. states to impose their own liability regimes with regard to oil or hazardous substance pollution incidents occurring within their boundaries, and some states have enacted legislation providing for unlimited strict liability for spills. Several coastal states, such as California and Alaska, require state-specific evidence of financial responsibility and vessel response plans. We intend to comply with all applicable state regulations in the ports where our vessels call.

Owners or operators of vessels, including tankers operating in U.S. waters, are required to file vessel response plans with the USCG, and their tankers are required to operate in compliance with their USCG approved plans. Such response plans must, among other things:

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address a “worst case” scenario and identify and ensure, through contract or other approved means, the availability of necessary private response resources to respond to a “worst case discharge”;
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describe crew training and drills; and
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identify a qualified individual with full authority to implement removal actions.

All our vessels have USCG approved vessel response plans. In addition, we conduct regular oil spill response drills in accordance with the guidelines set out in OPA 90. The USCG has announced it intends to propose similar regulations requiring certain vessels to prepare response plans for the release of hazardous substances.

OPA 90 and CERCLA do not preclude claimants from seeking damages resulting from the discharge of oil and hazardous substances under other applicable law, including maritime tort law. Such claims could include attempts to characterize the transportation of LNG or LPG aboard a vessel as an ultra-hazardous activity under a doctrine that would impose strict liability for damages resulting from that activity. The application of this doctrine varies by jurisdiction.

The U.S. Clean Water Act (or the Clean Water Act ) also prohibits the discharge of oil or hazardous substances in U.S. navigable waters and imposes strict liability in the form of penalties for unauthorized discharges. The Clean Water Act imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA 90 and CERCLA discussed above.

Our vessels that discharge certain effluents, including ballast water, in U.S. waters must obtain a Clean Water Act permit from the Environmental Protection Agency (or EPA ) titled the “Vessel General Permit” and comply with a range of effluent limitations, best management practices, reporting, inspections and other requirements. The Vessel General Permit incorporated USCG requirements for ballast water exchange and includes specific technology-based requirements for vessels, and includes an implementation schedule to require vessels to meet the ballast water effluent limitations by the first dry docking after January 1, 2016, depending on the vessel size. The Vessel Incidental Discharge Act (or VIDA ) was signed into law on December 4, 2018 and establishes a new framework for the regulation of vessel incidental discharges under the Clean Water Act. VIDA requires the U.S. EPA to develop performance standards for incidental discharges and requires the USCG to develop regulations within two years of the EPA’s promulgation of standards. Under VIDA, all provisions of the Vessel General Permit remain in force and effect as currently written until the USCG regulations are finalized. Vessels that are constructed after December 1, 2013 are subject to the ballast water numeric effluent limitations. Several U.S. states have added specific requirements to the Vessel General Permit and, in some cases, may require vessels to install ballast water treatment technology to meet biological performance standards.

Various states in the United States, including California, have implemented additional regulations relating to the environment and operation of vessels. California Biofouling Management Plan requirements are as follows: developing and maintaining a Biofouling Management Plan, developing and maintaining a Biofouling Record Book, mandatory biofouling management of the vessel’s wetted surfaces, mandatory biofouling management for vessels that undergo an extended residency period (e.g. remain in the same location for 45 or more days). All vessel calling at California water were required to submit the "Annual Marine Invasive Reporting Form" by October 1, 2017 and should have CA-Biofouling management plan after a vessel’s first regularly scheduled out-of-water maintenance (e.g. dry dock) after January 1, 2018, or upon delivery on or after January 1, 2018.
New Zealand
New Zealand's Craft Risk Management Standard (or CRMS ) requirements are based on the IMO's guidelines for the control and management of ships' biofouling to minimize the transfer of invasive aquatic species.
Marine pests and diseases brought in on vessel hulls (or biofouling ) are a threat to New Zealand's marine resources. From May 15, 2018, all vessels arriving in New Zealand will need to have a clean hull. Vessels staying up to 20 days and only visiting designated ports (places of first arrival) will be allowed a slight amount of biofouling. Vessels staying longer and visiting other places will only be allowed a slime layer and goose barnacles.
Greenhouse Gas Regulation
In February 2005, the Kyoto Protocol to the United Nations Framework Convention on Climate Change (or the Kyoto Protocol ) took effect. Pursuant to the Kyoto Protocol, adopting countries are required to implement national programs to reduce emissions of greenhouse gases. In December 2009, more than 27 nations, including the United States, entered into the Copenhagen Accord. The Copenhagen Accord is

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non-binding but is intended to pave the way for a comprehensive, international treaty on climate change. In December 2015 the Paris Agreement (or the Paris Agreement ) was adopted by a large number of countries at the 21st Session of the Conference of Parties (commonly known as COP 21, a conference of the countries which are parties to the United Nations Framework Convention on Climate Change; the COP is the highest decision-making authority of this organization). The Paris Agreement, which entered into force on November 4, 2016, deals with greenhouse gas emission reduction measures and targets from 2020 in order to limit the global temperature increases to well below 2 o Celsius above pre-industrial levels. Although shipping was ultimately not included in the Paris Agreement, it is expected that the adoption of the Paris Agreement may lead to regulatory changes in relation to curbing greenhouse gas emissions from shipping.

In July 2011, the IMO adopted regulations imposing technical and operational measures for the reduction of greenhouse gas emissions. These new regulations formed a new chapter in Annex VI and became effective on January 1, 2013. The new technical and operational measures imposed by these new regulations include the “Energy Efficiency Design Index” (or the EEDI ), which is mandatory for newbuilding vessels, and the “Ship Energy Efficiency Management Plan,” which is mandatory for all vessels. In October 2016, the IMO’s MEPC adopted updated guidelines for the calculation of the EEDI. In October 2014, the IMO’s MEPC agreed in principle to develop a system of data collection regarding fuel consumption of ships. In October 2016, the IMO adopted a mandatory data collection system under which vessels of 5,000 gross tonnage and above are to collect fuel consumption and other data and to report the aggregated data so collected to their flag state at the end of each calendar year. The new requirements entered into force on March 1, 2018. All vessels are required to submit fuel consumption data to their respective administration/registered organizations for onward submission to the IMO for analysis and to help with decision making on future measures. The amendments require operators to update the vessels SEEMP to include a part II describing the ship specific methodology that will be used for collecting and measuring data for fuel oil consumption, distance travelled, hours underway and processes that will be used to report the data to the Administration, in order to ensure data quality is maintained. The vessels were required to be verified as compliant on or before December 31, 2018, with the first data collection period being for the 2019 calendar year. A Confirmation of Compliance will be issued by the administration/registered organization, which must be kept on board the ship. The IMO also approved a roadmap for the development of a comprehensive IMO strategy on reduction of greenhouse gas emissions from ships with an initial strategy adopted on April 13, 2018 and a revised strategy to be adopted in 2023 .

The EU also has indicated that it intends to propose an expansion of an existing EU emissions trading regime to include emissions of greenhouse gases from vessels, and individual countries in the EU may impose additional requirements. The EU has adopted Regulation (EU) 2015/757 on the monitoring, reporting and verification (or MRV ) of CO2 emissions from vessels (or the MRV Regulation ), which entered into force on July 1, 2015. The MRV Regulation aims to quantify and reduce CO2 emissions from shipping. It lists the requirements on the MRV of carbon dioxide emissions and requires ship owners and operators to annually monitor, report and verify CO2 emissions for vessels larger than 5,000 gross tonnage calling at any EU and EFTA (Norway and Iceland) port (with a few exceptions, such as fish-catching or fish-processing vessels). Data collection takes place on a per voyage basis and started January 1, 2018. The reported CO2 emissions, together with additional data, such as cargo and energy efficiency parameters, are to be verified by independent verifiers and sent to a central inspection database hosted by the European Maritime Safety Agency (or EMSA ) to collate all the data applicable to the EU region. Companies responsible for the operation of large ships using EU ports are required to report their CO2 emissions. While the EU was considering a proposal for the inclusion of shipping in the EU Emissions Trading System as from 2021 (in the absence of a comparable system operating under the IMO), it appears that the decision to include shipping may be deferred until 2023 .
In the United States, the EPA issued an “endangerment finding” regarding greenhouse gases under the U.S. Clean Air Act. While this finding in itself does not impose any requirements on our industry, it authorizes the EPA to regulate directly greenhouse gas emissions through a rule-making process. In addition, climate change initiatives are being considered in the United States Congress and by individual states. Any passage of new climate control legislation or other regulatory initiatives by the IMO, EU, the United States or other countries or states where we operate that restrict emissions of greenhouse gases could have a significant financial and operational impact on our business that we cannot predict with certainty at this time.
Vessel Security
The ISPS was adopted by the IMO in December 2002 in the wake of heightened concern over worldwide terrorism and became effective on July 1, 2004. The objective of ISPS is to enhance maritime security by detecting security threats to ships and ports and by requiring the development of security plans and other measures designed to prevent such threats. Each of the existing vessels in our fleet currently complies with the requirements of ISPS and Maritime Transportation Security Act of 2002 (U.S. specific requirements). Procedures are in place to inform the relevant reporting regimes such as Maritime Security Council Horn of Africa (or MSCHOA ), the Maritime Domain Awareness for Trade - Gulf of Guinea (or MDAT-GoG ), the Information Fusion Center (or IFC ) whenever our vessels are calling in the Indian Ocean Region, or West Coast of Africa (or WAC ) or SE Asia high risk areas respectively. In order to mitigate the security risk, security arrangements are required for vessels which travel through these high risk areas.
C. Organizational Structure
Our sole General Partner is Teekay GP L.L.C., which is a wholly-owned indirect subsidiary of Teekay Corporation (NYSE: TK). Teekay Corporation also owns 31.8% of our outstanding publicly - traded common units. Teekay Corporation also controls its publicly-listed subsidiary Teekay Tankers Ltd. (NYSE: TNK) and owns 49% of the general partner interest and 13.8% of the outstanding publicly-traded common units of Teekay Offshore Partners L.P. (NYSE: TOO).

Please read Exhibit 8.1 to this Annual Report for a list of our subsidiaries as at December 31, 2018 .

D.
Property, Plant and Equipment

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Other than our vessels and our 30% interest, through the Bahrain LNG Joint Venture, in an LNG receiving and regasification terminal under construction, we do not have any material property.

Please see “Item 4 – Information on the Partnership: Our Fleet and Our Charters” for a description of our vessels, and “Item 18 – Financial Statements: Note 5 – Chartered-in Vessels" and "Note 10 – Long-Term Debt” for information about major encumbrances against our vessels.
E.
Taxation of the Partnership
The expected material U.S federal income tax considerations applicable to us changed significantly effective as of January 1, 2019, due to our election to be taxed as a corporation, rather than as a partnership, for U.S. federal income tax purposes.  The discussion included herein is with regard to the material U.S. federal income tax considerations that may be relevant to us and our unitholders in 2019 and future years. For a discussion on material U.S. federal income tax considerations during 2018 that may have been relevant to us and our unitholders who were individual citizens or residents of the United States, please read “Item 10. Additional Information – Taxation-United States Tax Consequences” in our Annual Report on Form 20-F for the year ended December 31, 2017.
United States Taxation

The following is a discussion of the expected material U.S. federal income tax considerations applicable to us effective January 1, 2019. This discussion is based upon the provisions of the Code, legislative history, applicable U.S. Treasury Regulations (or Treasury Regulations ), judicial authority and administrative interpretations, all as in effect on the date of this Annual Report, and which are subject to change, possibly with retroactive effect, or are subject to different interp retations. Changes in these authorities may cause the tax consequences to vary substantially from the consequences described below.

Election to be Taxed as a Corporation. We have elected to be taxed as a corporation for U.S. federal income tax purposes effective January 1, 2019. As such, we are subject to U.S. federal income tax on our income to the extent it is from U.S. sources or otherwise is effectively connected with the conduct of a trade or business in the United States as discussed below.
 
Taxation of Operating Income. We expect that substantially all of our gross income and the gross income of our corporate subsidiaries will be attributable to the transportation of LNG, LPG, ammonia, crude oil and related products. For this purpose, gross income attributable to transportation (or Transportation Income ) includes income derived from, or in connection with, the use (or hiring or leasing for use) of a vessel to transport cargo, or the performance of services directly related to the use of any vessel to transport cargo, and thus includes both time-charter and bareboat charter income.

Fifty percent (50%) of Transportation Income that either begins or ends, but that does not both begin and end, in the United States (or U.S. Source International Transportation Income ) is considered to be derived from sources within the United States. Transportation Income that both begins and ends in the United States (or U.S. Source Domestic Transportation Income ) is considered to be 100% derived from sources within the United States. Transportation Income exclusively between non-U.S. destinations is considered to be 100% derived from sources outside the United States. Transportation Income derived from sources outside the United States generally is not subject to U.S. federal income tax .

Based on our current operations and the operations of our subsidiaries, we expect most of our Transportation Income to be from sources outside the United States and not subject to U.S. federal income tax. However, we have earned over $64.5 million of U.S. Source International Transportation Income annually, and we expect that we will continue to earn an increasing amount of such income in future years. Our U.S. Source International Transportation Income or U.S. Source Domestic Transportation Income is subject to U.S. federal income taxation under either the net basis and branch profits taxes or the 4% gross basis tax, each of which is discussed below, unless the exemption from U.S. taxation under Section 883 of the Code (or the Section 883 Exemption ) applies.

The Section 883 Exemption. In general, the Section 883 Exemption provides that if a non-U.S. corporation satisfies the requirements of Section 883 of the Code and the Treasury Regulations thereunder, it will not be subject to the net basis and branch profits taxes or the 4% gross basis tax described below on its U.S. Source International Transportation Income. The Section 883 Exemption does not apply to U.S. Source Domestic Transportation Income.

We do not believe that we will be able to qualify for the Section 883 Exemption and therefore our U.S. Source International Transportation Income will not be exempt from U.S. federal income taxation.

Net Basis Tax and Branch Profits Tax.  If the Section 883 Exemption does not apply, our U.S. Source International Transportation Income may be treated as effectively connected with the conduct of a trade or business in the United States (or Effectively Connected Income ) if we have a fixed place of business in the United States and substantially all of our U.S. Source International Transportation Income is attributable to regularly scheduled transportation or, in the case of income derived from bareboat charters, is attributable to a fixed place of business in the United States. Based on our current operations, none of our potential U.S. Source International Transportation Income is attributable to regularly scheduled transportation or is derived from bareboat charters attributable to a fixed place of business in the United States. As a result, we do not anticipate that any of our U.S. Source International Transportation Income will be treated as Effectively Connected Income. However, there is no assurance that we will not earn income pursuant to regularly scheduled transportation or bareboat charters attributable to a fixed place of business in the United States in the future, which will result in such income being treated as Effectively Connected Income. U.S. Source Domestic Transportation Income generally will be treated as Effectively Connected Income. However, we do not anticipate that a material amount of our income has been, or will be, U.S. Source Domestic Transportation Income.

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Any income we earn that is treated as Effectively Connected Income would be subject to U.S. federal corporate income tax (the statutory rate for 2018 onwards is 21%) and a 30% branch profits tax imposed under Section 884 of the Code. In addition, a branch interest tax could be imposed on certain interest paid or deemed paid by us.

On the sale of a vessel that has produced Effectively Connected Income, we generally would be subject to the net basis and branch profits taxes with respect to our gain recognized up to the amount of certain prior deductions for depreciation that reduced Effectively Connected Income. Otherwise, we would not be subject to U.S. federal income tax with respect to gain realized on sale of a vessel, provided the sale is considered to occur outside of the United States under U.S. federal income tax principles.

The 4% Gross Basis Tax.  We believe we were not subject to the 4% Gross Basis Tax in 2018 because we were treated as a parthership for U.S. tax purposes in 2018. If the Section 883 Exemption does not apply in 2019 and future years when we are treated as a corporation for U.S. tax purposes and we are not subject to the net basis and branch profits taxes described above, we will be subject to a 4% U.S. federal income tax on our gross U.S. Source International Transportation Income, without benefit of deductions. If we had been treated as a corporation in 2018, we estimate that, in this event, we would have been subject to less than $1.4 million of U.S. federal income tax based on the amount of U.S. Source International Transportation Income we earned for 2018. We expect the amount of our liability for U.S. federal income tax on our U.S. Source International Transportation Income to increase in 2019 and subsequent years, based on our expected U.S. Source International Transportation Income. The amount of such tax for which we are liable in any year will depend upon the amount of income we earn from voyages into or out of the United States in such year, however, which is not within our complete control.
Marshall Islands Taxation

Because we and our controlled affiliates do not, and we do not expect that we and our controlled affiliates will, conduct business, operations, or transactions in the Republic of the Marshall Islands, neither we nor our controlled affiliates are subject to income, capital gains, profits or other taxation under current Marshall Islands law, other than taxes, fines, or fees due to (i) the incorporation, dissolution, continued existence, merger, domestication (or similar concepts) of legal entities registered in the Republic of the Marshall Islands, (ii) filing certificates (such as certificates of incumbency, merger, or redomiciliation) with the Marshall Islands registrar, (iii) obtaining certificates of good standing from, or certified copies of documents filed with, the Marshall Islands registrar, (iv) compliance with Marshall Islands law concerning vessel ownership, such as tonnage tax, or (v) non-compliance with requests made by the Marshall Islands registrar of corporations relating to our books and records and the books and records of our subsidiaries. As a result, distributions by controlled affiliates to us are not subject to Marshall Islands taxation.
Other Taxation

We and our subsidiaries are subject to taxation in certain non-U.S. jurisdictions because we or our subsidiaries are either organized, or conduct business or operations, in such jurisdictions, but we do not expect any such tax to be material. However, we cannot assure this result as tax laws in these or other jurisdictions may change, or we may enter into new business transactions relating to such jurisdictions, which could affect our tax liability. Please read “Item 18 – Financial Statements: Note 11 – Income Tax.”

Item 4A.
Unresolved Staff Comments
Not applicable.
Item 5.
Operating and Financial Review and Prospects
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Teekay LNG Partners L.P. is an international provider of marine transportation services focusing on LNG and LPG. Our primary strategy focuses on servicing customers through our fleet of LNG and LPG carriers under medium to long-term, fixed-rate charters. In executing our strategy, we may engage in vessel or business acquisitions or enter into joint ventures and partnerships with companies that provide increased access to emerging opportunities from global expansion of the LNG and LPG sectors. We seek to leverage the expertise, relationships and reputation of Teekay Corporation and its affiliates to pursue these opportunities in the LNG and LPG sectors and may consider other opportunities to which our competitive strengths are well suited. As of December 31, 2018, we had a fleet of 49 LNG carriers (including six LNG carrier newbuildings), 29 LPG/multi-gas carriers and two conventional tankers. Our ownership interests in these vessels range from 20% to 100%. In addition to our fleet, we have a 30% ownership interest in an LNG receiving and regasification terminal in Bahrain, which is currently under construction.
SIGNIFICANT DEVELOPMENTS IN 2018 AND EARLY 2019
Quarterly Distributions


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We intend to increase our quarterly cash distributions on our common units by 36% in 2019, commencing with the distribution for the quarter ended March 31, 2019, as part of a balanced capital allocation strategy. Any increase in the level of quarterly distributions is subject to approval by the board of directors of our general partner (or Board of Directors ).

Common Unit Repurchase Program

In December 2018, we announced that our Board of Directors had authorized a common unit repurchase program of up to $100 million of our common units. Common units may be repurchased in the open market or privately-negotiated transactions or otherwise at times and prices considered appropriate by us. The timing of any purchases and the exact number of common units to be purchased under the common unit repurchase program will be dependent on market conditions and other factors.

During December 2018 and January 2019, we repurchased 0.3 million and 0.8 million of our common units for $3.7 million and $9.3 million, respectively.

Change in Tax Structure

During the special meeting of common unitholders held on December 18, 2018, the proposal to allow us to elect to be treated as a corporation, instead of a partnership, for U.S. federal income tax purposes, and other proposals included in the related proxy statement, were approved by unitholders. As a result, effective January 1, 2019, the Partnership will be treated as a corporation for U.S. federal income tax purposes and commencing in 2019, common and preferred unitholders will receive Form 1099s instead of Schedule K-1s relating to distributions taxable as dividends. The Partnership will remain a master limited partnership, all other provisions of the Partnership's limited partnership agreement remain in effect.

This change to our status for U.S. federal income tax purposes should not result in the Partnership recognizing a tax related gain or loss. While some investors may incur a tax gain on conversion, any gain recognized for U.S. tax purposes is expected to result in tax benefits to investors that are expected to reduce the taxable portion of cash distributions paid by us in the future.
LNG Carrier Newbuildings
Consolidated Fleet
Six of our LNG carrier newbuildings, the Magdala, Myrina, Megara, Bahrain Spirit FSU, Sean Spirit and Yamal Spirit delivered in February 2018, May 2018, July 2018, August 2018, December 2018 and January 2019, respectively. Upon delivery, the Magdala , Myrina and Megara were sold to third parties and leased back under 10-year bareboat charter contracts with purchase obligations for each respective vessel and concurrently commenced their six, eight and eight-year charter contracts with Royal Dutch Shell Plc (or Shell ), respectively. The Bahrain Spirit FSU commenced its 21-year charter contract with the Bahrain LNG Joint Venture in September 2018 and the Sean Spirit commenced its 13-year charter contract (which the charterer has a cancellation option after seven years) with BP Plc in December 2018. In January 2019, the Yamal Spirit LNG carrier newbuilding was delivered and concurrently commenced its 15-year charter time-contract with Yamal Trade Pte. Ltd . Upon delivery of the vessel, the Partnership sold and leased back the vessel under a sale-leaseback financing transaction, which the Partnership secured on January 18, 2019.

Pan Union Joint Venture
In January 2018, July 2018 and January 2019, the Pan Union Joint Venture took delivery of its second, third and fourth LNG carrier newbuildings, the Pan Americas, Pan Europe and Pan Africa, respectively. Upon delivery, the vessels commenced their 20-year charter contracts with Shell. We have ownership interest in these vessels ranging from 20% to 30% through the Pan Union Joint Venture.
Yamal LNG Joint Venture
In January 2018, the Yamal LNG Joint Venture took delivery of its first ARC7 LNG carrier newbuilding, the Eduard Toll. In September 2018, the Yamal LNG Joint Venture took delivery of its second ARC7 LNG carrier newbuilding, Rudolf Samoylovich, earlier than the scheduled November 2018 delivery date to service the project’s second LNG train. Upon delivery, the vessels commenced their 28-year and 27-year charter contracts with Yamal Trade Pte, respectively. Ltd. The Yamal LNG Joint Venture currently has four remaining ARC7 LNG carrier newbuildings that are scheduled for delivery in 2019. The Yamal LNG Joint Venture has secured financing in place for its four remaining ARC7 LNG carrier newbuildings.

Excelsior Joint Venture
In January 2018, we sold our 50% ownership interest in the Excelsior Joint Venture to a t hird party for gross proceeds of approximately $54 million. We recognized a gain on the sale of our ownership interest of $5.6 million, which was recorded in equity income for the year ended December 31, 2018.

Re-chartering Activities

In March 2018, upon its scheduled redelivery to us from Teekay Corporation, we re-chartered the Polar Spirit LNG carrier to an Asian-based energy company for a period of approximately three months and then subsequently secured employment for the vessel beginning in July 2018 for nine months with a subsidiary of Petroliam Nasional Berhad (or Petronas ). In addition, we secured a four-year charter contract for the Arctic Spirit LNG carrier, also with a subsidiary of Petronas, which commenced immediately upon its scheduled redelivery from Teekay Corporation to us in May 2018. In May 2018, we agreed to a six-month charter extension of the Torben Spirit LNG carrier to December 2018

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with a major energy company, which was further extended for an additional three years from the six-month extension that ended in December 2018.

Teekay Nakilat Capital Lease

We own a 70% interest in the Teekay Nakilat Joint Venture, which wholly owns a subsidiary that was the lessee under three separate 30-year capital lease arrangements with a third party for three LNG carriers (or the RasGas II LNG Carriers ). Under the terms of the leases, the lessor claimed tax depreciation on the capital expenditures it incurred to acquire these vessels and paid the Teekay Nakilat Joint Venture as lessee an upfront benefit of $60.9 million at the lease inception. As is typical in these leasing arrangements, tax and change of law risks were assumed by the lessee. As described in "Item 18 - Financial Statements: Note 14b - Commitments and Contingencies," during the year ended December 31, 2018, the lessor made a determination that additional rentals were due under the leases following a challenge by the UK taxing authority and the Teekay Nakilat Joint Venture paid $63 million to the lessor, at foreign exchange rates at the dates of payment, to satisfy this tax indemnification liability in full. Of this amount, $53 million was expensed in other expense in our consolidated statements of income for the year ended December 31, 2018, which was in addition to the $12.7 million tax indemnification guarantee recorded as at December 31, 2017, with the remaining difference relating to foreign currency exchange gain.

LPG Carrier Newbuildings
In March, May and July 2018 our 50%-owned Exmar LPG Joint Venture, took delivery of its seventh, eighth and ninth LPG carrier newbuildings in the past four years, the Kapellen , Koksijde and Wepion , respectively. The Kapellen, Koksijde and Wepion are on short-term charter contracts. The Kapellen and Koksijde were financed through sale-leaseback financing transactions and in July 2018 the Exmar LPG Joint Venture completed a three-year, $35 million debt financing for the Wepion .
Conventional Tankers
In February 2018 and January 2019, CEPSA, the charterer and owner of our capital leased vessels, the Teide Spirit and Toledo Spirit, sold these vessels to third parties. As a result of these sales, we returned the vessels to CEPSA and the full amount of the associated obligations related to the capital lease were concurrently extinguished. In addition, we incurred associated seafarer severance payments in 2018 of approximately $1.8 million upon the sale of the Teide Spirit and approximately $1.8 million in 2019 for the sale of the Toledo Spirit .

On October 9, 2018, we sold the African Spirit Suezmax tanker for net proceeds of $12.8 million. On December 5, 2018, we sold the European Spirit Suezmax tanker for net proceeds of $15.7 million. During 2018, prior to the sale of these vessels, we recorded further aggregate write-downs on these two Suezmax tankers totaling $7.9 million (December 31, 2017 – $25.1 million).

Bond Issuance and Refinancings

In July 2018, we refinanced our 106.8 million Euro-denominated debt facility maturing in 2018 with a new EUR 100 million debt facility maturing in 2024, which is collateralized by a first-priority mortgage on one of our LNG carriers, the Madrid Spirit . In August 2018, we issued, in the Norwegian bond market, NOK 850 million in senior unsecured bonds that mature in August 2023. The aggregate principal amount of the bonds was equivalent to $102.0 million and all interest and principal payments have been swapped into U.S. Dollars at a fixed interest rate of 7.89%. We used the net proceeds from the bond offering to repay NOK 900 million in senior unsecured bonds that matured in September 2018 and for general corporate purposes. In November 2018, we refinanced our $190 million revolving credit facility, which was scheduled to mature in November 2018, with a new $225 million revolving credit facility maturing in November 2020 at an interest rate of LIBOR plus 1.40%. In December 2018, we refinanced our $100 million facility relating to the Bahrain Spirit FSU by completing a $109 million guaranteed private placement bond maturing in August 2030 at a fixed interest rate of 4.41%. In January 2019, we refinanced our $106 million debt facility relating to the Sean Spirit by issuing a $106 million bond maturing in December 2030 at a fixed interest rate of 4.71%.

Equity-Accounted Joint Venture's Financings and Refinancings
In September 2018, the Teekay LNG-Marubeni Joint Venture completed the refinancing of its existing $306.5 million U.S. Dollar-denominated term loan which was scheduled to mature in September 2019 with a new $306.5 million U.S. Dollar-denominated loan agreement maturing in December 2023 at an interest rate of LIBOR plus margins ranging from 1.00% to 2.25%. The loan is collateralized by first-priority statutory mortgages over the Marib Spirit , Arwa Spirit , Methane Spirit and Magellan Spirit LNG carriers, first priority pledges or charges of all the issued shares of the respective vessel owning subsidiaries and is guaranteed by us and Marubeni Corporation on a several basis. In March 2019, the Excalibur Joint Venture amended its $60 million debt facility which extended the loan maturity from November 2019 to December 2021 and lowered the cost of financing.

Charter Contracts for MALT LNG Carriers

Two of the six MALT LNG Carriers in our 52%-owned Teekay LNG-Marubeni Joint Venture, the Marib Spirit and Arwa Spirit , are under long-term charters with YLNG. Due to the political unrest in Yemen, YLNG decided to temporarily close operation of its LNG plant in Yemen in 2015. As a result, commencing January 1, 2016, the Teekay LNG-Marubeni Joint Venture agreed to successive deferral arrangements with YLNG pursuant to which a portion of the charter payments were deferred . Concurrent with the anticipated expiry of the most current deferral arrangement, which is expected to occur within the first half of 2019, the Teekay LNG-Marubeni Joint Venture intends to enter into a further agreement with YLNG pursuant to which the Teekay LNG-Marubeni Joint Venture and YLNG will suspend the two charter contracts for a period of up to three years. Should the LNG plant in Yemen resumes operations during such suspended term, it is intended that YLNG will be required to repay the applicable deferred amounts plus interest over a period of installments. However, we m ake no assurance whether or when the LNG plant will resume operations and, accordingly, if YLNG will be able to repay all or any portion of the deferred amounts. Our proportionate share of the estimated impact of the charter payment deferral for 2019 compared to the original charter rates earned prior to

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January 1, 2016 is estimated to be a reduction to equity income ranging from $7 million to $8 million per quarter, which we expect will be partially offset by sub-chartering employment for the Marib Spirit and Arwa Spirit in 2019.

In September 2018, the Teekay LNG-Marubeni Joint Venture agreed to charter its LNG carrier, the Magellan Spirit, to us for two years at a fixed rate. In turn, we will charter the Magellan Spirit in the spot market or secure a short-term charter for this vessel. The Magellan Spirit was employed on a charter contract until March 21, 2019 at a charter rate that was significantly higher than the charter-in rate. As of the completion of the Magellan Spirit's charter contract in March 21, 2019, we have been in discussions on securing a new charter contract for this vessel.

Commercial Management Agreement for Multi-gas Vessels

On February 25, 2019, we entered into a commercial management agreement (or CMA ) with a third-party commercial manager (or the Manager ) whereby the Manager agreed to commercially manage and employ our seven multi-gas vessels, with such transition to occur over a period between February 2019 and April 2019. We have the ability to withdraw our vessels from the Manager at any time subject to the requirements provided in the CMA.

IMPORTANT FINANCIAL AND OPERATIONAL TERMS AND CONCEPTS
We use a variety of financial and operational terms and concepts when analyzing our performance. These include the following:

Voyage Revenues . Voyage revenues currently include revenues from charters accounted for under operating and direct financing leases. Voyage revenues are affected by hire rates and the number of calendar-ship-days a vessel operates. Voyage revenues are also affected by the mix of business between time and voyage charters. Hire rates for voyage charters are more volatile than for time charters, as they are typically tied to prevailing market rates at the time of a voyage.

Voyage Expenses . Voyage expenses are all expenses unique to a particular voyage, including any fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions. Voyage expenses are typically paid by the customer under charters and by us under voyage charters.

Net Voyage Revenues . Net voyage revenues represent voyage revenues less voyage expenses. Because the amount of voyage expenses we incur for a particular charter depends upon the type of the charter, we use net voyage revenues to improve the comparability between periods of reported revenues that are generated by the different types of charters. We principally use net voyage revenues, a non-GAAP financial measure, because it provides more meaningful information to us about the deployment of our vessels and their performance than voyage revenues, the most directly comparable financial measure under GAAP.

Vessel Operating Expenses . Under all types of charters and contracts for our vessels, except for bareboat charters, we are responsible for vessel operating expenses, which include crewing, ship management services, repairs and maintenance, insurance, stores, lube oils and communication expenses. The two largest components of our vessel operating expenses are crew costs and repairs and maintenance. We expect these expenses to increase as our fleet matures and to the extent that it expands.

Income from Vessel Operations . To assist us in evaluating our operations by segment, we analyze the income we receive from each segment after deducting operating expenses, but prior to the inclusion or deduction of equity income, interest expense, taxes, foreign currency and derivative gains or losses and other income. For more information, please read “Item 18 – Financial Statements: Note 4 – Segment Reporting.”

Dry docking . We must periodically dry dock each of our vessels for inspection, repairs and maintenance and any modifications required to comply with industry certification or governmental requirements. Generally, we dry dock each of our vessels every two and a half to five years, depending upon the type of vessel and its age. We capitalize certain costs incurred during dry docking and amortize those costs on a straight-line basis from the completion of a dry docking to the estimated completion of the next dry docking. We include in capitalized dry docking those costs incurred as part of the dry docking to meet classification and regulatory requirements. We expense costs related to routine repairs and maintenance performed during dry docking. The number of dry dockings undertaken in a given period and the nature of the work performed determine the level of dry-docking expenditures.

Depreciation and Amortization . Our depreciation and amortization expense typically consists of the following three components:

•
charges related to the depreciation of the historical cost of our fleet (less an estimated residual value) over the estimated useful lives of our vessels;
•
charges related to the amortization of dry-docking expenditures over the useful life of the dry dock; and
•
charges related to the amortization of the fair value of the time-charters acquired in a 2004 acquisition of four LNG carriers (over the expected remaining terms of the charters).

Revenue Days . Revenue days are the total number of calendar days our vessels were in our possession during a period less the total number of off-hire days during the period associated with major repairs, dry dockings or special or intermediate surveys. Consequently, revenue days represents the total number of days available for the vessel to earn revenue. Idle days, which are days when the vessel is available to earn revenue, yet is not employed, are included in revenue days. We use revenue days to explain changes in our net voyage revenues between periods.

Calendar-Ship-Days . Calendar-ship-days are equal to the total number of calendar days that our vessels were in our possession during a period. As a result, we use calendar-ship-days primarily in explaining changes in vessel operating expenses and depreciation and amortization.

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Utilization . Utilization is an indicator of the use of our fleet during a given period and is determined by dividing our revenue days by our calendar-ship-days for the period.
RESULTS OF OPERATIONS
Items You Should Consider When Evaluating Our Results of Operations
Some factors that have affected our historical financial performance and may affect our future performance are listed below:

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The amount and timing of dry docking of our vessels can affect our revenues between periods.  Our vessels are off-hire at various times due to scheduled and unscheduled maintenance. During 2018, 2017 and 2016, we had 156, 63 and zero scheduled off-hire days, respectively, relating to the dry docking of our vessels which are consolidated for accounting purposes. In addition, certain of our consolidated vessels had unplanned off-hire of 178 days in 2018, 57 days in 2017, and 39 days in 2016 relating to repairs. The financial impact from these periods of off-hire, if material, is explained in further detail below.
•
The size of our fleet changes . Our historical results of operations reflect changes in the size and composition of our fleet due to certain vessel deliveries and sales. Please read “Liquefied Natural Gas Segment”, "Liquefied Petroleum Gas Segment" and “Conventional Tanker Segment” below and “Significant Developments in 2018 and Early 2019” above for further details about certain prior and future vessel deliveries and sales.
•
Vessel operating and other costs are facing industry-wide cost pressures . The shipping industry continues to forecast a shortfall in qualified personnel, although weak shipping markets and slowing growth may ease officer shortages. We will continue to focus on our manning and training strategies to meet future needs. In addition, factors such as customer demands for enhanced training and physical equipment, pressure on commodity and raw material prices, as well as changes in regulatory requirements could also contribute to operating expenditure increases. We continue to take action aimed at improving operational efficiencies, and to temper the effect of inflationary and other price escalations; however, increases to operational costs may well occur in the future.
•
Our financial results are affected by fluctuations in the fair value of our derivative instruments. The change in fair value of our derivative instruments is included in our net income as the majority of our derivative instruments are not designated as hedges for accounting purposes. These changes may fluctuate significantly as interest rates, foreign exchange rates and spot tanker rates fluctuate relating to our interest rate swaps, interest rate swaptions, cross currency swaps and to the agreement we had with Teekay Corporation relating to the time charter contract for the Toledo Spirit Suezmax tanker prior to its sale in 2019. Please read “Item 18 – Financial Statements: Note 12d – Related Party Transactions” and “Note 13 – Derivative Instruments and Hedging Activities.” The unrealized gains or losses relating to changes in fair value of our derivative instruments do not impact our cash flows.
•
Our financial results are affected by fluctuations in currency exchange rates. Under GAAP, all foreign currency-denominated monetary assets and liabilities (including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, advances from affiliates, and long-term debt) are revalued and reported based on the prevailing exchange rate at the end of the period. These foreign currency translations fluctuate based on the strength of the U.S. Dollar relative mainly to the Euro and NOK and are included in our results of operations. The translation of all foreign currency-denominated monetary assets and liabilities at each reporting date results in unrealized foreign currency exchange gains or losses but do not currently impact our cash flows.
•
Certain of our consolidated and equity-accounted vessels earned revenues based partly on spot market rates. Our previously owned conventional tankers, the European Spirit and African Spirit , our seven wholly-owned multi-gas carriers, four of our 52%-owned LNG carriers in the Teekay LNG-Marubeni Joint Venture, and certain of our LPG carriers in our 50%-owned Exmar LPG Joint Venture were either trading or are currently trading in the spot market. Volatility of spot rates will affect our results from period to period.

•
We increased our operating and reporting segments from two to three segments. Prior to 2018, we reported our financial results on the basis of two business segments: a liquified gas segment and a conventional tanker segment. During 2018, our Teekay Multi-Gas Pool commenced operations. As part of this initiative, we completed an internal reorganization and revised our reportable segments, as such changes resulted in management viewing the gas fleet and its components differently. As a result, our LPG and multi-gas carriers are now reported in a separate segment apart from our LNG carriers. Effective as of the fourth quarter of 2018, we manage our business and analyze and report our results from operations on the basis of three business segments: the liquefied natural gas segment, the liquefied petroleum gas segment and the conventional tanker segment. All segment information for comparative periods has been retroactively adjusted to conform with the change in segment presentation adopted in 2018. Details of the changes to our results from operations for the year ended December 31, 2018 compared to the year ended December 31, 2017 for each of our segments are provided below.
Year Ended December 31, 2018 versus Year Ended December 31, 2017
Summary

Our consolidated income from vessel operations was $147.8 million for the year ended December 31, 2018 , compared to $148.6 million for the year ended December 31, 2017 . The primary reasons for this decrease, which are reflected in the table below and described following the table, are as follows:


46

CHART-FADBD42A416B59E3B27.JPG
•
lower income from vessel operations from our seven multi-gas carriers and two conventional tankers trading in the spot market in 2018 and the Polar Spirit earning a lower time-charter rate upon redeployment;
•
higher general and administrative expenses in 2018 primarily due to an increase in operational staff relating to new vessel deliveries, higher levels of business development activities and increased professional fees; and
•
write-downs of goodwill on three conventional vessels and four multi-gas carriers in 2018 and restructuring charges related to the sale of t he Teide Spirit in February 2018, net of the initial write-downs of four conventional vessels in 2017;
partially offset by:
•
deliveries to us of the Torben Spirit, Macoma, Murex, Magdala, Myrina, Megara, Bahrain Spirit and Sean Spirit LNG carrier newbuildings between February 2017 and December 2018.
Liquefied Natural Gas Segment
As at December 31, 2018 , our liquefied natural gas segment fleet, including newbuildings, included 49 LNG carriers, in which our interests ranged from 20% to 100%. However, the table of operating results below only includes the 23 LNG carriers that are accounted for under the consolidation method of accounting and the Magellan Spirit , a vessel chartered-in from the Teekay LNG-Marubeni Joint Venture and excludes one LNG carrier newbuilding under construction as of December 31, 2018 , as well as the vessels and other assets accounted for under the equity method in the following table. The comparison of the results from vessels and assets accounted for under the equity method is described below under Equity Income.
 
 
As at December 31, 2018
Assets accounted for under the equity method of accounting
Ownership Percentage
# of Delivered Vessels
Newbuildings/LNG Terminals Under Construction
Angola Joint Venture
33%
4
—
Bahrain LNG Joint Venture
30%
—
1
Exmar LNG Joint Venture
50%
1
—
Pan Union Joint Venture
20%-30%
3
1
RasGas 3 Joint Venture
40%
4
—
Teekay LNG-Marubeni Joint Venture
52%
6
—
Yamal LNG Joint Venture
50%
2
4
 
 
20
6
 
 
 
 

The following table of operating results compares our liquefied natural gas segment’s operating results for 2018 and 2017 and compares its net voyage revenues (which is a non-GAAP financial measure) for 2018 and 2017 to voyage revenues, the most directly comparable GAAP financial measure. The following table of operating results also provides a summary of the changes in calendar-ship-days and revenue days for our liquefied natural gas segment:


47

(in thousands of U.S. Dollars, except revenue days,
calendar-ship-days and percentages)
Year Ended December 31,
 % Change
2018
2017
Voyage revenues
454,517

365,914

24.2
Voyage expenses
(2,750
)
(1,802
)
52.6
Net voyage revenues
451,767

364,112

24.1
Vessel operating expenses (2)
(82,952
)
(80,245
)
3.4
Time-charter hire expense
(7,670
)
—

100.0
Depreciation and amortization
(111,360
)
(86,592
)
28.6
General and administrative expenses (1)(2)
(23,270
)
(13,223
)
76.0
Income from vessel operations
226,515

184,052

23.1
Equity income
60,228

17,652

241.2
Operating Data:
 
 
 
Revenue Days (A)
7,425

5,793

28.2
Calendar-Ship-Days (B)
7,570

5,912

28.0
Utilization (A)/(B)
98.1
%
98.0
%
 

(1)
Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of resources).
(2)
An adjustment has been made during 2018 to reclassify a ship management cost recovery from general and administrative expenses to vessel operating expenses. The 2017 results have also been reclassified to conform to the presentation adopted in 2018.

Our liquefied natural gas segment’s total calendar-ship-days increased by 28.0% to 7,570 days in 2018 from 5,912 days in 2017 , as a result of the deliveries of the Torben Spirit , Murex , Macoma , Magdala, Myrina, Megara, Bahrain Spirit and Sean Spirit LNG carrier newbuildings between February 2017 and December 2018 and the Magellan Spirit chartered-in from the Teekay LNG-Marubeni Joint Venture commencing in September 2018. During 2018 , vessels in this segment were off-hire for scheduled dry dockings of 30 days, unscheduled off-hire for repairs of 49 days and idle for 66 days for repositioning to other charters, compared to vessels in this segment being off-hire for scheduled dry dockings of 63 days, unscheduled off-hire for repairs of 53 days and idle for three days in the same period of the prior year. As a result, our utilization increased slightly to 98.1% for 2018 , compared to 98.0% in 2017 .


Net Voyage Revenues . Net voyage revenues increased during 2018 compared to 2017 , primarily as a result of:

•
an increase of $15.0 million due to the delivery of the Magdala and charter contract commencing in February 2018;
•
an increase of $13.5 million due to the delivery of the Murex and charter contract commencing in November 2017;
•
an increase of $12.8 million due to the Magellan Spirit chartered-in from Teekay LNG-Marubeni Joint Venture in September 2018 and commencing its charter-out employment in October 2018;
•
an increase of $12.6 million due to the delivery of the Macoma and charter contract commencing in October 2017;
•
an increase of $11.0 million due to the delivery of the Myrina and charter contract commencing in May 2018;
•
an increase of $9.7 million due to the delivery of the Torben Spirit and charter contract commencing in March 2017 and earning an increased charter rate during 2018 upon the charterer extending its original contract in 2017;
•
an increase of $8.6 million due to the delivery of the Bahrain Spirit in August 2018 and commencement of its charter contract in September 2018;
•
an increase of $7.8 million due to the delivery of the Megara and charter commencing in July 2018;
•
an increase of $3.8 million due to the impact of the appreciation of the Euro compared to the U.S. Dollar on our Euro-denominated revenue;
•
an increase of $2.4 million relating to 35 days of unscheduled off-hire in the second quarter of 2017 due to repairs required for one of our LNG carriers;
•
an increase of $2.0 million due to the Hispania Spirit being off-hire for 31 days in the first quarter of 2017 for a scheduled dry docking; and
•
an increase of $1.6 million due to mobilization service fees earned commencing in October 2018 relating to our 30%-owned LNG receiving and regasification terminal under construction in Bahrain (however, we had a corresponding increase in vessel operating expenses);

48

partially offset by:
•
a decrease of $5.6 million due to the Polar Spirit earning a lower charter rate upon redeployment after its original charter contract ended during the first quarter of 2018 and 35 days of unscheduled off-hire and idle days during 2018 primarily due to an incident investigation involving a collision with a small vessel and repositioning to other charters;
•
a decrease of $3.7 million primarily related to additional revenue recognized during the first quarter of 2017 relating to the accelerated dry docking of two LNG carriers in 2017, the costs of which will be recoverable from the charterer;
•
a decrease of $1.9 million due to the Catalunya Spirit being off-hire for 30 days in 2018 for a scheduled dry docking;
•
a decrease of $1.7 million relating to amortization of in-process contracts recognized into revenue with respect to our shipbuilding and site supervision contract associated with the four LNG newbuilding carriers in the Pan Union Joint Venture due to the deliveries of the Pan Asia, Pan Americas and Pan Europe LNG carrier newbuildings between October 2017 and July 2018 (however, we had a corresponding decrease in vessel operating expenses); and
•
a decrease of $1.4 million relating to 20 days of unscheduled off-hire in the fourth quarter of 2018 for the Madrid Spirit due to repairs.
Vessel Operating Expenses . Vessel operating expenses increased during 2018 compared to 2017 , primarily as a result of:
•
an increase of $2.4 million due to deliveries of the Bahrain Spirit, Sean Spirit and Torben Spirit;
•
an increase of $1.8 million due to the reactivation of the Arctic Spirit from lay-up during the third quarter of 2017; and
•
an increase of $1.6 million due to mobilization expenses incurred commencing in October 2018 relating to our 30%-owned LNG receiving and regasification terminal under construction in Bahrain (however, we had a corresponding increase in net voyage revenues);
partially offset by:
•
a decrease of $2.4 million due to higher ship management cost recovery in 2018 as a result of the vessels delivered during the year; and
•
a decrease of $1.7 million due to lower shipbuilding supervision costs upon the deliveries of Pan Asia, Pan Americas and Pan Europe LNG carrier newbuildings (however, we had a corresponding decrease in net voyage revenues).
Time-charter Hire Expense . Time-charter hire expense increased by $7.7 million as the Magellan Spirit LNG carrier was chartered-in from the Teekay LNG-Marubeni Joint Venture commencing in September 2018.
Depreciation and Amortization . Depreciation and amortization increased by $24.8 million in 2018 compared to 2017 primarily due to the deliveries of the Torben Spirit , Murex , Macoma , Magdala, Myrina, Megara and Sean Spirit.
Equity Income. Equity income increased by $42.6 million in 2018 compared to 2017 as explained below.
(in thousands of U.S. Dollars)
Year Ended December 31,
 
Angola
LNG
Carriers
Exmar
LNG
Carriers
MALT
LNG
Carriers
RasGas 3
LNG
Carriers
Pan Union LNG Carriers
Yamal LNG Carriers
Bahrain LNG Joint Venture
Total
Equity
Income
2018
17,337

9,233

(1,005
)
14,730

6,819

9,607

3,507

60,228

2017
16,755

7,397

(16,547
)
16,324

496

(1,761
)
(5,012
)
17,652

Difference
582

1,836

15,542

(1,594
)
6,323

11,368

8,519

42,576

The $0.6 million increase in our 33%-owned investment in the four Angola LNG Carriers was primarily due to mark-to-market changes on non-designated derivative instruments . The mark-to-market changes resulted from increases in long-term LIBOR benchmark interest rates for interest rate swaps compared to 2017 .

The $1.8 million increase in our 50% investment in the Exmar LNG Carriers was primarily due to a gain of $5.6 million upon the sale of our 50% ownership interest in the Excelsior Joint Venture recorded in equity income, partially offset by lower earnings due to the sale of the Excelsior Joint Venture.

The $15.5 million increase in equity income from our 52% investment in the MALT LNG Carriers was primarily due to higher fleet utilization and higher rates earned as a result of certain vessels that operated in the spot market during 2017 being on short-term charter contracts in 2018.


49

The $1.6 million decrease in equity income from our 40% investment in the RasGas 3 LNG Carriers was primarily due to higher interest expense due to increase in LIBOR, partially offset by unrealized gains recognized in 2018 relating to its non-designated interest rate swaps compared to unrealized losses in 2017.

The $6.3 million increase in equity income from our investment in the Pan Union LNG Carriers was primarily due to the deliveries of the Pan Union Joint Venture's three LNG carrier newbuildings, the Pan Asia, Pan Americas and Pan Europe , in October 2017, January 2018 and July 2018, respectively, in which we have ownership interests ranging from 20% to 30%.

The $11.4 million increase in equity income from our 50% investment in the Yamal LNG Carriers was primarily due to the deliveries of the Yamal LNG Joint Venture's first two ARC7 LNG carrier newbuildings, the Eduard Toll and Rudolf Samoylovich , in January 2018 and September 2018, respectively, partially offset by ineffectiveness recognized on hedged-accounted interest rate swaps.

The $8.5 million increase in our 30%-owned investment in the Bahrain LNG Joint Venture was primarily due to unrealized gains on designated and non-designated derivative instruments recorded in earnings in 2018 compared to losses recorded in earnings in 2017 due to mark-to-market changes and the sub-charter income earned in 2018 on the Bahrain Spirit.

Liquified Petroleum Gas Segment

As at December 31, 2018 , our liquefied petroleum gas segment fleet included 29 LPG and multi-gas carriers, in which our interests ranged from 50% to 99%. However, the table of operating results below only includes the seven multi-gas carriers that are accounted for under the consolidation method of accounting and excludes 22 vessels in the Exmar LPG Joint Venture accounted for under the equity method. The comparison of the results from vessels and assets accounted for under the equity method are described below under Equity Loss.

The following table of operating results compares our liquefied petroleum gas segment’s operating results for 2018 and 2017 and compares its net voyage revenues (which is a non-GAAP financial measure) for 2018 and 2017 to voyage revenues, the most directly comparable GAAP financial measure. The following table of operating results also provides a summary of the changes in calendar-ship-days and revenue days for our liquefied petroleum gas segment:

(in thousands of U.S. Dollars, except revenue days,
calendar-ship-days and percentages)
Year Ended December 31,
 % Change
2018
2017
Voyage revenues
23,922

19,769

21.0

Voyage expenses
(15,907
)
(1,218
)
1,206.0

Net voyage revenues
8,015

18,551

(56.8
)
Vessel operating expenses
(20,932
)
(3,083
)
578.9

Depreciation and amortization
(7,748
)
(8,433
)
(8.1
)
General and administrative expenses (1)
(2,932
)
(2,411
)
21.6

Write-down of goodwill and vessels
(33,790
)
—

100.0

(Loss) income from vessel operations
(57,387
)
4,624

(1,341.1
)
Equity loss
(6,682
)
(7,863
)
(15.0
)
Operating Data:
 
 
 
Revenue Days (A)
2,249

2,445

(8.0
)
Calendar-Ship-Days (B)
2,555

2,445

4.5

Utilization (A)/(B)
88.0
%
100.0
%
 

(1)
Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of resources).

Our liquefied petroleum gas segment’s total calendar-ship-days increased by 4.5% to 2,555 days in 2018 from 2,445 days in 2017 , as a result of the acquisition of the Sonoma Spirit in April 2017. During 2018 , vessels in this segment were off-hire for scheduled dry dockings of 97 days, unscheduled off-hire for repairs of 97 days and idle for 112 days for repositioning to other charters, compared to vessels in this segment not being off-hire or idle in the same period of the prior year. As a result, our utilization decreased to 88.0% for 2018 , compared to 100.0% in 2017 .

Net Voyage Revenues . Net voyage revenues decreased by $10.5 million during 2018 compared to 2017 , primarily related to recognition of previous upfront payments received from I.M. Skaugen SE (or Skaugen ) during the fourth quarter of 2017 upon termination of charterer contracts with Skaugen.

Vessel Operating Expenses . Vessel operating expenses increased by $17.8 million during 2018 compared to 2017 , primarily due to six multi-gas carriers, which were previously on bareboat charter contracts, incurring operating expenses following their redelivery to us from Skaugen during 2017.

50

Write-down of Goodwill and Vessels. Write-down of vessels of $33.0 million in 2018 were due to the write-downs of the Camilla Spirit, Cathinka Spirit , Napa Spirit and Pan Spirit multi-gas carriers as a result of our evaluation of alternative strategies for these assets, the charter rate environment at the time and the outlook for charter rates for these vessels. In 2018, we conducted our annual goodwill impairment review and concluded that our liquefied petroleum gas segment was impaired and recorded an impairment charge of $0.8 million for the year ended December 31, 2018.
Equity Loss. The $1.2 million improvement in equity loss from our 50% ownership interest in Exmar LPG BVBA (or the Exmar LPG Joint Venture ) was primarily due to the impairment losses recorded on the Courcheville and Temse during 2017, partially offset by lower spot rates earned during 2018 compared to 2017 for certain vessels and the sale of the Courcheville in January 2018.

Conventional Tanker Segment
As at December 31, 2018 , our conventional tanker fleet included one Suezmax-class double-hulled conventional crude oil tanker, which we lease under capital lease and one Handymax Product tanker, which we own. Two of our conventional tankers, the African Spirit and European Spirit , have been trading in the spot market since the termination of their respective fixed-rate charters in November 2017 and August 2017, respectively. The African Spirit, European Spirit and Toledo Spirit were sold in October 2018, December 2018, and January 2019, respectively. The following table of operating results compares our conventional tanker segment’s operating results for 2018 and 2017 , and compares its net voyage revenues (which is a non-GAAP financial measure) for 2018 and 2017 to voyage revenues, the most directly comparable GAAP financial measure. The following table of operating results also provides a summary of the changes in calendar-ship-days and revenue days for our conventional tanker segment:
(in thousands of U.S. Dollars, except revenue days,
calendar-ship-days and percentages)
Year Ended December 31,
% Change
2018
2017
Voyage revenues
32,323

46,993

(31.2
)
Voyage expenses
(9,580
)
(5,182
)
84.9

Net voyage revenues
22,743

41,811

(45.6
)
Vessel operating expenses
(13,774
)
(18,211
)
(24.4
)
Depreciation and amortization
(5,270
)
(10,520
)
(49.9
)
General and administrative expenses (1)
(2,310
)
(2,507
)
(7.9
)
Write-down of vessels
(20,863
)
(50,600
)
(58.8
)
Restructuring charges
(1,845
)
—

100.0

Loss from vessel operations
(21,319
)
(40,027
)
(46.7
)
Operating Data:
 
 
 
Revenue Days (A)
1,328

1,868

(28.9
)
Calendar-Ship-Days (B)
1,389

1,904

(27.0
)
Utilization (A)/(B)
95.6
%
98.1
%
 
(1)
Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of corporate resources).

Our conventional tanker segment's total calendar ship days decreased by 27.0% to 1,389 days in 2018 from 1,904 days in 2017 primarily as a result of the sale s of the Asian Spirit , Teide Spirit, European Spirit and African Spirit in March 2017, February 2018, October 2018 and December 2018, respectively. During 2018, the European Spirit was off-hire for 29 days for a scheduled dry docking and 17 days for repairs and the African Spirit and Alexander Spirit had a total of 15 days of unscheduled off-hire due to repairs, compared to 34 idle days for the Asian Spirit after its firm charter contract ended in January 2017 and two unscheduled off-hire days for the African Spirit for repairs during the same period in 2017. As a result, our utilization decreased to 95.6% in 2018 compared to 98.1% in 2017 .

Net Voyage Revenues . Net voyage revenues decreased during 2018 compared to 2017 , primarily as a result of:

•
a decrease of $9.5 million due to the sales of t he Asian Spirit and Teide Spirit; and
•
a decrease of $8.4 million as the fixed-rate charter contracts for the European Spirit and African Spirit expired in August and November 2017, respectively, and the vessels earned lower spot rates until they were sold in October and December of 2018, respectively.
Vessel Operating Expenses . Vessel operating expenses decreased during 2018 compared to 2017 by $4.4 million primarily as a result of the sales of the Asian Spirit, Teide Spirit, European Spirit and African Spirit.

Depreciation and Amortization . Depreciation and amortization decreased during 2018 compared to 2017 by $5.3 million primarily as a result of the sales of the Asian Spirit and Teide Spirit, and the reclassification of the European Spirit and African Spirit to vessels held for sale during 2017.

Write-down of vessels . During 2018 , we recorded write-downs of $20.9 million. We recorded a write-down of $13.0 million on the Alexander Spirit conventional tanker to its estimated fair value, using an appraised value, as a result of changes in our expectations

51

of the vessel's future opportunities once its current contract ends in 2019. We also recorded write-downs of $7.9 million on a combined basis on the European Spirit and African Spirit Suezmax tankers as a result of declines in the estimated fair market values of these vessels held for sale. During 2017, we recorded write-downs of $50.6 million. We recorded a write-down of $25.5 million on a combined basis in respect of the Teide Spirit and Toledo Spirit upon the charterer of the Teide Spirit , which is the same charterer of the Toledo Spirit , giving formal notification to us of its intention to terminate its charter contract. In addition, we recorded write-downs of $25.1 million on a combined basis in respect of the European Spirit and African Spirit upon their original contracts ending in 2017 and the vessels being marketed for sale.

Restructuring Charges. The restructuring charges of $1.8 million incurred in 2018 relate to seafarer severance costs upon CEPSA’s sale of the Teide Spirit, our vessel related to capital lease.
Other Operating Results
General and Administrative Expenses . General and administrative expenses increased to $28.5 million for 2018, from $18.1 million for 2017, primarily due to an increase in operational staff relating to new vessel deliveries, higher levels of business development activities, an increase in professional fees primarily due to the lease dispute for our RasGas II LNG Carriers as described above in "Significant Developments in 2018 and Early 2019 – Teekay Nakilat Capital Lease" and due to claims against Skaugen for damages and losses for our multi-gas carriers previously on charter to them.

Interest Expense . Interest expense increased to $128.3 million for 2018 , from $80.9 million for 2017 . Interest expense primarily reflects interest incurred on our long-term debt and obligations related to capital leases. This increase was primarily the result of:

•
an increase of $37.1 million primarily due to deliveries of the Torben Spirit, Murex, Macoma, Magdala, Myrina, Megara, Bahrain Spirit and Sean Spirit during 2018 and 2017;
•
an increase of $7.6 million as a result of higher LIBOR rates, net of principal debt repayments, as compared to the same periods of the prior year ; and
•
an increase of $3.7 million due to decreases in capitalized interest as a result of vessels delivered during 2018 and 2017.

Realized and Unrealized Gain (Loss) on Non-Designated Derivative Instruments . Net realized and unrealized gains (losses) on non-designated derivative instruments increased to $3.3 million for 2018 , from $(5.3) million for 2017 as set forth in the table below.
(in thousands of U.S. Dollars)
Year Ended December 31,
 
2018
2017
 
Realized
gains
(losses)
Unrealized
gains
(losses)
Total
Realized
gains
(losses)
Unrealized
gains
(losses)
Total
Interest rate swap agreements
(14,654
)
31,061

16,407

(18,825
)
12,393

(6,432
)
Interest rate swaption agreements
—

2

2

—

945

945

Interest rate swap and swaption agreements termination
(13,681
)
—

(13,681
)
(610
)
—

(610
)
Toledo Spirit time-charter derivative
1,480

(930
)
550

678

110

788

 
(26,855
)
30,133

3,278

(18,757
)
13,448

(5,309
)

As at December 31, 2018 and 2017 , we had interest rate swap agreements, excluding our swap agreements with future commencement dates, with aggregate average net outstanding notional amounts of approximately $919 million and $837 million, respectively, with average fixed rates of 3.3% and 3.5%, respectively. The increases in realized losses relating to our interest rate swaps from 2018 to 2017 were primarily due to an interest rate swap termination in 2018, partially offset by decreases in our settlement payments as a result of the expiration of certain interest rate swaps, which were not renewed, and an increase in LIBOR compared to 2017.

During 2018, we also recognized unrealized gains on our interest rate swap agreements associated with our U.S. Dollar-denominated long-term debt. This resulted from $4.1 million of unrealized gains relating to increases in long-term forward LIBOR benchmark interest rates relative to the beginning of 2018 and reclassification of $8.8 million of previously recognized unrealized losses to realized losses related to actual cash settlements of our interest rate swaps.

During 2018, w e recognized unrealized gains on our interest rate swap agreements associated with our Euro-denominated long-term debt. This resulted from reclassification of $19.5 million of previously recognized unrealized losses to realized losses related to actual cash settlements of our interest rate swaps, of which $13.7 million was due to the termination of one of our interest rate swap agreements related to the refinancing of one of our debt facilities, partially offset by $1.3 million of unrealized losses relating to decreases in long-term forward EURIBOR benchmark interest rates relative to the beginning of 2018.

The Toledo Spirit time-charter derivative is the agreement with Teekay Corporation under which Teekay Corporation paid us any amounts payable to the charterer of the Toledo Spirit as a result of spot rates being below the fixed rate, and we paid Teekay Corporation any amounts payable to us by the charterer of the Toledo Spirit as a result of spot rates being in excess of the fixed rate. Please read “Item 18 – Financial Statements: Note 12d – Related Party Transactions." The realized ga in of $1.5 million for 2018 relates to lower earnings on our profit-loss-sharing agreement for the Toledo Spirit (we had corresponding decrease in net voyage

52

revenues). During 2018, we recognized unrealized losses on our Toledo Spirit time-charter derivative contract of $0.9 million. This resulted from a reclassification of previously recognized unrealized gains to realized gains of $1.5 million, partially offset by $0.6 million of unrealized gains relating to decreases in the projected forward tanker rates in the tanker market, relative to the beginning of 2018. The Toledo Spirit was sold in early 2019, and as a result, the derivative agreement ended at that time.

During 2017, we recognized unrealized gains on our interest rate swap and swaption agreements associated with our U.S. Dollar-denominated long-term debt. This resulted from reclassification of $10.9 million of previously recognized unrealized losses to realized losses related to actual cash settlements of our interest rate swaps, partially offset by $2.6 million of unrealized losses relating to decreases in long-term forward LIBOR benchmark interest rates, relative to the beginning of 2017.

During 2017, we also recognized unrealized gains on our interest rate swap agreements associated with our Euro-denominated long-term debt. This resulted from reclassification of $7.9 million of previously recognized unrealized losses to realized losses related to actual cash settlements of our interest rate swaps, partially offset by $2.8 million of unrealized losses relating to decreases in long-term forward EURIBOR benchmark interest rates, relative to the beginning of 2017.

The projected forward average tanker rates in the tanker market decreased slightly at December 31, 2017 compared to the beginning of 2017, which resulted in $0.1 million of unrealized gains on our Toledo Spirit time-charter derivative.

Please see “Item 5 – Operating and Financial Review and Prospects: Critical Accounting Estimates – Valuation of Derivative Instruments,” which explains how our derivative instruments are valued, including the significant factors and uncertainties in determining the estimated fair value and why changes in these factors result in material variances in realized and unrealized gain (loss) on non-designated derivative instruments.

Foreign Currency Exchange Gains (Losses) . Foreign currency exchange gains (losses) were $1.4 million and $(26.9) million for 2018 and 2017 , respectively. These foreign currency exchange gains (losses) are due primarily to the relevant period-end revaluation of our NOK-denominated debt and our Euro-denominated term loans for financial reporting purposes into U.S. Dollars, net of the realized and unrealized gains and losses on our cross currency swaps. Gains on NOK-denominated and Euro-denominated monetary liabilities reflect a stronger U.S. Dollar against the NOK and Euro on the date of revaluation or settlement compared to the rate in effect at the beginning of the period. Losses on NOK-denominated and Euro-denominated monetary liabilities reflect a weaker U.S. Dollar against the NOK and Euro on the date of revaluation or settlement compared to the rate in effect at the beginning of the period.

For 2018, foreign currency exchange gains (losses) included realized gains of $42.3 million upon maturity of our NOK bonds in 2018, $42.3 million unrealized gains from the transfer of previously recognized unrealized losses to realized losses related to our cross currency swaps associated with the NOK bond which matured in 2018 , unrealized gains on the revaluation of our NOK-denominated debt of $19.2 million and unrealized gains on the revaluation of our Euro denominated, non-U.S. Dollar-denominated cash, restricted cash, working capital and debt of $9.8 million. These gains were partially offset by $(42.3) million of realized losses related to the maturity of our cross currency swaps associated with the NOK bonds which matured in 2018, $(42.3) million of unrealized losses from the transfer of previously recognized unrealized gains to realized gains related to the maturity of the NOK bonds in 2018, unrealized losses on our cross currency swaps of ($21.1) million relating to depreciation of long-term NOK forward exchange rates and decreases in long-term forward NIBOR benchmark interest rates relative to the beginning of 2018 and ($6.5) million of realized losses on our cross currency swaps.

For 2017, foreign currency exchange (losses) gains included $(25.7) million of realized losses related to the maturity of our cross currency swaps associated with the NOK bonds which matured in 2017, $(25.7) million of unrealized losses from the transfer of previously recognized unrealized gains to realized gains related to the maturity of the NOK bonds in 2017, realized losses of $(9.3) million on our cross currency swaps, the unrealized losses on the revaluation of our NOK-denominated debt of $(17.6) million, and unrealized losses on the revaluation of our Euro-denominated cash, restricted cash and debt of $(23.3) million. These losses were partially offset by realized gains of $25.7 million upon the maturity of our NOK bonds in 2017, $25.7 million unrealized gains from the transfer of previously recognized unrealized losses to realized losses related to our cross currency swaps associated with the NOK bond which matured in 2017, unrealized gains of $23.3 million on our cross currency swaps primarily due to appreciation of long-term NOK forward exchange rates and increases in long-term forward NIBOR benchmark interest rates relative to the beginning of 2017.

Other Comprehensive (Loss) Income (or OCI ) . OCI was $(1.1) million in 2018 compared to $4.0 million in 2017 , due to changes in the valuation of interest rate swaps accounted for using hedge accounting within the Teekay Nakilat Joint Venture, in which we own a 70% interest, and certain of our equity-accounted joint ventures.
Year Ended December 31, 2017 versus Year Ended December 31, 2016
Liquefied Natural Gas Segment
As at December 31, 2017 , our liquefied natural gas segment fleet, including newbuildings, consisted of 50 LNG carriers, in which our interests ranged from 20% to 100%. However, the table of operating results below only includes the 18 LNG carriers that were accounted for under the consolidation method of accounting and excludes six LNG carrier newbuildings under construction as of December 31, 2017 and the following vessels and other assets accounted for under the equity method in the following table. The comparison of the results from vessels and assets accounted for under the equity method is described below under Equity Income.


53

 
 
As at December 31, 2017
Assets accounted for under the equity method of accounting
Ownership Percentage
# of Delivered Vessels
Newbuildings/LNG Terminals Under Construction
Angola Joint Venture
33%
4
—
Bahrain LNG Joint Venture
30%
—
1
Exmar LNG Joint Venture
50%
2
—
Pan Union Joint Venture
20%-30%
1
3
RasGas 3 Joint Venture
40%
4
—
Teekay LNG-Marubeni Joint Venture
52%
6
—
Yamal LNG Joint Venture
50%
—
6
 
 
17
10
 
 
 
 

The following table of operating results compares our liquefied natural gas segment’s operating results for 2017 and 2016 , and compares its net voyage revenues (which is a non-GAAP financial measure) for 2017 and 2016 to voyage revenues, the most directly comparable GAAP financial measure. The following table of operating results also provides a summary of the changes in calendar-ship-days and revenue days for our liquefied natural gas segment:

(in thousands of U.S. Dollars, except revenue days,
calendar-ship-days and percentages)
Year Ended December 31,
 % Change
2017
2016
Voyage revenues
365,914

314,591

16.3

Voyage expenses
(1,802
)
(449
)
301.3

Net voyage revenues
364,112

314,142

15.9

Vessel operating expenses
(80,245
)
(65,371
)
22.8

Depreciation and amortization
(86,592
)
(72,190
)
20.0

General and administrative expenses (1)
(13,223
)
(13,955
)
(5.2
)
Income from vessel operations
184,052

162,626

13.2

Equity Income
17,652

48,633

(63.7
)
Operating Data:
 
 
 
Revenue Days (A)
5,793

5,178

11.9

Calendar-Ship-Days (B)
5,912

5,244

12.7

Utilization (A)/(B)
98.0
%
98.7
%
 

(1)
Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of resources).

Our liquefied natural gas segment’s total calendar-ship-days increased by 12.7% to 5,912 days in 2017 from 5,244 days in 2016 , as a result of the deliveries of the Creole Spirit and Oak Spirit during 2016 and the deliveries of the Torben Spirit, Macoma, and Murex during 2017. During 2017, three of our consolidated vessels in this segment had 53 unscheduled off-hire days for repairs, two vessels were off-hire for scheduled dry dockings of 63 days, and the Torben Spirit was idle for three days prior to its charter contract commencement, compared to three consolidated vessels in this segment having 39 unscheduled off-hire days for repairs, and the Creole Spirit and Oak Spirit being idle for 12 days and 15 days, respectively, prior to their charter contract commencements in 2016. As a result, our utilization decreased to 98.0% for 2017, compared to 98.7% in 2016.

Net Voyage Revenues . Net voyage revenues increased during 2017 compared to 2016, primarily as a result of:

• an increase of $16.6 million due to the Oak Spirit charter contract commencing in August 2016;
• an increase of $13.5 million due to the Torben Spirit charter contract commencing in March 2017;
• an increase of $8.4 million due to the Creole Spirit charter contract commencing in February 2016;
•
an increase of $6.9 million primarily related to additional revenue recognized relating to the accelerated dry docking of two LNG carriers, the costs of which will be recoverable from the charterer, and higher pass-through operating expenses due to timing of main engine maintenance (however, we had corresponding increases in vessel operating expenses relating to the engine maintenance);
• an increase of $3.5 million due to the Macoma charter contract commencing in October 2017;

54

•
an increase of $3.0 million relating to amortization of in-process contracts recognized as revenue with respect to our shipbuilding and site supervision contract associated with the four LNG newbuilding carriers in the Pan Union Joint Venture (however, we had corresponding increases in vessel operating expenses); and
• an increase of $2.4 million due to the Murex charter contract commencing in November 2017;
partially offset by:

•
a decrease of $2.4 million relating to 35 days of unscheduled off-hire in the second quarter of 2017 due to repairs required for one of our LNG carriers; and
•
a net decrease of $0.5 million due to the Hispania Spirit being off-hire for 31 days in the first quarter of 2017 for a scheduled dry docking, partially offset by a reduction in a performance claim recorded in 2016.
Vessel Operating Expenses . Vessel operating expenses increased during 2017 compared to 2016, primarily as a result of:

•
an increase of $6.0 million due to the deliveries of the Creole Spirit, Oak Spirit and Torben Spirit ;
•
an increase of $3.0 million in relation to our agreement to provide shipbuilding and site supervision costs associated with the four LNG newbuilding carriers in the Pan Union Joint Venture (however, we had corresponding increases in net voyage revenues);
•
an increase of $3.0 million for two of our LNG carriers as a result of the timing of main engine maintenance (however, we had corresponding increases in net voyage revenues); and
•
an increase of $2.0 million for certain of our LNG carriers due to the timing of repairs and maintenance.
Depreciation and Amortization . Depreciation and amortization increased by $14.4 million in 2017 compared to 2016 primarily due to the deliveries of the Creole Spirit,Oak Spirit, Torben Spirit, Macoma, and Murex, and higher dry-dock amortization due to dry dockings of our LNG carriers .

Equity Income. Equity income decreased by $31.0 million in 2017 compared to 2016 as explained below.
(in thousands of U.S. Dollars)
Year Ended December 31,
 
Angola
LNG
Carriers
Exmar
LNG
Carriers
MALT
LNG
Carriers
RasGas 3
LNG
Carriers
Pan Union LNG Carriers
Other
Total
Equity
Income
2017
16,755

7,397

(16,547
)
16,324

496

(6,773
)
17,652

2016
15,713

9,038

4,503

19,817

(104
)
(334
)
48,633

Difference
1,042

(1,641
)
(21,050
)
(3,493
)
600

(6,439
)
(30,981
)

The $1.0 million increase in our 33% investment in the four Angola LNG Carriers was primarily due to an increase in unrealized gains on non-designated derivative instruments due to mark-to-market changes. The mark-to-market changes resulted from changes in long-term LIBOR benchmark interest rates for interest rate swaps compared to 2016.

The $1.6 million decrease in our 50% investment in the Exmar LNG Carriers was primarily due to the Excalibur being off-hire in 2017 for a scheduled dry docking.

The $21.1 million decrease in equity income from our 52% investment in the MALT LNG Carriers was primarily due to a settlement payment awarded to the joint venture in 2016 for the disputed contract termination relating to the Magellan Spirit , of which our proportionate share was $20.3 million; and a further deferral effective August 2016 of a portion of the charter payments for the Marib Spirit and Arwa Spirit that are chartered to service the YLNG plant in Yemen, which has been closed since 2015. These decreases were partially offset by higher fleet utilization in the second half of 2017 due to commencements of short-term charter contracts for certain vessels which were previously trading in the spot market.

The $3.5 million decrease in equity income from our 40% investment in the RasGas 3 LNG Carriers was primarily due to higher interest expense resulting from the completion of debt refinancing in December 2016.

The $0.6 million increase in equity income from our investment in the Pan Union LNG Carriers was primarily due to the delivery of the Pan Union Joint Venture's first LNG carrier newbuilding, the Pan Asia , in October 2017.

The $6.4 million decrease in our other equity-accounted investments was primarily due to unrealized losses on interest rate swaps relating to our 30% ownership interest in the Bahrain LNG Joint Venture in 2017, and higher crew training expenses for the Yamal LNG Joint Venture in preparation for its vessel deliveries which commenced in 2018.

Liquefied Petroleum Gas Segment

As at December 31, 2017, our liquefied petroleum gas segment fleet, including newbuildings, consisted of 30 LPG/multi-gas carriers, in which our interests ranged from 50% to 99%. However, the table of operating results below only includes the seven multi-gas carriers that are accounted for under the consolidation method of accounting and excludes 20 delivered vessels and three newbuildings in the Exmar

55

LPG Joint Venture accounted for under the equity method. The comparison of the results from vessels and assets accounted for under the equity method are described below under Equity (Loss) Income.

The following table of operating results compares our liquefied petroleum gas segment’s operating results for 2017 and 2016 and compares its net voyage revenues (which is a non-GAAP financial measure) for 2017 and 2016 , to voyage revenues, the most directly comparable GAAP financial measure. The following table of operating results also provides a summary of the changes in calendar-ship-days and revenue days for our liquefied petroleum gas segment:
(in thousands of U.S. Dollars, except revenue days,
calendar-ship-days and percentages)
Year Ended December 31,
 % Change
2017
2016
Voyage revenues
19,769

21,939

(9.9
)
Voyage expenses
(1,218
)
—

100.0

Net voyage revenues
18,551

21,939

(15.4
)
Vessel operating expenses
(3,083
)
(16
)
19,168.8

Depreciation and amortization
(8,433
)
(7,894
)
6.8

General and administrative expenses (1)
(2,411
)
(2,055
)
17.3

Income from vessel operations
4,624

11,974

(61.4
)
Equity (loss) income
(7,863
)
13,674

(157.5
)
Operating Data:
 
 
 
Revenue Days (A)
2,445

2,196

11.3

Calendar-Ship-Days (B)
2,445

2,196

11.3

Utilization (A)/(B)
100.0
%
100.0
%
 

Our liquefied petroleum gas segment’s total calendar-ship-days increased by 11.3% to days 2,445 days in 2017 from days 2,196 days in 2016 as a result of our acquisition of the Sonoma Spirit in 2017.

Net Voyage Revenues . Net voyage revenues decreased during 2017 compared to 2016 , primarily as a result of:

•
a decrease of $15.1 million due to uncertainty of collection for outstanding hire receivable relating to our six LPG carriers on charter to Skaugen in 2017;
partially offset by:

•
an increase of $10.3 million due to the prepaid lease payments received from Skaugen in prior periods, which were previously deferred and then recognized in 2017 upon the termination of the charter contracts for five of our LPG carriers that were on charter with Skaugen; and
• an increase of $1.4 million due to the acquisition of the Sonoma Spirit in April 2017.
Vessel Operating Expenses . Vessel operating expenses increased during 2017 compared to 2016 by $3.1 million primarily due to six LPG carriers, which were previously on bareboat charter contracts, incurring operating expenses following their redelivery to us from Skaugen during 2017, and the acquisition of the Sonoma Spirit.

Equity (Loss) Income. The $21.5 million decrease in equity income from our 50% ownership interest in the Exmar LPG Joint Venture was primarily due to more vessels trading in the spot market at lower rates during 2017 compared to higher fixed rates earned in 2016. Other factors that caused the decrease included the scheduled dry dockings of the Eupen and Brussels in the second and third quarters of 2017, respectively, vessel write-downs of the Courcheville and Temse recorded in 2017, and the sale of the Brugge Venture in January 2017. These decreases were partially offset by revenues earned from five LPG carrier newbuildings that delivered to the Exmar LPG Joint Venture between February 2016 and July 2017, and a write-down of the Brugge Venture recorded in 2016.

Conventional Tanker Segment
As at December 31, 2017, our conventional tanker fleet included four Suezmax-class double-hulled conventional crude oil tankers and one Handymax Product tanker, three of which we own (including the European Spirit and African Spirit which were classified as held for sale) and two of which we lease under capital leases. Three of our five conventional tankers operate under fixed-rate charters, the European Spirit and African Spirit were trading in the spot market in August and November 2017, respectively, as we continued to market those vessels for sale.

The following table of operating results compares our conventional tanker segment’s operating results for 2017 and 2016 and compares its net voyage revenues (which is a non-GAAP financial measure) for 2017 and 2016 to voyage revenues, the most directly comparable GAAP financial measure. The following table of operating results also provides a summary of the changes in calendar-ship-days and revenue days for our conventional tanker segment:

56

(in thousands of U.S. Dollars, except revenue days,
calendar-ship-days and percentages)
Year Ended December 31,
% Change
2017
2016
Voyage revenues
46,993

59,914

(21.6
)
Voyage expenses
(5,182
)
(1,207
)
329.3

Net voyage revenues
41,811

58,707

(28.8
)
Vessel operating expenses (2)
(18,211
)
(22,503
)
(19.1
)
Depreciation and amortization
(10,520
)
(15,458
)
(31.9
)
General and administrative expenses (1)(2)
(2,507
)
(3,189
)
(21.4
)
Write-down and loss on sale of vessels
(50,600
)
(38,976
)
29.8

(Loss) income from vessel operations
(40,027
)
(21,419
)
86.9

Operating Data:
 
 
 
Revenue Days (A)
1,868

2,439

(23.4
)
Calendar-Ship-Days (B)
1,904

2,439

(21.9
)
Utilization (A)/(B)
98.1
%
100.0
%
 
(1)
Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of corporate resources).
(2)
An adjustment was made during 2018 to reclassify a ship management cost allocation recovery from general and administrative expenses to vessel operating expenses. The 2017 and 2016 results have also been reclassified to conform to the presentation adopted in 2018.

Our conventional tanker segment's total calendar ship days decreased by 21.9% to 1,904 days in 2017 from 2,439 days in 2016 primarily as a result of the sales of the Bermuda Spirit, Hamilton Spirit and Asian Spirit in April 2016, May 2016 and March 2017, respectively . During 2017, the Asian Spirit was idle for 34 days between the time its firm charter contract ended in January 2017 and the time the vessel was sold and the European Spirit was off-hire for two days for vessel maintenance, compared to no off-hire days during 2016. As a result, our utilization decreased to 98.1% in 2017 compared to 100.0% in 2016

Net Voyage Revenues . Net voyage revenues decreased during 2017 compared to 2016 , primarily as a result of:

•
a decrease of $14.0 million primarily due to the sales of the Bermuda Spirit, Hamilton Spirit, and Asian Spirit ;
•
a decrease of $2.1 million as the fixed-rate charter contracts for the European Spirit and African Spirit expired in August and November 2017, respectively, and the vessels earned lower spot rates during the periods after their respective contracts expired; and
•
a decrease of $1.3 million due to lower revenues earned by the Toledo Spirit in 2017 relating to the profit-sharing agreement between us and CEPSA (however, we had a corresponding decrease in our realized loss on our associated derivative contract with Teekay Corporation; therefore, this decrease and future increases or decreases related to this agreement did not and will not affect our cash flow or net income).

Vessel Operating Expenses . Vessel operating expenses decreased during 2017 compared to 2016 primarily as a result of the sales of the Bermuda Spirit , Hamilton Spirit and Asian Spirit.

Depreciation and Amortization . Depreciation and amortization decreased during 2017 compared to 2016 primarily as a result of the sales of the Bermuda Spirit , Hamilton Spirit and Asian Spirit, the reclassification of the European Spirit to held for sale in the second quarter of 2017, and the vessel write-down of the African Spirit recorded in the third quarter of 2017.

Write-down of vessels . During 2017, we recorded write-downs of $50.6 million. During the second quarter of 2017, we recorded a write-down of the European Spirit of $12.6 million to its estimated fair value as we commenced marketing the vessel for sale upon the charterer notifying us it was redelivering the vessel to us upon completion of its charter contract in August 2017. During the third quarter of 2017, we recorded a write-down of the African Spirit of $12.5 million to its estimated fair value as we received notification from the charterer in August 2017 that it would redeliver the vessel to us upon completion of its charter contract in November 2017. In August 2017, the charterer of the Teide Spirit gave formal notification to us of its intention to terminate its charter contract subject to certain conditions being met and third-party approvals being received. Based on our prior experience with the charterer, we expected in 2017 that the charterer would cancel the charter contract for the Toledo Spirit . We recorded a $25.5 million write-down on a combined basis in respect of the Teide Spirit and Toledo Spirit in 2017. During 2016, we incurred losses on the sales of the Bermuda Spirit and Hamilton Spirit of $27.4 million , and recorded a write-down of $11.5 million to its estimated fair value for the Asian Spirit upon completion of its charter contract and marketing the vessel for sale.
Other Operating Results
General and Administrative Expenses . General and administrative expenses decreased to $18.1 million for 2017, from $19.2 million for 2016, primarily due to lower levels of business development activities in 2017 compared to 2016, which was partially offset by reimbursement from the Bahrain LNG Joint Venture in 2016 of our proportionate share of certain costs we paid, including pre-operation, engineering and financing-related expenses, upon the joint venture securing debt financing in the fourth quarter of 2016.


57

Interest Expense . Interest expense increased to $80.9 million for 2017 , from $58.8 million for 2016 . Interest expense primarily reflects interest incurred on our long-term debt and obligations related to capital leases. This increase was primarily the result of:

•
an increase of $16.3 million primarily relating to interest incurred on the obligations related to capital leases for the Creole Spirit , Oak Spirit, Torben Spirit, Murex, and Macoma commencing upon their deliveries in 2016 and 2017;
•
an increase of $4.6 million as a result of our issuances of NOK bonds in October 2016 and January 2017, net of our NOK bond repurchases in October 2016 and the maturity of certain of the NOK bonds in May 2017; and
•
an increase of $4.1 million as a result of interest expense accretion on the Pan Union Joint Venture crew training and site supervision obligation, and higher LIBOR rates net of debt principal repayments;
partially offset by:
•
a decrease of $4.1 million due to increases in capitalized interest relating to additional advances and capital contributions to the Yamal LNG Joint Venture and Bahrain LNG Joint Venture for newbuilding installments and construction costs.

Realized and Unrealized Loss on Non-Designated Derivative Instruments . Net realized and unrealized losses on non-designated derivative instruments decreased to $5.3 million for 2017 , from $7.2 million for 2016 as set forth in the table below.
(in thousands of U.S. Dollars)
Year Ended December 31,
 
2017
2016
 
Realized
gains
(losses)
Unrealized
gains
(losses)
Total
Realized
gains
(losses)
Unrealized
gains
(losses)
Total
Interest rate swap agreements
(18,825
)
12,393

(6,432
)
(25,940
)
15,627

(10,313
)
Interest rate swaption agreements
—

945

945

—

(164
)
(164
)
Interest rate swaption agreements termination
(610
)
—

(610
)
—

—

—

Toledo Spirit time-charter derivative
678

110

788

(654
)
3,970

3,316

 
(18,757
)
13,448

(5,309
)
(26,594
)
19,433

(7,161
)

As at December 31, 2017 and 2016 , we had interest rate swap agreements, excluding our swap agreements with future commencement
dates, with aggregate average net outstanding notional amounts of approximately $837 million and $755 million, respectively, with average fixed rates of 3.5% and 3.8%, respectively. The decreases in realized losses relating to our interest rate swaps from 2016 to 2017 was primarily due to an increase in LIBOR compared to the prior year, which decreased our settlement payments, and the expiration of certain interest rate swaps, which were not renewed.

During 2017, we recognized unrealized gains on our interest rate swap and swaption agreements associated with our U.S. Dollar-denominated long-term debt. This resulted from reclassification of $10.9 million of previously recognized unrealized losses to realized losses related to actual cash settlements of our interest rate swaps, partially offset by $2.6 million of unrealized losses relating to decreases in long-term forward LIBOR benchmark interest rates, relative to the beginning of 2017.

During 2017, we also recognized unrealized gains on our interest rate swap agreements associated with our Euro-denominated long-term debt. This resulted from reclassification of $7.9 million of previously recognized unrealized losses to realized losses related to actual cash settlements of our interest rate swaps, partially offset by $2.8 million of unrealized losses relating to decreases in long-term forward EURIBOR benchmark interest rates, relative to the beginning of 2017.

The projected forward average tanker rates in the tanker market decreased slightly at December 31, 2017 compared to the beginning of 2017, which resulted in $0.1 million of unrealized gains on our Toledo Spirit time-charter derivative. The Toledo Spirit time-charter derivative is the agreement with Teekay Corporation under which Teekay Corporation paid us any amounts payable to the charterer of the Toledo Spirit as a result of spot rates being below the fixed rate, and we paid Teekay Corporation any amounts payable to us by the charterer of the Toledo Spirit as a result of spot rates being in excess of the fixed rate. The Toledo Spirit was sold in early 2019 and as a result, the derivative agreement ended at that time.

During 2016, we recognized unrealized gains on our interest rate swap and swaption agreements associated with our U.S. Dollar-denominated long-term debt. This resulted from transfers of $17.9 million of previously recognized unrealized losses to realized losses related to actual cash settlements of our interest rate swaps, partially offset by $3.7 million of unrealized losses relating to decreases in long-term forward LIBOR benchmark interest rates relative to the beginning of 2016.

During 2016, we also recognized unrealized gains on our interest rate swap agreements associated with our Euro-denominated long-term debt. This resulted from transfers of $8.1 million of previously recognized unrealized losses to realized losses related to actual cash settlements of our interest rate swaps, partially offset by $6.7 million of unrealized losses relating to decreases in long-term forward EURIBOR benchmark interest rates, relative to the beginning of 2016.

The projected forward average tanker rates in the tanker market decreased at December 31, 2016 compared to the beginning of 2016, which resulted in $4.0 million of unrealized gains on our Toledo Spirit time-charter derivative.


58

Please see “Item 5 – Operating and Financial Review and Prospects: Critical Accounting Estimates – Valuation of Derivative Instruments,” which explains how our derivative instruments are valued, including the significant factors and uncertainties in determining the estimated fair value and why changes in these factors result in material variances in realized and unrealized gain (loss) on non-designated derivative instruments.

Foreign Currency Exchange Gains . Foreign currency exchange (losses) gains were $(26.9) million and $5.3 million for 2017 and 2016, respectively. These foreign currency exchange gains were due primarily to the relevant period-end revaluation of our NOK-denominated debt and our Euro-denominated term loans for financial reporting purposes into U.S. Dollars, net of the realized and unrealized gains and losses on our cross currency swaps. Gains on NOK-denominated and Euro-denominated monetary liabilities reflect a stronger U.S. Dollar against the NOK and Euro on the date of revaluation or settlement compared to the rate in effect at the beginning of the period. Losses on NOK-denominated and Euro-denominated monetary liabilities reflect a weaker U.S. Dollar against the NOK and Euro on the date of revaluation or settlement compared to the rate in effect at the beginning of the period.

For 2017, foreign currency exchange (losses) gains included $(25.7) million of realized losses related to the maturity of our cross currency swaps associated with the NOK bonds which matured in 2017, $(25.7) million of unrealized losses from the transfer of previously recognized unrealized gains to realized gains related to the maturity of the NOK bonds in 2017, realized losses of $(9.3) million on our cross currency swaps, the unrealized losses on the revaluation of our NOK-denominated debt of $(17.6) million, and unrealized losses on the revaluation of our Euro-denominated cash, restricted cash and debt of $(23.3) million. These losses were partially offset by realized gains of $25.7 million upon the maturity of our NOK bonds in 2017, $25.7 million unrealized gains from the transfer of previously recognized unrealized losses to realized losses related to our cross currency swaps associated with the NOK bond which matured in 2017, unrealized gains of $23.3 million on our cross currency swaps primarily due to appreciation of long-term NOK forward exchange rates and increases in long-term forward NIBOR benchmark interest rates relative to the beginning of 2017.

For 2016, foreign currency exchange gains (losses) included realized gains of $16.8 million on the repurchase of a portion of our NOK bonds maturing in 2017, the transfer of $17.7 million of previously recognized unrealized losses to realized losses related to our cross currency swaps associated with the NOK bond repurchase, unrealized gains of $11.2 million on our cross currency swaps primarily due to appreciation of long-term NOK forward exchange rates and increases in long-term forward NIBOR benchmark interest rates relative to the beginning of 2016, and $5.4 million on the revaluation of our Euro-denominated cash, restricted cash and debt. These gains were partially offset by transfers of $(16.8) million of previously recognized unrealized gains to realized gains related to the repurchase of the NOK bonds in October 2016, $(17.7) million of realized losses related to the termination of our cross currency swaps associated with the NOK bond repurchase, $(9.1) million realized losses on settlements of our cross currency swaps and a $(2.2) million loss on the revaluation of our NOK-denominated debt.

Other Comprehensive Income (or OCI ) . OCI was $4.0 million in 2017 compared to $2.8 million in 2016 , due to changes in the valuation of interest rate swaps accounted for using hedge accounting within the Teekay Nakilat Joint Venture, in which we own a 70% interest, and certain of our equity-accounted joint ventures.
Liquidity and Cash Needs
Our business model is to employ the majority of our vessels on fixed-rate contracts primarily with large energy companies and their transportation subsidiaries. Our primary liquidity needs for 2019 through 2020 include payment of our quarterly distributions, including payments of distributions on our common units and Series A and Series B Preferred Units, funding any common unit repurchases we may undertake, operating expenses, dry-docking expenditures, debt service costs, scheduled repayments of long-term debt, bank debt maturities and the funding of general working capital requirements. We anticipate that our primary sources of funds for our short-term liquidity needs will be cash flows from operations, proceeds from debt and capital lease financings and dividends we expect to receive from our equity-accounted joint ventures. For 2019 through 2020, we expect that our existing liquidity, combined with the cash flow we expect to generate from our operations and receive as dividends from our equity-accounted joint ventures, will be sufficient to finance the majority of our liquidity needs, including the equity portion of our committed capital expenditures. Our remaining liquidity needs include the requirement to refinance our loan facilities maturing in 2020. We already have committed debt financing in place for all of our existing growth projects, including: our wholly-owned LNG carrier newbuilding to be chartered on a 15-year charter contract to Yamal Trade Pte. Ltd. (which was delivered in January 2019); one LNG carrier under construction in the Pan Union Joint Venture (which was delivered in January 2019); all four ARC7 LNG carriers under construction for the Yamal LNG Joint Venture; and the assets of the Bahrain LNG Joint Venture formed for the development of an LNG receiving and regasification terminal in Bahrain.

Our ability to continue to expand the size of our fleet over the long term is dependent upon our ability to generate operating cash flow, obtain long-term bank borrowings, sale-leaseback financing and other debt, as well as our ability to raise debt or equity financing through public or private offerings.

Our revolving credit facilities, term loans and obligations related to capital leases are described in the "Credit Facilities and Capital Leases" section below and in "Item 18 – Financial Statements: Note 5 – Chartered-in Vessels and Note 10 – Long-Term Debt."

As at December 31, 2018 , our consolidated cash and cash equivalents were $149.0 million , compared to $244.2 million at December 31, 2017. Our total liquidity, which consists of cash, cash equivalents and undrawn credit facilities, was $324.6 million as at December 31, 2018 , compared to $433.6 million as at December 31, 2017. The decrease in total consolidated liquidity was primarily due to funding of our committed projects, including capital contributions into the Pan Union Joint Venture and Teekay LNG-Marubeni Joint Venture, and payment of the tax indemnification liability in our consolidated Teekay Nakilat Joint Venture during 2018. The decrease in total consolidated liquidity was partially offset by cash generated from operations, proceeds from our sale-leaseback transactions completed during 2018, proceeds from the sales of the European Spirit and African Spirit and proceeds from the sale of our 50% ownership interest in the Excelsior Joint Venture.

59


As at December 31, 2018 , we had a working capital deficit of $32.8 million , which includes $24.0 million of current obligations related to capital leases relating to the Toledo Spirit , which was sold by the owner in January 2019 to a third party, resulting in the extinguishment of the remaining lease obligation without any cash flow impact directly relating to such extinguishment. We expect to manage our working capital deficit primarily with net operating cash flow and dividends from our equity-accounted joint ventures, debt refinancings, and, to a lesser extent, existing undrawn revolving credit facilities. As at December 31, 2018 , we had undrawn revolving credit facilities of $175.6 million. Please read “Item 18 - Financial Statements: Note 14a - Commitments and Contingencies” for information about required funding over the next 12 months.

As described under “Item 4 – Information on the Partnership: B. Operations - Regulations,” passage of any climate control legislation or other regulatory initiatives that restrict emissions of greenhouse gases could have a significant financial and operational impact on our business, which we cannot predict with certainty at this time. Such regulatory measures could increase our costs related to operating and maintaining our vessels and require us to install new emission controls, acquire allowances or pay taxes related to our greenhouse gas emissions, or administer and manage a greenhouse gas emissions program. In addition, increased regulation of greenhouse gases may, in the long term, lead to reduced demand for oil and gas and reduced demand for our services.

Cash Flows. The following table summarizes our cash flow for the periods presented:
(in thousands of U.S. Dollars)
Year Ended December 31,
 
2018
2017
2016
Net cash flow from operating activities
131,198

218,750

194,362

Net cash flow from financing activities
385,085

643,951

178,019

Net cash flow used for investing activities
(632,854
)
(766,439
)
(343,208
)

Operating Cash Flows. Net cash flow from operating activities decreased to $131.2 million in 2018 from $218.8 million in 2017, primarily due to the payment of the tax indemnification liability in our consolidated Teekay Nakilat Joint Venture; decrease in cash flows from our seven multi-gas carriers; decrease in cash flows from our two conventional tankers trading in the spot market and then sold in 2018; the Polar Spirit earning a lower time-charter rate upon redeployment; the sales of the Asian Spirit and Teide Spirit conventional tankers in March 2017 and February 2018, respectively; and decrease in dividends received from our equity-accounted joint ventures. These decreases were partially offset by an increase in cash flows generated by the deliveries to us of the Torben Spirit, Macoma, Murex, Magdala, Myrina, Megara, Bahrain Spirit and Sean Spirit LNG carriers between February 2017 and December 2018 and the Magellan Spirit chartered-in from the Teekay LNG-Marubeni Joint Venture commencing its charter-out employment in October 2018.

Net cash flow from operating activities increased to $218.8 million in 2017 from $194.4 million in 2016, primarily due to the deliveries of our LNG carrier newbuildings and commencement of their charter contracts during 2016 and 2017; an increase in the amount of dividends received from our equity-accounted joint ventures; six days of scheduled off-hire during the first quarter of 2016 due to an in-water survey for the Catalunya Spirit ; and the timing of settlement of advances to and from affiliates . These increases were partially offset by the sales of the Bermuda Spirit, Hamilton Spirit and Asian Spirit in April 2016, May 2016 and March 2017, respectively ; reduced revenues in 2017 for uncollected hire invoices relating to our six LPG carriers on charter to Skaugen; 35 days of unscheduled off-hire in the second quarter of 2017 due to repairs required for one of our LNG carriers; the Hispania Spirit being off-hire for 31 days in the first quarter of 2017 for a scheduled dry docking; lower spot rates earned by the European Spirit and African Spirit after their fixed-rate charter contracts expired in August and November 2017, respectively; an increased amount of dry-docking expenditures in 2017; and one additional calendar day in the first quarter of 2016.

Net cash flow from operating activities depends upon the timing and amount of dry-docking expenditures, repair and maintenance activity, the impact of vessel additions and dispositions on operating cash flows, foreign currency rates, changes in interest rates, timing and amounts of dividends received from equity-accounted investments, fluctuations in working capital balances and spot market hire rates (to the extent we have vessels operating in the spot tanker market or our hire rates are partially affected by spot market rates). The number of vessel dry dockings tends to vary each period depending on the vessels’ maintenance schedule.

Our equity-accounted joint ventures are generally required to distribute all available cash to their owners. However, the timing and amount of dividends from each of our equity-accounted joint ventures may not necessarily coincide with the operating cash flow generated from each respective equity-accounted joint venture. The timing and amount of dividends distributed by our equity-accounted joint ventures are affected by the timing and amounts of debt repayments in the joint ventures, capital requirements of the joint ventures, as well as any cash reserves maintained in the joint ventures for operations, capital expenditures and/or as required under financing agreements.

Financing Cash Flows. Net cash flow from financing activities decreased to $385.1 million in 2018 from $644.0 million in 2017 primarily due to an increase in debt prepayments and repayments including settlement of related swaps of $540.8 million primarily in relation to completion of refinancings during 2018; $370.1 million of net proceeds we received from the sale-leaseback financing transactions for the deliveries of the Magdala, Myrina and Megara during 2018, compared to $656.9 million in 2017; $164.4 million increase in net proceeds from equity offerings due to the issuance of our Series B Preferred Units in October 2017; increase in repayments of obligations related to capital leases of $17.7 million due to sale-leaseback financing transactions completed during 2018 and 2017; a $13.7 million increase in cash distributions paid as a result of the issuance of our Series B Preferred Units in October 2017; and $3.8 million used to repurchase common units during 2018. These decreases in cash flows from financing activities were partially offset by a $769.2 million increase in net proceeds from the issuance of long-term debt for refinancings completed in 2018 and the timing of drawdowns on certain of our existing debt facilities.


60

Net cash flow from financing activities increased to $644.0 million in 2017 from $178.0 million in 2016 primarily as a result of : a total of $366.9 million in lower debt prepayments and repayments as the term loans associated with the sales of the Bermuda Spirit and Hamilton Spirit were prepaid in 2016; an increase of $301.6 million in proceeds from the sale-leaseback financing transactions completed on our LNG carrier newbuildings during 2017; and $43.7 million higher net proceeds from equity offerings due to the issuance of our Series B Preferred Units in October 2017. These increases in cash flows from financing activities were partially offset by: a $215.9 million decrease in net proceeds from the issuance of long-term debt, primarily due to the timing of drawdowns on certain of our existing debt facilities; a $20.4 million increase in capital lease repayments during 2017 due to the sale-leaseback financing transactions completed in 2016 and 2017; and a $11.2 million increase in cash distributions paid as a result of the issuance of our Series A Preferred Units in October 2016.

Investing Cash Flows. Net cash flow used for investing activities decreased to $632.9 million in 2018 compared to $766.4 million in 2017 primarily due to $686.1 million cash expenditures for vessels and equipment, primarily for newbuilding installment payments and shipbuilding supervision costs for our LNG carrier newbuildings during 2018, compared to $708.6 million during 2017; our contribution of $40.5 million to our equity-accounted joint ventures during 2018, compared to $183.9 million during 2017, primarily to fund project expenditures in the Yamal LNG Joint Venture, the Bahrain LNG Joint Venture, and the Pan Union Joint Venture, and for working capital requirements for the Teekay LNG-Marubeni Joint Venture; and net proceeds received from the sale of our 50% ownership interest in the Excelsior Joint Venture in March 2018 of $54.4 million and proceeds from the sales of the African Spirit and European Spirit in October 2018 and December 2018, respectively, of $28.5 million compared to $20.6 million of proceeds from the sale of the Asian Spirit in March 2017. These decreases in cash used for investing activities were partially offset by $92.3 million return of capital we received in 2017 from the RasGas 3 Joint Venture and the Yamal LNG Joint Venture upon completion of their debt refinancings.

Net cash flow used for investing activities increased to $766.4 million in 2017 compared to $343.2 million in 2016. During 2017, we used $708.6 million in cash, primarily for scheduled newbuilding installment payments and shipbuilding supervision costs for our LNG carrier newbuildings compared to $345.8 million during 2016; in March 2017, we received $20.6 million in proceeds from the sale of the Asian Spirit , compared to $94.3 million from the sales of the Bermuda Spirit and Hamilton Spirit in April 2016 and May 2016, respectively; we contributed $183.9 million to our equity-accounted joint ventures in 2017 compared to $120.9 million during 2016, primarily to fund newbuilding installments in the Yamal LNG Joint Venture and project expenditures for the Bahrain LNG project; and during 2017, our receipts from direct financing leases were decreased by $10.5 million , primarily due to our lease payment deferral agreement with Awilco. These increases in cash used for investing activities were partially offset by $40.3 million and $52.0 million returns of capital we received in 2017 from the RasGas 3 Joint Venture and the Yamal LNG Joint Venture, respectively, upon completion of their debt refinancings, compared to $5.5 million of distributions we received during 2016 as a repayment of a shareholder loan from the Exmar LPG Joint Venture.

Credit Facilities and Capital Leases
Our revolving credit facilities, term loans and obligations related to capital leases are described in "Item 18 – Financial Statements: Note 5 – Chartered-in Vessels and Note 10 – Long-Term Debt." Our term loans, revolving credit facilities and obligations related to capital leases contain covenants and other restrictions typical of debt financing secured by vessels, including, among others, one or more of the following that restrict the ship-owning subsidiaries from:

•
incurring or guaranteeing indebtedness;
•
changing ownership or structure, including mergers, consolidations, liquidations and dissolutions;
•
making dividends or distributions if we are in default;
•
making capital expenditures in excess of specified levels;
•
making certain negative pledges and granting certain liens;
•
selling, transferring, assigning or conveying assets;
•
making certain loans and investments; and
•
entering into a new line of business.

Certain loan agreements require (a) that minimum levels of tangible net worth and aggregate liquidity be maintained, (b) that we maintain certain ratios of vessel values as it relates to the relevant outstanding loan principal balance, (c) that we do not exceed a maximum amount of leverage and (d) certain of our subsidiaries to maintain restricted cash deposits. As at December 31, 2018 , we had three facilities with an aggregate outstanding loan balance of $442.2 million that require us to maintain minimum vessel-value-to-outstanding-loan-principal-balance ratios ranging from 115% to 135% , which as at December 31, 2018 ranged from 132% to 198% . The vessel values used in calculating these ratios are the appraised values provided by third parties where available or prepared by us based on second-hand sale and purchase market data. Since vessel values can be volatile, our estimate of market value may not be indicative of either the current or future price that could be obtained if the related vessel was actually sold. Our ship-owning subsidiaries may not, among other things, pay dividends or distributions if they are in default under their term loans or revolving credit facilities and one of the term loans in the Teekay Nakilat Joint Venture requires it to satisfy a minimum vessel value to outstanding loan principal balance ratio to pay dividends. In addition, we guarantee certain obligations related to capital leases, which require us to maintain minimum levels of tangible net worth and aggregate liquidity, and not to exceed a maximum amount of leverage. As at December 31, 2018 , we and our affiliates were in compliance with all covenants relating to our credit facilities and capital leases.
Contractual Obligations and Contingencies

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The following table summarizes our contractual obligations as at December 31, 2018 :

 
 
Total
 
2019
 
2020
 
2021
 
2022
 
2023
 
Beyond
2023
 
 
(in millions of U.S. Dollars)
U.S. Dollar-Denominated Obligations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt: (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Scheduled repayments
 
610.6

 
108.6

 
102.7

 
71.3

 
58.9

 
55.3

 
213.8

Repayments at maturity
 
830.2

 
3.3

 
368.8

 
166.9

 
5.0

 
—

 
286.2

Commitments related to capital leases (2)
 
1,734.2

 
143.7

 
118.7

 
117.8

 
117.0

 
116.3

 
1,120.7

Commitments related to operating leases (3)
 
284.7

 
47.6

 
39.9

 
23.9

 
23.9

 
23.9

 
125.5

Newbuilding installments/shipbuilding supervision (4)
 
652.2

 
652.2

 
—

 
—

 
—

 
—

 
—

Total U.S. Dollar-denominated obligations
 
4,111.9

 
955.4

 
630.1

 
379.9

 
204.8

 
195.5

 
1,746.2

Euro-Denominated Obligations: (5)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt (6)
 
193.8

 
24.7

 
25.8

 
27.0

 
28.2

 
59.6

 
28.5

Total Euro-denominated obligations
 
193.8

 
24.7

 
25.8

 
27.0

 
28.2

 
59.6

 
28.5

Norwegian Kroner-Denominated Obligations: (5)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt (7)
 
353.0

 
—

 
115.7

 
138.9

 
—

 
98.4

 
—

Total Norwegian Kroner-Denominated obligations 
 
353.0

 
—

 
115.7

 
138.9

 
—

 
98.4

 
—

Totals
 
4,658.7

 
980.1

 
771.6

 
545.8

 
233.0

 
353.5

 
1,774.7


(1)
Excludes expected interest payments of $62.5 million ( 2019 ), $49.9 million ( 2020 ), $34.9 million ( 2021 ), $28.9 million ( 2022 ), $26.1 million ( 2023 ) and $ 71.4 million ( beyond 2023 ). Expected interest payments are based on the existing interest rates (fixed-rate loans) and LIBOR at December 31, 2018 , plus margins on debt that has been drawn that range up to 3.25% (variable-rate loans). The expected interest payments do not reflect the effect of related interest rate swaps that we have used as an economic hedge for certain of our variable-rate debt. In addition, the above table does not reflect scheduled debt repayments in our equity-accounted joint ventures.
(2)
Includes, in addition to lease payments, amounts we may be or are required to pay to purchase the leased vessels at the end of their respective lease terms. For one of our nine obligations related to capital leases, the vessel was sold by the owner in January 2019 and the full amount of the associated lease obligation of $24.0 million was extinguished when we returned the vessel to the owner. Please read “Item 18 - Financial Statements: Note 5d - Chartered in Vessels and Note 20b - Subsequent Events”.
(3)
We have corresponding leases whereby we are the lessor and expect to receive approximately $217.8 million under these leases from 2019 to 2029.
(4)
As of December 31, 2018 , we have an agreement for the construction of one wholly-owned LNG carrier newbuilding, for which the estimated remaining cost for this newbuilding totaled $120.4 million , including estimated interest and construction supervision fees. We have secured $159 million of financing related to the commitments for the LNG carrier newbuilding included in the table above.
As part of the acquisition of an ownership interest in the Pan Union Joint Venture, we agreed to assume Shell’s obligation to provide shipbuilding supervision and crew training services for the four LNG carrier newbuildings and to fund our proportionate share of the remaining newbuilding installments. The estimated remaining costs for the shipbuilding supervision and crew training services and our proportionate share of newbuilding installments totaled $29.2 million as of December 31, 2018 . However, as part of this agreement with Shell, we recovered $0.2 million of the shipbuilding supervision and crew training costs from Shell in 2019 . The Pan Union Joint Venture has secured undrawn financing of $24 million based on our proportionate share of the remaining newbuilding installments included in the table above.
In July 2014, the Yamal LNG Joint Venture, in which we have a 50% ownership interest, entered into agreements for the construction of six ARC7 LNG carrier newbuildings, of which two delivered in 2018. As at December 31, 2018 , our 50% share of the estimated remaining costs for the four remaining newbuildings totaled $436.1 million , of which the Yamal LNG Joint Venture has secured undrawn financing of $395 million based on our proportionate share of the remaining newbuilding installments included in the table above.
The Bahrain LNG Joint Venture, in which we have a 30% ownership interest, is developing an LNG receiving and regasification terminal in Bahrain. The project will be owned and operated under a 20-year agreement commencing in mid-2019 with an estimated fully-built up cost of approximately $903.1 million . As at December 31, 2018 , our 30% share of the estimated remaining costs included in the table above is $66.5 million , of which the Bahrain LNG Joint Venture has secured undrawn debt financing of $ 58 million related to our proportionate share.
(5)
Euro-denominated and NOK-denominated obligations are presented in U.S. Dollars and have been converted using the prevailing exchange rate as of December 31, 2018 .
(6)
Excludes expected interest payments of $2.2 million ( 2019 ) $1.9 million ( 2020 ), $1.5 million ( 2021 ), $1.2 million ( 2022 ) $0.8 million ( 2023 ) and $0.3 million ( beyond 2023 ). Expected interest payments are based on EURIBOR at December 31, 2018 , plus margins that range up to 1.95% , as well as the prevailing U.S. Dollar/Euro exchange rate as of December 31, 2018 . The expected interest payments do not reflect the effect of related interest rate swaps that we have used as an economic hedge of certain of our variable-rate debt.
(7)
Excludes expected interest payments of $21.2 million ( 2019 ), $18.4 million ( 2020 ), $10.6 million ( 2021 ) $5.7 million ( 2022 ) and $2.9 million ( 2023 ). Expected interest payments are based on NIBOR at December 31, 2018 , plus margins that range up to 6.0% , as well as the prevailing U.S. Dollar/NOK exchange

62

rate as of December 31, 2018 . The expected interest payments do not reflect the effect of the related cross currency swaps that we have used as an economic hedge of our foreign exchange and interest rate exposure associated with our NOK-denominated long-term debt.

Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources . The details of our equity-accounted investments are shown in "Item 18 – Financial Statements: Note 7 – Equity-Accounted Investments."
Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with GAAP, which requires us to make estimates in the application of our accounting policies based on our best assumptions, judgments and opinions. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements, because they inherently involve significant judgments and uncertainties. For a further description of our material accounting policies, please read “Item 18 – Financial Statements: Note 1 – Summary of Significant Accounting Policies.”
Vessel Lives and Impairment
Description. The carrying value of each of our vessels represents its original cost at the time of delivery or purchase less depreciation and impairment charges. We depreciate the original cost, less an estimated residual value, of our vessels on a straight-line basis over each vessel’s estimated useful life. The carrying values of our vessels may not represent their market value at any point in time because the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings. Both charter rates and newbuilding costs tend to be cyclical in nature.

We review vessels and equipment for impairment whenever events or circumstances indicate the carrying value of an asset, including the carrying value of the charter contract, if any, under which the vessel is employed, may not be recoverable. This occurs when the asset’s carrying value is greater than the future undiscounted cash flows the asset is expected to generate over its remaining useful life. For a vessel under charter, the discounted cash flows from that vessel may exceed its market value, as market values may assume the vessel is not employed on an existing charter. If the estimated future undiscounted cash flows of an asset exceed the asset’s carrying value, no impairment is recognized even though the fair value of the asset may be lower than its carrying value. If the estimated future undiscounted cash flows of an asset are less than the asset’s carrying value and the fair value of the asset is less than its carrying value, the asset is written down to its fair value. Fair value is calculated as the net present value of estimated future cash flows, which, in certain circumstances, will approximate the estimated market value of the vessel.

Our business model is to employ our vessels on fixed-rate contracts primarily with large energy companies and their transportation subsidiaries. These contracts generally have original terms between five to 25 years in length. Consequently, while the market value of a vessel may decline below its carrying value, the carrying value of a vessel may still be recoverable based on the future undiscounted cash flows the vessel is expected to obtain from servicing its existing contract and future contracts.

The following table presents by segment the aggregate market values and carrying values of certain of our vessels that we have determined have a market value that is less than their carrying value as of December 31, 2018. Specifically, the following table reflects all such vessels, except those operating on contracts where the remaining term is significant and the estimated future undiscounted cash flows relating to such contracts are sufficiently greater than the carrying value of the vessels such that we consider it unlikely an impairment would be recognized in the following year. Consequently, the vessels included in the following table generally include those vessels near the end of existing charters or other operational contracts. While the market values of these vessels are below their carrying values, no impairment has been recognized on any of these vessels as the estimated future undiscounted cash flows relating to such vessels are greater than their carrying values.

We would consider the vessels reflected in the following table to be at a higher risk of future impairment. The estimated future undiscounted cash flows of the vessels reflected in the following table are significantly greater than their respective carrying values. Consequently, in these cases, the following table would not necessarily represent vessels that would likely be impaired in the next 12 months, and the recognition of an impairment in the future for any of those vessels may primarily depend upon our deciding to dispose of a vessel instead of continuing to operate it. In deciding whether to dispose of a vessel, we determine whether it is economically preferable to sell a vessel or continue to operate it. This assessment includes an estimate of the net proceeds expected to be received if a vessel is sold in its existing condition compared to the present value of the vessel’s estimated future revenue, net of operating costs. Such estimates are based on the terms of its existing charter, charter market outlook and estimated operating costs, given a vessel’s type, condition and age. In addition, we typically do not dispose of a vessel that is servicing an existing customer contract.
 

63

(in thousands of U.S. Dollars, except number of vessels)
Reportable Segment ___________________________________
 
Number of Vessels
 
Market Values (1)
$
 
Carrying Values
$
Liquefied Natural Gas Segment (2)
 
1

 
31,000

 
64,593

Liquefied Petroleum Gas Segment (2)
 
2


69,250


81,823

Total
 
3


100,250


146,416

(1)
Market values are determined using reference to second-hand market comparable values as at December 31, 2018. Since vessel values can be volatile, our estimates of market value may not be indicative of either the current or future prices we could obtain if we sold any of the vessels.
(2)
Undiscounted cash flows are greater than the carrying values.

Judgments and Uncertainties. Depreciation is calculated using an estimated useful life of 25 years for conventional tankers, 30 years for LPG Carriers and 35 years for LNG carriers, commencing at the date the vessel was originally delivered from the shipyard. However, the actual life of a vessel may be different than the estimated useful life, with a shorter actual useful life resulting in an increase in the quarterly depreciation and potentially resulting in an impairment loss. The estimated useful life of our vessels takes into account design life, commercial considerations and regulatory restrictions. Our estimates of future cash flows involve assumptions about future charter rates, vessel utilization, operating expenses, dry-docking expenditures, vessel residual values and the remaining estimated life of our vessels. Our estimated charter rates are based on rates under existing vessel contracts and market rates at which we expect we can re-charter our vessels. Our estimates of vessel utilization, including estimated off-hire time, are based on historical experience. Our estimates of operating expenses and dry-docking expenditures are based on historical operating and dry-docking costs and our expectations of future inflation and operating requirements. Vessel residual values are a product of a vessel’s lightweight tonnage and an estimated scrap rate. The remaining estimated lives of our vessels used in our estimates of future cash flows are consistent with those used in the calculation of depreciation.

Certain assumptions relating to our estimates of future cash flows are more predictable by their nature in our historical experience, including estimated revenue under existing contract terms, on-going operating costs and remaining vessel life. Certain assumptions relating to our estimates of future cash flows require more discretion and are inherently less predictable, such as future charter rates beyond the firm period of existing contracts and vessel residual values, due to factors such as the volatility in vessel charter rates and vessel values. We believe that the assumptions used to estimate future cash flows of our vessels are reasonable at the time they are made. We can make no assurances, however, as to whether our estimates of future cash flows, particularly future vessel charter rates or vessel values, will be accurate.

Effect if Actual Results Differ from Assumptions. If we conclude that a vessel or equipment is impaired, we recognize a loss in an amount equal to the excess of the carrying value of the asset over its fair value at the date of impairment. The written-down amount becomes the new lower cost basis and will result in a lower annual depreciation expense in periods subsequent to the vessel impairment. Consequently, any changes in our estimates of future undiscounted cash flows may result in a different impairment amount, including no impairment, and a different future annual depreciation expense.
Dry-docking Life
Description . We capitalize a portion of the costs we incur during dry docking and amortize those costs on a straight-line basis over the useful life of the dry dock. We expense costs related to routine repairs and maintenance incurred during dry docking that do not improve operating efficiency or extend the useful lives of the assets.

Judgments and Uncertainties. Amortization of capitalized dry-dock expenditures requires us to estimate the period of the next dry docking and useful life of dry-dock expenditures. While we generally dry dock each vessel every two and a half to five years, we may dry dock the vessels at an earlier date, with a shorter life resulting in an increase in amortization expense.

Effect if Actual Results Differ from Assumptions. If we change our estimate of the next dry-dock date for a vessel, we will adjust our annual amortization of dry-docking expenditures. Amortization expense of capitalized dry-dock expenditures for 2018, 2017, and 2016 were $11.6 million, $13.9 million, and $11.5 million, respectively. For the years ended December 31, 2018, 2017, and 2016, our capitalized dry-dock expenditures were $15.3 million, $22.3 million, and $13.9 million, respectively. A one-year reduction in the estimated useful lives of capitalized dry-dock expenditures would result in an increase in our current annual amortization by approximately $3.4 million.
Goodwill and Intangible Assets
Description . We allocate the cost of acquired companies, including acquisitions of equity-accounted investments, to the identifiable tangible and intangible assets and liabilities acquired, with the remaining amount being classified as goodwill. Certain intangible assets, such as time-charter contracts, are being amortized over time. Our future operating performance will be affected by the amortization of intangible assets and potential impairment charges related to goodwill and intangibles. Accordingly, the allocation of purchase price to intangible assets and goodwill may significantly affect our future operating results.

Goodwill is not amortized but is reviewed for impairment at the reporting unit level on an annual basis or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit to below its carrying value. When goodwill is reviewed for impairment, we may elect to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. Alternatively, we may bypass this step and use a fair value approach to identify potential goodwill impairment and, when necessary, measure the amount of impairment. The Partnership uses a discounted cash flow model to determine the fair value of reporting units, unless there is a readily determinable fair market value. Intangible assets are assessed

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for impairment when and if impairment indicators exist. An impairment loss is recognized if the carrying amount of an intangible asset is not recoverable and its carrying amount exceeds its fair value.

Judgments and Uncertainties . The allocation of the purchase price of acquired companies to intangible assets and goodwill requires management to make significant estimates and assumptions, including estimates of future cash flows expected to be generated by the acquired assets and the appropriate discount rate to value these cash flows. In addition, the process of evaluating the potential impairment of goodwill and intangible assets is highly subjective and requires significant judgment at many points during the analysis. The fair value of our reporting units was estimated based on discounted expected future cash flows using a weighted-average cost of capital rate. The estimates and assumptions regarding expected cash flows and the discount rate require considerable judgment and are based upon existing contracts, historical experience, financial forecasts and industry trends and conditions.

At December 31, 2018, we had two reporting units with goodwill attributable to them, and we recorded an impairment charge of $0.8 million during the year relating to a portion of the goodwill attributed to our liquefied petroleum gas segment. Certain factors that impact these assessments are inherently difficult to forecast and as such we cannot provide any assurances that an impairment will or will not occur in the future. An assessment for impairment involves a number of assumptions and estimates that are based on factors that are beyond our control. These are discussed in more detail in Part I – Forward-Looking Statements.

Amortization expense of intangible assets for each of the years 2018, 2017, and 2016 was $8.9 million per year. If actual results are not consistent with our estimates used to value our intangible assets, we may be exposed to an impairment charge and a decrease in the annual amortization expense of our intangible assets.
Valuation of Derivative Instruments
Description. Our risk management policies permit the use of derivative financial instruments to manage interest rate risk, foreign exchange risk and spot tanker market risk. Changes in fair value of derivative financial instruments that are not designated as cash flow hedges for accounting purposes are recognized in earnings.

Judgments and Uncertainties. A substantial majority of the fair value of our derivative instruments and the change in fair value of our derivative instruments from period to period result from our use of interest rate swap agreements. The fair value of our derivative instruments is the estimated amount that we would receive or pay to terminate the agreements at the reporting date, taking into account current interest rates and the current credit worthiness of both us and the swap counterparties. The estimated amount is the present value of estimated future cash flows, being equal to the difference between the benchmark interest rate and the fixed rate in the interest rate swap agreement, multiplied by the notional principal amount of the interest rate swap agreement at each interest reset date.

The fair value of our interest and cross currency swap agreements at the end of each period is most significantly affected by the interest rate implied by the benchmark interest yield curve, including its relative steepness, and forward foreign exchange rates. Interest rates and foreign exchange rates have experienced significant volatility in recent years in both the short and long term. While the fair value of our interest and cross currency swap agreements is typically more sensitive to changes in short-term rates, significant changes in the long-term benchmark interest and foreign exchange rates also materially impact our interest and cross currency swap agreements.

The fair value of our interest and cross currency swap agreements is also affected by changes in our specific credit risk included in the discount factor. We discount our interest rate swap agreements with reference to the credit default swap spreads of similarly rated global industrial companies and by considering any underlying collateral. The process of determining credit worthiness requires significant judgment in determining which source of credit risk information most closely matches our risk profile.

The benchmark interest rate yield curve and our specific credit risk are expected to vary over the life of the interest rate swap agreements. The larger the notional amount of the interest rate swap agreements outstanding and the longer the remaining duration of the interest rate swap agreements, the larger the impact of any variability in these factors will be on the fair value of our interest rate swaps. We economically hedge the interest rate exposure on a significant amount of our long-term debt and for long durations. As such, we have historically experienced, and we expect to continue to experience, material variations in the period-to-period fair value of our derivative instruments.

The fair value of our derivative instrument relating to the agreement between us and Teekay Corporation for the Toledo Spirit time-charter contract is the estimated amount that we would receive or pay to terminate the agreement at the reporting date. This amount is estimated using the present value of our projected future spot market tanker rates, which has been derived from current spot market rates and long-term historical average rates.

Effect if Actual Results Differ from Assumptions. Although we measure the fair value of our derivative instruments utilizing the inputs and assumptions described above, if we were to terminate the agreements at the reporting date, the amount we would pay or receive to terminate the derivative instruments may differ from our estimate of fair value. If the estimated fair value differs from the actual termination amount, an adjustment to the carrying amount of the applicable derivative asset or liability would be recognized in earnings for the current period. Such adjustments could be material. See “Item 18 – Financial Statements: Note 13 – Derivative Instruments and Hedging Activities” for the effects on the change in fair value of our derivative instruments on our consolidated statements of income and statements of comprehensive income.
Taxes
Description . We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.

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Judgments and Uncertainties . The future realization of deferred tax assets depends on the existence of sufficient taxable income of the appropriate character in either the carryback or carryforward period. This analysis requires, among other things, the use of estimates and projections in determining future reversals of temporary differences, forecasts of future profitability and evaluating potential tax-planning strategies.

Effect if Actual Results Differ from Assumptions. If we determined that we were able to realize a net deferred tax asset in the future, in excess of the net recorded amount, an adjustment to the deferred tax assets would typically increase our net income in the period such determination was made. Likewise, if we determined that we were not able to realize all or a part of our deferred tax asset in the future, an adjustment to the deferred tax assets would typically decrease our net income in the period such determination was made. As at December 31, 2018, we had recorded valuation allowances of $52.6 million (December 31, 2017 – $38.6 million).
Item 6.
Directors, Senior Management and Employees
Management of Teekay LNG Partners L.P.
Teekay GP L.L.C., our General Partner, manages our operations and activities. Unitholders are not entitled to elect the directors of our General Partner or directly or indirectly participate in our management or operation.

Our General Partner has limited fiduciary duties to manage our business in a manner beneficial to us and our partners. Our General Partner is liable, as general partner, for all of our debts (to the extent not paid from our assets), except for indebtedness or other obligations that are expressly nonrecourse to it. Whenever possible, our General Partner intends to cause us to incur indebtedness or other obligations that are nonrecourse to it, of which all of our debts are nonrecourse to our General Partner.

The directors of our General Partner oversee our operations. O ur General Partner has a Corporate Secretary but does not have any other officers. In February 2017, the Partnership and our wholly-owned subsidiary, Teekay LNG Operating L.L.C. (or Opco ), entered into a services agre ement with Teekay Gas Group Ltd. (or the Service Provider ), a subsidiary of Opco. The Service Provider provides services using persons employed by various subsidiaries of Teekay Corporation, including the services of Mark Kremin, the President and CEO of the Service Provider, and Scott Gayton, the CFO of the Service Provider. Employees of certain subsidiaries of Teekay Corporation provide, pursuant to other services agreements, various services to us, including in the case of our operating subsidiaries, substantially all of their managerial, operational and administrative services and other technical and advisory services, and in the case of the Partnership, various administrative services. Please read “Item 7 – Major Common Unitholders and Related Party Transactions.”

Those individuals providing services to us or our subsidiaries may face a conflict regarding the allocation of their time between our business and the other business interests of Teekay Corporation or its affiliates. The various services agreements require the service providers to provide the services diligently and in a commercially reasonable manner.
Directors of Teekay GP L.L.C.
The following table provides information about the Board of Directors (or the Board ) of our General Partner, Teekay GP L.L.C., as at the date of this Annual Report. Directors are appointed to serve until their successors are appointed or until they resign or are removed. The business address of each of our directors listed below is c/o 4 th Floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM 08, Bermuda. Ages of the individuals are as of December 31, 2018.

Name
 
Age
 
Position
Ida Jane Hinkley
 
68
 
Chairperson (1)(2)
Kenneth Hvid
 
50
 
Director (3)
Beverlee F. Park
 
56
 
Director (1)(2)
C. Sean Day
 
69
 
Director (1)
Joseph E. McKechnie
 
60
 
Director (1)(2)
Bill Utt
 
61
 
Director (3)
(1)
Member of Corporate Governance Committee.
(2)
Member of Audit Committee and Conflicts Committee
(3)
Appointed on September 10, 2018.

Director Bill Utt will resign from the Board and from Teekay Corporation's Board of Directors in June 2019. Director C. Sean Day will also retire from Teekay Corporation's Board of Directors in June 2019; however, Mr. Day will continue to serve on the Board of our General Partner.

Certain biographical information about each of these individuals included in the table above is set forth below:

Ida Jane Hinkley serves as Chair of Teekay GP L.L.C. and has served as director since 2005. From 1998 to 2001, she served as Managing Director of Navion Shipping AS, a shipping company at that time affiliated with the Norwegian state-owned oil company Statoil ASA (and

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subsequently acquired by Teekay Corporation in 2003). From 1980 to 1997, Ms. Hinkley was employed by Gotaas-Larsen Shipping Corporation, an international provider of marine transportation services for crude oil and gas (including LNG), serving as its Chief Financial Officer from 1988 to 1992 and its Managing Director from 1993 to 1997. She currently serves as a non-executive director on the Board of Premier Oil plc, a London Stock Exchange listed oil exploration and production company, and as a non-executive director of Vesuvius plc, a London Stock Exchange listed engineering company. From 2007 to 2008 she served as a non-executive director on the Board of Revus Energy ASA, a Norwegian listed oil company.

Kenneth Hvid was appointed director of Teekay GP L.L.C. on September 10, 2018. Kenneth Hvid was appointed President and Chief Executive Officer of Teekay Corporation in February 2017 and has been elected as a Teekay Corporation director effective as of its 2019 annual meeting of its shareholders. Mr. Hvid served as a director of Teekay Offshore GP L.L.C. since 2011 and director of Teekay Tankers Ltd since February 2017. He joined Teekay Corporation in 2000 and was responsible for leading its global procurement activities until he was promoted in 2004 to Senior Vice President, Teekay Gas Services. During that time, Mr. Hvid was involved in leading Teekay Corporation through its entry and growth in the liquefied natural gas business. He held that position until the beginning of 2006, when he was appointed President of the Teekay Navion Shuttle Tankers and Offshore division. In that role, he was responsible for Teekay Corporation’s global shuttle tanker business as well as initiatives in the floating, storage and offtake business and related offshore activities. Mr. Hvid served as Teekay Corporation’s Chief Strategy Officer and Executive Vice President from 2011 to 2015, as a director of Teekay GP L.L.C. from 2011 to 2015 and as President and Chief Executive Officer of Teekay Offshore Group Ltd., from 2015 to 2016. Mr. Hvid has 30 years of global shipping experience, 12 of which were spent with A.P. Moller in Copenhagen, San Francisco and Hong Kong. In 2007, Mr. Hvid joined the Board of Gard P. & I. (Bermuda) Ltd.

Beverlee F. Park joined the Board of Teekay GP L.L.C. in 2014. From 2000 to 2013, Ms. Park served as COO, Interim CEO, and EVP/CFO at TimberWest, the largest private forest land owner in Western Canada. During this time, Ms. Park also served as President and COO, Couverdon Real Estate, a division of TimberWest. From 2003 to 2010, Ms. Park served as Board Member, Audit Committee Chair of BC Transmission Corp., the entity responsible for the operation and maintenance of 18,000km of electrical transmission in British Columbia and 300 substations. Previously, Ms. Park was employed by BC Hydro, British Columbia’s electricity, transmission and distribution utility company, in a range of senior financial roles and by KPMG. Ms. Park is currently a Board member of TransAlta Corporation, serving as a member of the Audit and Risk Committee and the Human Resources Committee, InTransit BC and of Silver Standard Resources Inc., serving as a member of the company’s Audit Committee and Safety and Sustainability Committee. She was appointed to the University of British Columbia’s Board of Governors in 2016 .

C. Sean Day has served as director of Teekay GP L.L.C. since it was formed in 2004, and he served as Chair from 2004 until 2015. Mr. Day has served as a director of Teekay Corporation since 1999, served as Chair from 1999 to June, 2017, and was appointed Chair Emeritus in December, 2017. Mr. Day served as director and Chair of Teekay Offshore GP L.L.C . , the general partner of Teekay Offshore Partners L.P., since it was formed in 2006, retiring as Chair in June 2017 and retiring as director in September 2017 . He served as a Chair of Teekay Tankers Ltd. from 2007 until 2013. From 1989 to 1999, he was President and Chief Executive Officer of Navios Corporation, a large bulk shipping company based in Stamford, Connecticut. Prior to this, Mr. Day held a number of senior management positions in the shipping and finance industry. He is currently serving as a director of Kirby Corporation and Chair of Compass Diversified Holdings. Mr. Day is engaged as a consultant to Kattegat Limited, the parent company of Teekay’s largest shareholder, Resolute Investments, Ltd. to oversee its investments, including that in the Teekay group of companies.

Joseph E. McKechnie joined the Board of Teekay GP L.L.C. in 2013. Mr. McKechnie is a retired United States Coast Guard Officer, having served for more than 23 years, many of which focused on marine safety and security with an emphasis on LNG. In 2000 he joined Tractebel LNG North America (formerly Cabot LNG) in Boston, Massachusetts as the Vice President of Shipping, where he oversaw the LNG shipping operations for the Port of Boston. From 2006 to 2011, Mr. McKechnie was transferred to London and then Paris to continue his work with SUEZ, (Parent company of Tractebel) and ultimately GDF-SUEZ, as the Senior Vice President of Shipping, and Deputy Head of the Shipping Department. He is a former member of the Board of Directors of Society of International Gas Tankers and Terminal Operators, and Gaz-Ocean, the GDF-SUEZ Owned LNG vessel operating company. In 2011, he left GDF-SUEZ following the successful merger of GDF and SUEZ, and ultimately formed J.E. McKechnie L.L.C. in 2011.

Bill Utt was appointed a director of Teekay GP L.L.C. on September 10, 2018. Mr. Utt has served as a Teekay Corporation director since 2015 and was appointed Chair in June 2017. He was also appointed Chair and director of Teekay Offshore GP L.L.C., the general partner of Teekay Offshore Partners L.P., since June 2017. Mr. Utt brings over 33 years of engineering and energy industry experience to the Board. From 2006 until his retirement in 2014, he served as Chair, President and Chief Executive Officer of KBR Inc., a global engineering, construction and services company. From 1995 to 2006, Mr. Utt served as the President and CEO of SUEZ Energy North America and President and Chief Executive Officer of Tractebel’s North American energy businesses. Prior to 1995, he held senior management positions with CRSS, Inc., which was a developer and operator of independent power and industrial energy facilities prior to its merger with Tractebel in 1995. Mr. Utt also currently serves as a member of the Board of Directors for Brand Industrial Holdings Inc., a Clayton, Dubilier & Rice, LLC portfolio company.

Our Management

Our General Partner has a Corporate Secretary but does not have any other officers. In February 2017, we and our wholly-owned subsidiary, Opco, entered into a service agreement with the Service Provider, Teekay Gas Group Ltd., a subsidiary of Opco. The Service Provider provides services using persons employed by various subsidiaries of Teekay Corporation, including the services of Mark Kremin, the President and CEO of Service Provider, and Scott Gayton, the CFO of Service Provider. The following table provides certain information about the senior management team that is principally responsible for our operations and their positions in the Service Provider as at the date of this Annual Report. The business address of each of the executive officers of the Service Provider and the Corporate Secretary of our General Partner listed below is c/o 4th Floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM 08, Bermuda.

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Name
 
Age
 
Position
Mark Kremin
 
48
 
President and Chief Executive Officer, Teekay Gas Group Ltd.
Scott Gayton
 
44
 
Chief Financial Officer, Teekay Gas Group Ltd. (1)
Edith Robinson
 
54
 
Corporate Secretary, Teekay GP L.L.C.; Corporate Secretary, Teekay Gas Group Ltd.

(1)
Appointed on June 29, 2018.

Mark Kremin was appointed President and CEO of Teekay Gas Group Ltd., a company that provides services to Teekay LNG Partners L.P. and its subsidiaries, in 2017. He was appointed President of Teekay Gas Services in 2015, having acted as its Vice President since 2006. In 2000, Mr. Kremin joined Teekay Corporation as in-house counsel and subsequently held commercial roles within Teekay Gas. He represents Teekay Gas on boards of joint ventures with partners in Asia, Europe and the Middle East. Mr. Kremin has over 20 years of experience in shipping. Prior to joining Teekay, he was an attorney in an admiralty law firm in Manhattan. Prior to attending law school in New York City, he worked for a leading owner and operator of container ships .
Scott Gayton was appointed Chief Financial Officer of Teekay Gas Group Ltd., a company that provides services to Teekay LNG Partners L.P. and its subsidiaries in June 2018. Mr. Gayton has over 20 years of finance and accounting experience, including most recently serving as CFO of Tanker Investments Ltd. from the time of its initial public offering in 2014 until its merger with Teekay Tankers Ltd. (NYSE:TNK) in 2017. Mr. Gayton joined Teekay Corporation in 2001 and has worked in progressively more senior roles in Finance. In 2013, he was promoted to Vice President, Finance, where he continues to play an instrumental role in supporting Teekay’s strategy and capital market transactions. Prior to joining Teekay Corporation, he worked as a Chartered Accountant in the Vancouver, Canada office of Ernst & Young LLP .

Edith Robinson   was appointed as the Secretary of Teekay GP L.L.C., the general partner of Teekay LNG Partners L.P., in 2014 and was appointed Secretary of Teekay Gas Group Ltd. in 2017. Ms. Robinson joined Teekay Corporation in 2014 and currently serves as an Associate General Counsel . Prior to joining Teekay Corporation, Ms. Robinson served as the General Counsel for a utility group in Bermuda. She has over 20 years of legal experience and is qualified to practice law in Bermuda, Ontario Canada, and England. Ms. Robinson has an MBA from Cornell University in addition to her legal qualifications.
Annual Executive Compensation
During 2018, the aggregate amount for which we reimbursed Teekay Corporation for compensation expenses of the Chief Executive Officer and Chief Financial Officer of the Service Provider, excluding any long-term incentive plan awards issued directly by the Partnership as described below, was $1.4 million. The amounts were paid in U.S. Dollars. Teekay Corporation’s annual bonus plan, in which the CEO and CFO of the Service Provider participated, considers both company performance and team performance.
Compensation of Directors
Officers of our Service Provider or Teekay Corporation who also serve as directors of our General Partner do not receive additional compensation for their service as directors. During 2018, each non-management director received compensation for attending meetings of the Board of Directors, as well as committee meetings. Each non-management director receives a director fee of $60,000 and common units with a value of approximately $75,000 for the 2018 year. The Chair received an annual fee of $107,500 and common units with a value of approximately $107,500. In addition, members of the audit, conflicts and corporate governance committees each received a committee fee of $7,500, $7,500 and $5,000, respectively, for the 2018 year, and the chairs of the audit, conflicts and corporate governance committees each received an additional fee of $17,000, $12,500 and $10,000, respectively, for serving in that role. Each director is fully indemnified by us for actions associated with being a director to the extent permitted under Marshall Islands law.

During 2018, the five non-management directors received, in the aggregate, $472,000 in cash fees for their services as directors, plus reimbursement of their out-of-pocket expenses. In March 2018, the Board granted to the five non-management directors an aggregate of 17,498 common units.
2005 Long-Term Incentive Plan
Our General Partner adopted the Teekay LNG Partners L.P. 2005 Long-Term Incentive Plan for employees and directors of and consultants to our General Partner and employees and directors of and consultants to its affiliates, who perform services for us. The plan provides for the award of restricted units, phantom units, unit options, unit appreciation rights and other unit or cash-based awards. In 2018, the General Partner awarded 62,283 restricted units to the Teekay Corporation employees who provide services to our business. The restricted units vest evenly over a three-year period from the grant date.
Board Practices
Teekay GP L.L.C., our General Partner, is responsible for the management of our operations and activities. Unitholders are not entitled to elect the directors of our General Partner or directly or indirectly participate in our management or operation.

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Our General Partner’s Board currently consists of six members. Directors are appointed to serve until their successors are appointed or until they resign or are removed.

There are no service contracts between us and any of our directors providing for benefits upon termination of their employment or service.

The Board has the following three committees: Audit Committee, Conflicts Committee, and Corporate Governance Committee. The membership of these committees and the function of each of the committees are described below. Each of the committees is currently comprised of independent members and operates under a written charter adopted by the Board. The committee charters for the Audit Committee, the Conflicts Committee and the Corporate Governance Committee are available under “Investors – Teekay LNG Partners L.P. - Governance” from the home page of our web site at www.teekay.com. During 2018, the Board held seven meetings. Each director attended all Board meetings, with the exception of one director who was absent from one Board meeting. The members of the Audit Committee, Conflicts Committee and Corporate Governance Committee attended all meetings, except for one director who was absent from one Conflicts Committee meeting and one director who was absent from one Corporate Governance Committee meeting.

Audit Committee . The Audit Committee of our General Partner is composed of at least three directors, each of whom must meet the independence standards of the New York Stock Exchange (or NYSE) and the SEC. This committee is currently comprised of directors Beverlee F. Park (Chair), Ida Jane Hinkley, and Joseph E. McKechnie. All members of the committee are financially-literate and the Board has determined that Ms. Park qualifies as the audit committee financial expert.

The Audit Committee assists the Board in fulfilling its responsibilities for general oversight of:

•
the integrity of our consolidated financial statements;
•
our compliance with legal and regulatory requirements;
•
the independent auditors’ qualifications and independence; and
•
the performance of our internal audit function and independent auditors.

Conflicts Committee.  The Conflicts Committee of our General Partner is composed of at least two directors and is currently comprised of Beverlee F. Park (Chair), Joseph E. McKechnie and Ida Jane Hinkley. The members of the Conflicts Committee may not be officers or employees of our General Partner or directors, officers or employees of its affiliates, and must meet the heightened NYSE and SEC director independence standards applicable to audit committee membership and certain other requirements.

The Conflicts Committee:

•
reviews specific matters that the Board believes may involve conflicts of interest; and
•
determines if the resolution of the conflict of interest is fair and reasonable to us.

Any matters approved by the Conflicts Committee will be conclusively deemed to be fair and reasonable to us, approved by all of our partners, and not a breach by our General Partner of any duties it may owe us or our unitholders. The Board is not obligated to seek approval of the Conflicts Committee on any matter and may determine the resolution of any conflict of interest itself.

Corporate Governance Committee . The Corporate Governance Committee of our General Partner is composed of at least two directors, a majority of whom must meet the director independence standards established by the NYSE. This committee is currently comprised of directors Joseph E. McKechnie (Chair), C. Sean Day, Ida Jane Hinkley, and Beverlee F. Park.

The Corporate Governance Committee:

•
oversees the operation and effectiveness of the Board and its corporate governance;
•
develops and recommends to the Board corporate governance principles and policies applicable to us and our General Partner and monitors compliance with these principles and policies; and
•
oversees director compensation and the long-term incentive plan described above.
Crewing and Staff
As of December 31, 2018, approximately 1,900 seagoing staff served on our consolidated and equity-accounted for vessels that were managed by subsidiaries of Teekay Corporation and nine staff served on-shore in technical, commercial and administrative roles in various countries, compared to approximately 1,800 seagoing staff and nine on-shore staff as of December 31, 2017 and approximately 1,700 seagoing staff and nine on-shore staff as of December 31, 2016. Certain subsidiaries of Teekay Corporation employ the crews, who serve on the vessels pursuant to agreements with the subsidiaries, and Teekay Corporation subsidiaries also provide on-shore advisory, operational and administrative support to our operating subsidiaries pursuant to service agreements. Please read “Item 7 – Major Common Unitholders and Related Party Transactions.”


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We regard attracting and retaining motivated seagoing personnel as a top priority. Like Teekay Corporation, we offer our seafarers competitive employment packages and comprehensive benefits and opportunities for personal and career development, which relates to a philosophy of promoting internally.

Teekay Corporation has entered into a Collective Bargaining Agreement with the Philippine Seafarers’ Union, an affiliate of the International Transport Workers’ Federation (or ITF ), and a Special Agreement with ITF London, which cover substantially all of the officers and seafarers that operate our Bahamian-flagged vessels. Our Spanish officers and seafarers for our Spanish-flagged vessels are covered by two different collective bargaining agreements (one for Suezmax tankers and one for LNG carriers) with Spain’s Union General de Trabajadores and Comisiones Obreras, and the Filipino crewmembers employed on our Spanish-flagged LNG and Suezmax tankers are covered by the Collective Bargaining Agreement with the Philippine Seafarer’s Union. We believe Teekay Corporation’s and our relationships with these labor unions are good.

Our commitment to training is fundamental to the development of the highest caliber of seafarers for our marine operations. Teekay Corporation has agreed to allow our personnel to participate in its training programs. Teekay Corporation’s cadet training approach is designed to balance academic learning with hands-on training at sea. Teekay Corporation has relationships with training institutions in Canada, Croatia, India, Latvia, Norway, Philippines, Turkey and the United Kingdom. After receiving formal instruction at one of these institutions, our cadets’ training continues on-board one of our vessels. Teekay Corporation also has a career development plan that we follow, which was designed to ensure a continuous flow of qualified officers who are trained on its vessels and familiarized with its operational standards, systems and policies. We believe that high-quality crewing and training policies will play an increasingly important role in distinguishing larger independent shipping companies that have in-house or affiliate capabilities from smaller companies that must rely on outside ship managers and crewing agents on the basis of customer service and safety. As such, we have an LNG training facility in Glasgow that serves this purpose.
Common Unit Ownership
The following table sets forth certain information regarding beneficial ownership, as of December 31, 2018 , of our common units by all directors and officers of our General Partner and Service Provider. The information is not necessarily indicative of beneficial ownership for any other purpose. Under SEC rules, a person or entity beneficially owns any units that the person has the right to acquire as of March 1, 2019 (60 days after December 31, 2018 ) through the exercise of any unit option or other right. Unless otherwise indicated, each person has sole voting and investment power (or shares such powers with his or her spouse) with respect to the common units set forth in the following table. Information for all persons listed below is based on information delivered to us.

Identity of Person or Group
 
Common Units
Owned
 
Percentage of
Common Units
Owned (3)
All directors and officers of Teekay GP L.L.C. and Teekay Gas Group Ltd. as a group (9 persons)  (1) (2)
 
129,272

 
0.16
%
(1)
Excludes units owned by Teekay Corporation which controls us and on the Board of which serves the director of our General Partner, C. Sean Day. Please read “Item 7 – Major Common Unitholders and Related Party Transactions" for more detail.
(2)
Each director, executive officer and key employee beneficially owns less than 1% of the outstanding common units. Under SEC rules, a person beneficially owns any units as to which the person has or shares voting or investment power.
(3)
Based on 79,360,719 of common units outstanding as of December 31, 2018 . Excludes the 2% general partner interest held by our General Partner, a wholly-owned subsidiary of Teekay Corporation.
Item 7. Major Common Unitholders and Related Party Transactions
Major Common Unitholders
The following table sets forth information regarding beneficial ownership, as of December 31, 2018 , of our common units by each person we know to beneficially own more than 5% of the outstanding common units. The number of units beneficially owned by each person is determined under SEC rules and the information is not necessarily indicative of beneficial ownership for any other purpose. Under SEC rules a person beneficially owns any units as to which the person has or shares voting or investment power. In addition, a person beneficially owns any units that the person or entity has the right to acquire as of March 1, 2019 (60 days after December 31, 2018 ) through the exercise of any unit option or other right. Unless otherwise indicated, each unitholder listed below has sole voting and investment power with respect to the units set forth in the following table.

Identity of Person or Group
 
Common Units
Owned
 
Percentage of
Common Units
Owned (1)
Teekay Corporation  (1)
 
25,208,274

 
31.8
%
FMR LLC (2)
 
7,970,000

 
10.0
%
Cobas Asset Management, SGIIC, SA (3)
 
6,656,159

 
8.4
%

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(1)
Based on 79,360,719 of common units outstanding as of December 31, 2018 . Excludes the 2% general partner interest held by our General Partner, a wholly-owned subsidiary of Teekay Corporation.
(2)
FMR LLC has the sole dispositive power as to 7,970,000 common units and has sole voting power as to 18,400 of these common units. This information is based on the Schedule 13G/A filed by this group with the SEC on February 13, 2019.
(3)
Cobas Asset Management, SGIIC, SA has sole and shared voting power as to 6,656,159 common units. This information is based on the Schedule 13G/A filed by this group with the SEC on February 13, 2019.

Teekay Corporation has the same voting rights with respect to common units it owns as our other common unitholders. We are controlled by Teekay Corporation. We are not aware of any arrangements, the operation of which may at a subsequent date result in a change in control of us.
Related Party Transactions
a)
We have entered into an amended and restated omnibus agreement with Teekay Corporation, our General Partner, Opco, Teekay Offshore and related parties. The following discussion describes certain provisions of the omnibus agreement, as it has been amended.

Noncompetition . Under the omnibus agreement, Teekay Corporation and Teekay Offshore have agreed, and have caused their controlled affiliates (other than us) to agree, not to own, operate or charter LNG carriers. This restriction does not prevent Teekay Corporation, Teekay Offshore or any of their controlled affiliates (other than us) from, among other things , acquiring, operating or chartering LNG carriers if our General Partner has previously advised Teekay Corporation or Teekay Offshore that the Board of Directors of our General Partner has elected, with the approval of its conflicts committee, not to cause us or our subsidiaries to acquire or operate the carriers.

In addition, under the omnibus agreement we have agreed not to own, operate or charter crude oil tankers or certain “offshore vessels” (including dynamically-positioned shuttle tankers, floating storage and off-take units or floating production, storage and off-loading units), if they are subject to contracts with a remaining duration of at least three years, excluding extension options. This restriction does not prevent us from, among other things , acquiring, operating or chartering oil tankers or offshore vessels if Teekay Corporation or Teekay Offshore, as applicable, has previously advised our General Partner that it has elected not to acquire or operate those vessels.

Rights of First Offer on Suezmax Tankers, LNG Carriers and Offshore Vessels. Under the omnibus agreement, we have granted to Teekay Corporation and Teekay Offshore a 30-day right of first offer on any proposed (a) sale, transfer or other disposition of any of our conventional tankers, in the case of Teekay Corporation, or certain offshore vessels in the case of Teekay Offshore, or (b) re-chartering of any of our conventional tankers or offshore vessels pursuant to a time-charter or contract of affreightment with a term of at least three years if the existing charter expires or is terminated early. Likewise, each of Teekay Corporation and Teekay Offshore has granted a similar right of first offer to us for any LNG carriers it might own. These rights of first offer do not apply to certain transactions.

Termination. If Teekay Corporation or its affiliates no longer control our General Partner or the general partner of Teekay Offshore or if there is a change of control of Teekay Corporation, our General Partner, the general partner of Teekay Offshore or Teekay Corporation, then any of those entities, as applicable, may terminate relevant noncompetition and rights of first offer provisions of the omnibus agreement. During 2018, Brookfield Business Partners L.P. and its institutional investors acquired a 51% ownership interest in the general partner of Teekay Offshore and have the right to appoint a majority of the directors of Teekay Offshore's general partner’s Board of Directors. This transaction constituted a change of control, giving Teekay Offshore the right to elect to terminate the omnibus agreement, though we have not received any indication from Teekay Offshore that it intends to do so.

b)
Bill Utt, Kenneth Hvid and C. Sean Day are members of the Board. Mr. Utt also is the Chair of Teekay Corporation and a member of the Board of Directors of the general partner of Teekay Offshore. Mr. Hvid is also the President and Chief Executive Officer of Teekay Corporation, and a director of Teekay Tankers Ltd., a publicly-traded subsidiary of Teekay Corporation, and a member of the Board of Directors of the general partner of Teekay Offshore. Mr. Day is a member of the Board of Directors of Teekay Corporation and a consultant to Kattegat Ltd., which controls Teekay Corporation’s largest shareholder. Mr. Utt will resign from the Board and from Teekay Corporation's Board of Directors in June 2019. Mr. Day will retire from Teekay Corporation's Board of Directors in June 2019, but will continue to serve on the Board of our General Partner.

c)
On February 1, 2017, we and our wholly-owned subsidiary, Opco, entered into a service agreement with the Service Provider, a management services company that is a subsidiary of Opco. The Service Provider provides services to us using persons employed by various subsidiaries of Teekay Corporation, including the services of Mark Kremin, the President and Chief Executive Officer of Service Provider, and Scott Gayton, the Chief Financial Officer of the Service Provider. In addition, we have entered into various service agreements with certain Teekay Corporation subsidiaries pursuant to which those subsidiaries provide to us various services including, in the case of our operating subsidiaries, substantially all of their managerial, operational and administrative services (including vessel maintenance, crewing, crew training, purchasing, shipyard supervision, insurance and financial services) and other technical and advisory services, and in the case of Teekay LNG Partners L.P., various administrative services.  Because Messrs. Kremin and Gayton and the other persons providing services to us and our subsidiaries are employees of various subsidiaries of Teekay Corporation, their compensation (other than any awards under our long-term incentive plan) is set and paid by the Teekay Corporation subsidiary that employs them. Pursuant to our agreements with Teekay Corporation and its subsidiaries, we have agreed to reimburse Teekay Corporation for time spent by such persons on providing services to us and our subsidiaries.

d)
Please read “Item 18 – Financial Statements: Note 12 – Related Party Transactions” for additional information about these and various other related-party transactions.


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Item 8.
Financial Information
A.
Consolidated Financial Statements and Other Financial Information
Consolidated Financial Statements and Notes
Please see “Item 18 – Financial Statements” for additional information required to be disclosed under this Item.
Legal Proceedings
From time to time we have been, and expect to continue to be, subject to legal proceedings and claims in the ordinary course of our business, principally personal injury and property casualty claims. These claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. We are not aware of any legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on us, other than those set forth in "Item 18 – Financial Statements: Note 14 – Commitments and Contingencies."
Cash Distribution Policy for Common Unitholders
Rationale for Our Cash Distribution Policy
Our general cash distribution policy reflects a basic judgment that our common unitholders are better served by allocating capital in a balanced manner, including our intention to increase our quarterly common unit distributions by 36 percent to $0.19 per unit, commencing with the first quarter of 2019 distribution to be paid in May 2019. This level of common unit distributions allows us to establish cash reserves for the purpose of funding committed growth projects and to reduce debt levels and is consistent with our cash distribution policy and the terms of our partnership agreement, which require that we distribute all of our Available Cash (as defined in our partnership agreement) within approximately 45 days after the end of each quarter. Available Cash is determined after payment of distributions on our preferred units.
Limitations on Cash Distributions; Our Ability to Change Our Cash Distribution Policy
There is no guarantee that common unitholders will receive quarterly distributions from us. Our distribution policy may be changed at any time and is subject to certain restrictions, including:

•
Our common unitholders have no contractual or other legal right to receive distributions other than the obligation under our partnership agreement to distribute Available Cash on a quarterly basis, which is subject to our General Partner’s broad discretion to establish reserves (including, among others, reserves for future capital expenditures and our anticipated future credit needs).
•
While our partnership agreement requires us to distribute all of our Available Cash, our partnership agreement, including provisions requiring us to make cash distributions contained therein, may be amended with the approval of a majority of the outstanding common units.
•
Even if our cash distribution policy is not modified or revoked, the amount of distributions we pay under our cash distribution policy and the decision to make any distribution is determined by the Board of Directors of our General Partner, taking into consideration the terms of our partnership agreement.
•
Under Section 51 of The Marshall Islands Limited Partnership Act, we may not make a distribution to unitholders to the extent that at the time of the distribution, after giving effect to the distribution, all of our liabilities, other than liabilities to partners on account of their partnership interests and liabilities for which the recourse of creditors is limited to specified property of ours, exceed the fair value of our assets, except that the fair value of property that is subject to a liability for which the recourse of creditors is limited shall be included in our assets only to the extent that the fair value of that property exceeds that liability.
•
We may lack sufficient cash to pay distributions to our unitholders due to decreases in net revenues or increases in our operating expenses, principal and interest payments on outstanding debt, tax expenses, working capital requirements, maintenance capital expenditures or anticipated cash needs.
•
Our distribution policy may be affected by restrictions on distributions under our credit facility agreements, which contain material financial tests and covenants that must be satisfied and complied with. If we are unable to satisfy these restrictions included in our credit agreements or if we are otherwise in default under our credit agreements, we would be prohibited from making cash distributions, which would materially hinder our ability to make cash distributions to unitholders, notwithstanding our stated cash distribution policy.
•
If we make distributions out of capital surplus, as opposed to operating surplus (as such terms are defined in our partnership agreement), those distributions will constitute a return of capital and will result in a reduction in the minimum quarterly distribution and the target distribution levels under our partnership agreement. We do not anticipate that we will make any distributions from capital surplus.
Incentive Distribution Rights

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Incentive distribution rights represent the right to receive an increasing percentage of quarterly distributions of Available Cash from operating surplus (as defined in our partnership agreement) after the minimum quarterly distribution to our common unitholders and the target distribution levels have been achieved. Our General Partner currently holds the incentive distribution rights but may transfer these rights separately from its general partner interest, without unitholder approval. Any transfer by our general partner of the incentive distribution rights would not change the percentage allocations of quarterly distributions with respect to such rights.

Our General Partner is entitled to incentive distributions if the amount we distribute to common unitholders with respect to any quarter exceeds specified target levels shown below . The amounts set forth under “Marginal Percentage Interest’’ are the percentage interests of the common unitholders and our General Partner in any Available Cash from operating surplus we distribute up to and including the corresponding amount in the column “Quarterly Distribution Target Amount (per unit),’’ until Available Cash from operating surplus we distribute reaches the next target distribution level, if any. The percentage interests shown for the common unitholders and our General Partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution. The percentage interests shown for our General Partner include its 2.0% general partner interest and assume the General Partner has contributed any capital necessary to maintain its 2.0% general partner interest and has not transferred the incentive distribution rights.

 
 
Quarterly Distribution Target Amount (per unit)
 
Marginal Percentage Interest 
 
 
 
 
Unitholders
 
General Partner
Minimum Quarterly Distribution
 
$0.4125
 
98%
 
2%
First Target Distribution
 
Up to $0.4625
 
98%
 
2%
Second Target Distribution
 
Above $0.4625 up to $0.5375
 
85%
 
15%
Third Target Distribution
 
Above $0.5375 up to $0.6500
 
75%
 
25%
Thereafter
 
Above $0.6500
 
50%
 
50%

During 2018 , all quarterly cash distributions were below $0.4625 per common unit.

In the event of a liquidation, all property and cash in excess of that required to discharge all liabilities and liquidation amounts on the Series A and Series B preferred units will be distributed to the common unitholders and the General Partner in proportion to their capital account balances, as adjusted to reflect any gain or loss upon the sale or other disposition of our assets in liquidation in accordance with the partnership agreement.
B.
Significant Changes
Please read “Item 5 – Operating and Financial Review and Prospects: Management’s Discussion and Analysis of Financial Condition and Results of Operations – Significant Developments in 2018 and early 2019” and “Item 18 – Financial Statements: Note 20 – Subsequent Events” for descriptions of significant changes that have occurred since December 31, 2018.
Item 9.
The Offer and Listing
Our common units are listed on the NYSE under the symbol “TGP”. Our Series A Preferred Units are listed on the NYSE under the symbol “TGPPA”. Our Series B Preferred Units are listed on the NYSE under the symbol “TGPPB”.

Item 10.
Additional Information
Memorandum and Articles of Association
The information required to be disclosed under Item 10B is incorporated by reference to our Registration Statement on Form 8-A/A filed with the SEC on April 13, 2018.
Material Contracts
The following is a summary of each material contract, other than material contracts entered into in the ordinary course of business, to which we or any of our subsidiaries is a party, for the two years immediately preceding the date of this Annual Report, each of which is included in the list of exhibits in Item 19:

(a)
Amended and Restated Omnibus agreement with Teekay Corporation, Teekay Offshore, our General Partner and related parties. Please read “Item 7 – Major Common Unitholders and Related Party Transactions” for a summary of certain contract terms.
(b)
We and certain of our operating subsidiaries have entered into services agreements with certain subsidiaries of Teekay Corporation pursuant to which the Teekay Corporation subsidiaries provide administrative services to the Partnership and administrative, advisory, technical, strategic consulting services, business development and ship management services to operating subsidiaries for a reasonable fee that includes reimbursement of these direct and indirect expenses incurred in providing these services. Please read “Item 7 – Major Common Unitholders and Related Party Transactions” for a summary of certain contract terms.

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(c)
Syndicated Loan Agreement between Naviera Teekay Gas III, S.L. (formerly Naviera F. Tapias Gas III, S.A.) and Caixa de Aforros de Vigo Ourense e Pontevedra, as Agent, dated as of October 2, 2000, as amended. This facility was used to make restricted cash deposits that fully fund payments under a capital lease for one of our LNG carriers, the Catalunya Spirit . Interest payments are based on EURIBOR plus a margin. The term loan matures in 2023 with monthly payments that reduce over time.
(d)
Amended Teekay LNG Partners L.P. 2005 Long-Term Incentive Plan. Please read “Item 6 – Directors, Senior Management and Employees” for a summary of certain plan terms.
(e)
Deed of Amendment and Restatement dated October 10, 2008, relating to a Loan Agreement for a U.S. $92,400,000 Buyer Credit and a U.S. $117,600,000 Commercial Loan between MiNT LNG I, Ltd., BNP Paribas S.A., and various other banks. The Buyer Credit bears interest at LIBOR plus a margin of 0.78% and the Commercial Loan bears interest at LIBOR plus a margin of 1.30%. In addition, a commitment fee will be charged at the rate of 0.25% and 0.45% on undrawn and uncancelled amounts of the Buyer Credit and Commercial Loan, respectively. The amount available under the facilities reduces quarterly by amounts ranging from $1.2 million to $2.5 million. The Commercial Loan is due by one installment on maturity in 2023.
(f)
Deed of Amendment and Restatement dated October 10, 2008, relating to a Loan Agreement for a U.S. $92,400,000 Buyer Credit and a U.S. $117,600,000 Commercial Loan between MiNT LNG II, Ltd., BNP Paribas S.A., and various other banks. The Buyer Credit bears interest at LIBOR plus a margin of 0.78% and the Commercial Loan bears interest at LIBOR plus a margin of 1.30%. In addition, a commitment fee will be charged at the rate of 0.25% and 0.45% on undrawn and uncancelled amounts of the Buyer Credit and Commercial Loan, respectively. The amount available under the facilities reduces quarterly by amounts ranging from $1.2 million to $2.5 million. The Commercial Loan is due by one installment on maturity in 2023.
(g)
Deed of Amendment and Restatement dated October 10, 2008, relating to a Loan Agreement for a U.S. $92,400,000 Buyer Credit and a U.S. $117,600,000 Commercial Loan between MiNT LNG III, Ltd., BNP Paribas S.A., and various other banks. The Buyer Credit bears interest at LIBOR plus a margin of 0.78% and the Commercial Loan bears interest at LIBOR plus a margin of 1.30%. In addition, a commitment fee will be charged at the rate of 0.25% and 0.45% on undrawn and uncancelled amounts of the Buyer Credit and Commercial Loan, respectively. The amount available under the facilities reduces quarterly by amounts ranging from $1.2 million to $2.5 million. The Commercial Loan is due by one installment on maturity in 2023.
(h)
Deed of Amendment and Restatement dated October 10, 2008, relating to a Loan Agreement for a U.S. $92,400,000 Buyer Credit and a U.S. $117,600,000 Commercial Loan between MiNT LNG IV, Ltd., BNP Paribas S.A., and various other banks. The Buyer Credit bears interest at LIBOR plus a margin of 0.78% and the Commercial Loan bears interest at LIBOR plus a margin of 1.30%. In addition, a commitment fee will be charged at the rate of 0.25% and 0.45% on undrawn and uncancelled amounts of the Buyer Credit and Commercial Loan, respectively. The amount available under the facilities reduces quarterly by amounts ranging from $1.2 million to $2.5 million. The Commercial Loan is due by one installment on maturity in 2024.
(i)
Agreement dated February 12, 2013; Teekay Luxembourg S.a.r.l. entered into a share purchase agreement with Exmar and Exmar Marine NV to purchase 50% of the shares in Exmar LPG BVBA.
(j)
Agreement dated June 27, 2013, for U.S. $195,000,000 Senior Secured Notes between Meridian Spirit ApS and Wells Fargo Bank Northwest N.A. The loan bears interest at fixed rate of 4.11%. The facility requires quarterly repayments through 2030.
(k)
Agreement dated June 28, 2013, for a U.S. $160,000,000 Loan Facility between Malt Singapore Pte. Ltd. and Commonwealth Bank of Australia. The loan bears interest at LIBOR plus a margin of 2.60%. The facility requires quarterly repayments, with a bullet payment on maturity in 2021.
(l)
Agreement dated July 7, 2014; Teekay LNG Operating L.L.C. entered into a shareholder agreement with China LNG Shipping (Holdings) Limited to form TC LNG Shipping L.L.C. in connection with the Yamal LNG Project.
(m)
Agreement dated December 17, 2014, for a U.S. $450,000,000 Secured Loan Facility between Nakilat Holdco L.L.C. and Qatar National Bank SAQ. The loan bears interest at LIBOR plus a margin of 1.85%. The facility requires quarterly repayments, with a bullet payment in 2026.
(n)
Agreement dated May 18, 2015, for NOK 1,000,000,000, Senior Unsecured Bonds due May 2020 between Teekay LNG Partners L.P. and Nordic Trustee ASA.
(o)
Amending and Restating Agreement dated June 5, 2015, for a U.S. $460,000,000 Secured Loan Facility between Exmar LPG BVBA, Nordea Bank Norge ASA and various other banks. The loan bears interest at LIBOR plus a margin of 1.90%. The facility requires quarterly repayments with a balloon payment in 2021. The loan facility is guaranteed by us and Exmar based on our proportionate ownership percentages in Exmar LPG BVBA.
(p)
Agreement dated November 15, 2016, for a U.S. $730,000,000 Secured Loan Facility between Bahrain LNG W.L.L. and Standard Chartered Bank and various other banks. The loan bears interest at LIBOR plus a margin ranging from 1.50% to 3.60% over the agreement duration. The facility requires semi-annual repayments 12 months after the estimated scheduled commercial start date in February 2019, with a balloon payment in 2036.
(q)
Agreement dated December 21, 2016, for a U.S. $723,200,000 Secured Loan Facility between Teekay Nakilat (III) Corporation and Qatar National Bank SAQ. The loan bears interest at LIBOR plus a margin of 2.25% for the first 12 months and 2.50% thereafter. The facility requires quarterly repayments, with a balloon payment in 2026.
(r)
Agreement dated December 8, 2017, for a U.S. $1,632,000,000 Secured Loan Agreement between DSME Hull No. 2423 L.L.C., DSME Hull No. 2425 L.L.C., DSME Hull No. 2430 L.L.C., DSME Hull No. 2431 L.L.C., DSME Hull No. 2433 L.L.C. and DSME Hull No. 2434

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L.L.C. (as borrowers) and China Development Bank. The loan bears interest at LIBOR plus 3.1% and requires semi-annual payments, with balloon payments upon maturity through 2031.
Exchange Controls and Other Limitations Affecting Unitholders
We are not aware of any governmental laws, decrees or regulations, including foreign exchange controls, in the Republic of the Marshall Islands that restrict the export or import of capital, or that affect the remittance of dividends, interest or other payments to holders of our securities that are non-resident and not citizens.

We are not aware of any limitations on the right of non-resident or foreign owners to hold or vote our securities imposed by the laws of the Republic of the Marshall Islands or our partnership agreement.

Material United States Federal Income Tax Considerations

The following is a discussion of certain material U.S. federal income tax considerations that may be relevant to unitholders. This discussion is based upon provisions of the Internal Revenue Code of 1986, as amended (or the Code ), legislative history, applicable U.S. Treasury Regulations (or Treasury Regulations ), judicial authority and administrative interpretations, all as in effect on the date of this Annual Report, and which are subject to change, possibly with retroactive effect, or are subject to different interpretations. Changes in these authorities may cause the tax consequences to vary substantially from the consequences described below. Unless the context otherwise requires, references in this section to “we,” “our” or “us” are references to Teekay LNG Partners L.P.

This discussion is limited to unitholders who hold their units as capital assets for tax purposes. This discussion does not address all tax considerations that may be important to a particular unitholder in light of the unitholder’s circumstances, or to certain categories of unitholders that may be subject to special tax rules, such as:
• dealers in securities or currencies;
• traders in securities that have elected the mark-to-market method of accounting for their securities;
• persons whose functional currency is not the U.S. Dollar;
• persons holding our units as part of a hedge, straddle, conversion or other “synthetic security” or integrated transaction;
• certain U.S. expatriates;
• financial institutions;
• insurance companies;
• persons subject to the alternative minimum tax;
• persons that actually or under applicable constructive ownership rules own 10% or more of our units (by vote or value); and
• entities that are tax-exempt for U.S. federal income tax purposes.

If a partnership (including any entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our units, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. Partners in partnerships holding our units should consult their tax advisors to determine the appropriate tax treatment of the partnership’s ownership of our units .

This discussion does not address any U.S. estate tax considerations or tax considerations arising under the laws of any state, local or non-U.S. jurisdiction. Each unitholder is urged to consult its tax advisor regarding the U.S. federal, state, local and other tax consequences of the ownership or disposition of our units .

United States Federal Income Taxation of U.S. Holders

As used herein, the term U.S. Holder means a beneficial owner of our units that is for U.S. federal income tax purposes: (i) a U.S. citizen or U.S. resident alien (or a U.S. Individual Holder ), (ii) a corporation or other entity taxable as a corporation, that was created or organized under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate whose income is subject to U.S. federal income taxation regardless of its source, or (iv) a trust that either is subject to the supervision of a court within the United States and has one or more U.S. persons with authority to control all of its substantial decisions or has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.
Distributions
We have elected to be taxed as a corporation for U.S. federal income tax purposes effective January 1, 2019.

Subject to the discussion of passive foreign investment companies (or PFICs ) below, any distributions made by us with respect to our units to a U.S. Holder generally will constitute dividends, which may be taxable as ordinary income or “qualified dividend income” as described in more detail below, to the extent of our current and accumulated earnings and profits allocated to the U.S. Holder’s units, as determined under U.S. federal income tax principles. Distributions in excess of our current and accumulated earnings and profits will be treated first as a nontaxable return of capital to the extent of the U.S. Holder’s tax basis in our units and thereafter as capital gain, which will be either long-term or short-term capital gain depending upon whether the U.S. Holder has held the units for more than one year. U.S. Holders that are corporations for U.S. federal income tax purposes generally will not be entitled to claim a dividends received deduction with respect to any distributions they receive from us. For purposes of computing allowable foreign tax credits for U.S. federal income tax purposes, dividends received with respect to our units will be treated as foreign source income and generally will be treated as “passive category income.”


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Subject to holding period requirements and certain other limitations, dividends received with respect to our units by a U.S. Holder who is an individual, trust or estate (or a Non-Corporate U.S. Holder ) will be treated as “qualified dividend income” that is taxable to such Non-Corporate U.S. Holder at preferential capital gain tax rates provided that we are not classified as a PFIC for the taxable year during which the dividend is paid or the immediately preceding taxable year (we intend to take the position that we are not now and have never been classified as a PFIC, as discussed below). Any dividends received with respect to our units not eligible for these preferential rates will be taxed as ordinary income to a Non-Corporate U.S. Holder.

Special rules may apply to any “extraordinary dividend” paid by us. Generally, an extraordinary dividend is a dividend with respect to a share of stock if the amount of the dividend is equal to or in excess of 10% of a common stockholder’s, or 5% of a preferred stockholder’s, adjusted tax basis (or fair market value in certain circumstances) in such stock. In addition, extraordinary dividends include dividends received within a one-year period that, in the aggregate, equal or exceed 20% of a stockholder’s adjusted tax basis (or fair market value in certain circumstances). If we pay an “extraordinary dividend” on our units that is treated as “qualified dividend income,” then any loss recognized by a Non-Corporate U.S. Holder from the sale or exchange of such units will be treated as long-term capital loss to the extent of the amount of such dividend.

Certain Non-Corporate U.S. Holders are subject to a 3.8% tax on certain investment income, including dividends. Non-Corporate U.S. Holders should consult their tax advisors regarding the effect, if any, of this tax on their ownership of our units.

Sale, Exchange or Other Disposition of Units

Subject to the discussion of PFICs below, a U.S. Holder generally will recognize capital gain or loss upon a sale, exchange or other disposition of our units in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other disposition and the U.S. Holder’s tax basis in such units. Subject to the discussion of extraordinary dividends above, such gain or loss generally will be treated as (a) long-term capital gain or loss if the U.S. Holder’s holding period is greater than one year at the time of the sale, exchange or other disposition, or short term capital gain or loss otherwise and (b) U.S. source gain or loss, as applicable, for foreign tax credit purposes. Non-Corporate U.S. Holders may be eligible for preferential rates of U.S. federal income tax in respect of long-term capital gains. A U.S. Holder’s ability to deduct capital losses is subject to certain limitations.

Certain Non-Corporate U.S. Holders are subject to a 3.8% tax on certain investment income, including capital gains from the sale or other disposition of units. Non-Corporate U.S. Holders should consult their tax advisors regarding the effect, if any, of this tax on their disposition of our units .
Consequences of Possible PFIC Classification
A non-U.S. entity treated as a corporation for U.S. federal income tax purposes will be treated as a PFIC in any taxable year in which, after taking into account the income and assets of the corporation and certain subsidiaries pursuant to a “look through” rule, either: (a) at least 75% of its gross income is “passive” income, or (b) at least 50% of the average value of its assets is attributable to assets that produce or are held for the production of passive income. For purposes of these tests, “passive income” includes dividends, interest, gains from the sale or exchange of investment property and rents and royalties (other than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business). By contrast, income derived from the performance of services does not constitute “passive income.”

There are legal uncertainties involved in determining whether the income derived from our time-chartering activities constitutes rental income or income derived from the performance of services, including legal uncertainties arising from the decision in Tidewater Inc. v. United States , 565 F.3d 299 (5th Cir. 2009), which held that income derived from certain time-chartering activities should be treated as rental income rather than services income for purposes of a foreign sales corporation provision of the Code. However, the IRS stated in an Action on Decision (AOD 2010-01) that it disagrees with, and will not acquiesce to, the way that the rental versus services framework was applied to the facts in the Tidewater decision, and in its discussion stated that the time charters at issue in Tidewater would be treated as producing services income for PFIC purposes. The IRS’s statement with respect to Tidewater cannot be relied upon or otherwise cited as precedent by taxpayers. Consequently, in the absence of any binding legal authority specifically relating to the statutory provisions governing PFICs, there can be no assurance that the IRS or a court would not follow the Tidewater decision in interpreting the PFIC provisions of the Code. Moreover, the market value of our units may be treated as reflecting the value of our assets at any given time. Therefore, a decline in the market value of our units, which is not within our control, may impact the determination of whether we are a PFIC. Nevertheless, based on our and our subsidiaries’ current assets and operations, we intend to take the position that we are not now and have never been a PFIC.

No assurance can be given, however, that the IRS, or a court of law, will accept our position or that we would not constitute a PFIC for any future taxable year if there were to be changes in our or our subsidiaries’ assets, income or operations.

As discussed more fully below, if we were to be treated as a PFIC for any taxable year, a U.S. Holder generally would be subject to different taxation rules depending on whether the U.S. Holder makes a timely and effective election to treat us as a “Qualified Electing Fund” (or a QEF election ). As an alternative to making a QEF election, a U.S. Holder should be able to make a “mark-to-market” election with respect to our units, as discussed below.

Taxation of U.S. Holders Making a Timely QEF Election
A U.S. Holder who makes a timely QEF election (or an Electing Holder ) must report the Electing Holder’s pro rata share of our ordinary earnings and net capital gain, if any, for each taxable year for which we are a PFIC that ends with or within the Electing Holder’s taxable year,

76


regardless of whether or not the Electing Holder received distributions from us in that year. Such income inclusions would not be eligible for the preferential tax rates applicable to qualified dividend income. The Electing Holder’s adjusted tax basis in our units will be increased to reflect taxed but undistributed earnings and profits. Distributions of earnings and profits that were previously taxed will result in a corresponding reduction in the Electing Holder’s adjusted tax basis in our units and will not be taxed again once distributed. An Electing Holder generally will recognize capital gain or loss on the sale, exchange or other disposition of our units. A U.S. Holder makes a QEF election with respect to any year that we are a PFIC by filing IRS Form 8621 with the U.S. Holder’s timely filed U.S. federal income tax return (including extensions).

If a U.S. Holder has not made a timely QEF election with respect to the first year in the U.S. Holder’s holding period of our units during which we qualified as a PFIC, the U.S. Holder may be treated as having made a timely QEF election by filing a QEF election with the U.S. Holder’s timely filed U.S. federal income tax return (including extensions) and, under the rules of Section 1291 of the Code, a “deemed sale election” to include in income as an “excess distribution” (described below) the amount of any gain that the U.S. Holder would otherwise recognize if the U.S. Holder sold the U.S. Holder’s units on the “qualification date.” The qualification date is the first day of our taxable year in which we qualified as a “qualified electing fund” with respect to such U.S. Holder. In addition to the above rules, under very limited circumstances, a U.S. Holder may make a retroactive QEF election if the U.S. Holder failed to file the QEF election documents in a timely manner. If a U.S. Holder makes a timely QEF election for one of our taxable years, but did not make such election with respect to the first year in the U.S. Holder’s holding period of our units during which we qualified as a PFIC and the U.S. Holder did not make the deemed sale election described above, the U.S. Holder also will be subject to the more adverse rules described below.

A U.S. Holder’s QEF election will not be effective unless we annually provide the U.S. Holder with certain information concerning our income and gain, calculated in accordance with the Code, to be included with the U.S. Holder’s U.S. federal income tax return. We do not intend to provide such information in the current taxable year. Accordingly, U.S. Holders will not be able to make an effective QEF election at this time. If, contrary to our expectations, we determine that we are or will be a PFIC for any taxable year, we will provide U.S. Holders with the information necessary to make an effective QEF election with respect to our units .

Taxation of U.S. Holders Making a “Mark-to-Market” Election
If we were to be treated as a PFIC for any taxable year and, as we anticipate, our units were treated as “marketable stock,” then, as an alternative to making a QEF election, a U.S. Holder would be allowed to make a “mark-to-market” election with respect to our units, provided the U.S. Holder completes and files IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations. If that election is made for the first year a U.S. Holder holds or is deemed to hold our units and for which we are a PFIC, the U.S. Holder generally would include as ordinary income in each taxable year that we are a PFIC the excess, if any, of the fair market value of the U.S. Holder’s units at the end of the taxable year over the U.S. Holder’s adjusted tax basis in the units. The U.S. Holder also would be permitted an ordinary loss in respect of the excess, if any, of the U.S. Holder’s adjusted tax basis in the units over the fair market value thereof at the end of the taxable year that we are a PFIC, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. A U.S. Holder’s tax basis in our units would be adjusted to reflect any such income or loss recognized. Gain recognized on the sale, exchange or other disposition of our units in taxable years that we are a PFIC would be treated as ordinary income, and any loss recognized on the sale, exchange or other disposition of our units in taxable years that we are a PFIC would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included in income by the U.S. Holder. Because the mark-to-market election only applies to marketable stock, however, it would not apply to a U.S. Holder’s indirect interest in any of our subsidiaries that were also determined to be PFICs.

If a U.S. Holder makes a mark-to-market election for one of our taxable years and we were a PFIC for a prior taxable year during which such U.S. Holder held our units and for which (a) we were not a QEF with respect to such U.S. Holder and (b) such U.S. Holder did not make a timely mark-to-market election, such U.S. Holder would also be subject to the more adverse rules described below in the first taxable year for which the mark-to-market election is in effect and also to the extent the fair market value of the U.S. Holder’s units exceeds the U.S. Holder’s adjusted tax basis in the units at the end of the first taxable year for which the mark-to-market election is in effect.

Taxation of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election
If we were to be treated as a PFIC for any taxable year, a U.S. Holder who does not make either a QEF election or a “mark-to-market” election for that year (a Non-Electing Holder ) would be subject to special rules resulting in increased tax liability with respect to (a) any “excess distribution” (e.g. the portion of any distributions received by the Non- Electing Holder on our units in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder’s holding period for our units), and (b) any gain realized on the sale, exchange or other disposition of our units. Under these special rules:

• the excess distribution or gain would be allocated ratably over the Non-Electing Holder’s aggregate holding period for our units;
• the amount allocated to the current taxable year and any taxable year prior to the taxable year we were first treated as a PFIC with respect to the Non-Electing Holder would be taxed as ordinary income in the current taxable year;
• the amount allocated to each of the other taxable years would be subject to U.S. federal income tax at the highest rate of tax in effect for the applicable class of taxpayer for that year; and
• an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.

Additionally, for each year during which a U.S. Holder holds our units, we are a PFIC, and the total value of all PFIC units that such U.S. Holder directly or indirectly holds exceeds certain thresholds, such U.S. Holder will be required to file IRS Form 8621 with its annual U.S.

77


federal income tax return to report its ownership of our units. In addition, if a Non-Electing Holder, who is an individual, dies while owning our units, such Non-Electing Holder’s successor generally would not receive a step-up in tax basis with respect to such units .

U.S. Holders are urged to consult their tax advisors regarding the PFIC rules, including the PFIC annual reporting requirements, as well as the applicability, availability and advisability of, and procedure for, making QEF, Mark-to-Market and other available elections with respect to us, and the U.S. federal income tax consequences of making such elections.

U.S. Return Disclosure Requirements for U.S. Individual Holders
U.S. Individual Holders who hold certain specified foreign financial assets, including stock in a foreign corporation that is not held in an account maintained by a financial institution, with an aggregate value in excess of $50,000 on the last day of a taxable year, or $75,000 at any time during that taxable year, may be required to report such assets on IRS Form 8938 with their U.S. federal income tax return for that taxable year. This reporting requirement does not apply to U.S. Individual Holders who report their ownership of our units under the PFIC annual reporting rules described above. Penalties apply for failure to properly complete and file IRS Form 8938. U.S. Individual Holders are encouraged to consult with their tax advisors regarding the possible application of this disclosure requirement to their investment in our units.

United States Federal Income Taxation of Non-U.S. Holders
A beneficial owner of our units (other than a partnership, including any entity or arrangement treated as a partnership for U.S. federal income tax purposes) that is not a U.S. Holder is a Non-U.S. Holder .

Distributions
In general, a Non-U.S. Holder will not be subject to U.S. federal income tax on distributions received from us with respect to our units unless the distributions are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment that the Non-U.S. Holder maintains in the United States). If a Non-U.S. Holder is engaged in a trade or business within the United States and the distributions are deemed to be effectively connected to that trade or business, the Non-U.S. Holder generally will be subject to U.S. federal income tax on those distributions in the same manner as if it were a U.S. Holder .
Sale, Exchange or Other Disposition of Units
In general, a non-U.S. Holder is not subject to U.S. federal income tax on any gain resulting from the disposition of our units unless (a) such gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment that the Non-U.S. Holder maintains in the United States) or (b) the Non-U.S. Holder is an individual who is present in the United States for 183 days or more during the taxable year in which such disposition occurs and meets certain other requirements. If a Non-U.S. Holder is engaged in a trade or business within the United States and the disposition of our units is deemed to be effectively connected to that trade or business, the Non-U.S. Holder generally will be subject to U.S. federal income tax on the resulting gain in the same manner as if it were a U.S. Holder.
Information Reporting and Backup Withholding

In general, distributions taxable as dividends with respect to, or the proceeds from a sale, redemption or other taxable disposition of, our units held by a Non-Corporate U.S. Holder will be subject to information reporting requirements, unless such distribution taxable as a dividend is paid and received outside the United States by a non-U.S. payor or non-U.S. middleman (within the meaning of U.S. Treasury Regulations), or such proceeds are effected through an office outside the U.S. of a broker that is considered a non-U.S. payor or non-U.S. middleman (within the meaning of U.S. Treasury Regulations). These amounts also generally will be subject to backup withholding if the Non-Corporate U.S. Holder:
• fails to timely provide an accurate taxpayer identification number;
• is notified by the IRS that it has failed to report all interest or distributions required to be shown on its U.S. federal income tax returns; or
• in certain circumstances, fails to comply with applicable certification requirements.

Information reporting and backup withholding generally will not apply to distributions taxable as dividends on our units to a Non-U.S. Holder if such dividend is paid and received outside the United States by a non-U.S. payor or non-U.S. middleman (within the meaning of U.S. Treasury Regulations) or the Non-U.S. Holder properly certifies under penalties of perjury as to its non-U.S. status (generally on IRS Form W-8BEN, W-8BEN-E, W-8ECI, W-8EXP or W-8IMY, as applicable) and certain other conditions are met or the Non-U.S. Holder otherwise establishes an exemption.

Payment of proceeds to a Non-U.S. Holder from a sale, redemption or other taxable disposition of our units to or through the U.S. office of a broker, or through a broker that is considered a U.S. payor or U.S. middleman (within the meaning of U.S. Treasury Regulations), generally will be subject to information reporting and backup withholding, unless the Non-U.S. Holder properly certifies under penalties of perjury as to its non-U.S. status (generally on IRS Form W-8BEN, W-8BEN-E, W-8ECI, W-8EXP or W-8IMY, as applicable) and certain other conditions are met or the Non-U.S. Holder otherwise establishes an exemption.

Backup withholding is not an additional tax. Rather, a Non-Corporate U.S. Holder or Non-U.S. Holder generally may obtain a credit for any amount withheld against its liability for U.S. federal income tax (and obtain a refund of any amounts withheld in excess of such liability) by accurately completing and timely filing a U.S. federal income tax return with the IRS.

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Non-United States Tax Considerations
Marshall Islands Taxation
Because we and our controlled affiliates do not, and we do not expect that we and our controlled affiliates will, conduct business, operations, or transactions in the Republic of the Marshall Islands, neither we nor our controlled affiliates are subject to income, capital gains, profits or other taxation under current Marshall Islands law, other than taxes, fines, or fees due to (i) the incorporation, dissolution, continued existence, merger, domestication (or similar concepts) of legal entities registered in the Republic of the Marshall Islands, (ii) filing certificates (such as certificates of incumbency, merger, or redomiciliation) with the Marshall Islands registrar, (iii) obtaining certificates of good standing from, or certified copies of documents filed with, the Marshall Islands registrar, (iv) compliance with Marshall Islands law concerning vessel ownership, such as tonnage tax, or (v) non-compliance with requests made by the Marshall Islands registrar of corporations relating to our books and records and the books and records of our subsidiaries. As a result, distributions by controlled affiliates to us are not subject to Marshall Islands taxation.

Other Taxation
We and our subsidiaries are subject to taxation in certain non-U.S. jurisdictions because we or our subsidiaries are either organized, or conduct business or operations, in such jurisdictions, but we do not expect any such tax to be material. However, we cannot assure this result as tax laws in these or other jurisdictions may change or we may enter into new business transactions relating to such jurisdictions, which could affect our tax liability. Please read “Item 18 – Financial Statements: Note 11 – Income Tax.”

Canadian Federal Income Tax Considerations

The following discussion is a summary of the material Canadian federal income tax considerations under the Income Tax Act (Canada) (or the Canada Tax Act ) that we believe are relevant to holders of units who, for the purposes of the Canada Tax Act and the Canada-United States Tax Convention 1980 (or the Canada-U.S. Treaty ), are at all relevant times resident in the United States and entitled to all of the benefits of the Canada - U.S. Treaty and who deal at arm’s length with us and Teekay Corporation (or U.S. Resident Holders ). This discussion takes into account all proposed amendments to the Canada Tax Act and the regulations thereunder that have been publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof and assumes that such proposed amendments will be enacted substantially as proposed. However, no assurance can be given that such proposed amendments will be enacted in the form proposed or at all.

Teekay LNG Partners L.P. is considered to be a partnership under Canadian federal income tax law and therefore not a taxable entity for Canadian income tax purposes. A U.S. Resident Holder will not be liable to tax under the Canada Tax Act on any income or gains allocated by Teekay LNG Partners L.P. to the U.S. Resident Holder in respect of such U.S. Resident Holder in respect of such U.S. Resident Holder’s units, provided that (a) Teekay LNG Partners L.P. does not carry on business in Canada for the purposes of the Canada Tax Act and (b) such U.S. Resident Holder does not hold such units in connection with a business carried on by such U.S. Resident Holder through a permanent establishment in Canada for purposes of the Canada-U.S. Treaty .

A U.S. Resident Holder will not be liable to tax under the Canada Tax Act on any income or gain from the sale, redemption or other disposition of such U.S. Resident Holder’s units, provided that, for purposes of the Canada-U.S. Treaty, such units do not, and did not at any time in the twelve-month period preceding the date of disposition, form part of the business property of a permanent establishment in Canada of such U.S. Resident Holder.

We believe that the activities and affairs of Teekay LNG Partners L.P. are conducted in such a manner that Teekay LNG Partners L.P. is not carrying on business in Canada and that U.S. Resident Holders should not be considered to be carrying on business in Canada for purposes of the Canada Tax Act or the Canada-U.S. Treaty solely by reason of the acquisition, holding, disposition or redemption of our units. We intend that this is and continues to be the case, notwithstanding that Teekay Shipping Limited (a subsidiary of Teekay Corporation that is a non-resident of Canada) and Service Provider (an indirect subsidiary of Teekay LNG Partners L.P. that is a non-resident of Canada) provide certain services to Teekay LNG Partners L.P. and obtain some or all such services under subcontracts with Canadian service providers. If the arrangements we have entered into result in Teekay LNG Partners L.P. being considered to carry on business in Canada for purposes of the Canada Tax Act, U.S. Resident Holders would be considered to be carrying on business in Canada and may be required to file Canadian tax returns , subject to any relief provided under the Canada-U.S. Treaty, would be subject to taxation in Canada on any income that is considered to be attributable to the business carried on by Teekay LNG Partners L.P. in Canada. The Canada-U.S. Treaty contains a treaty benefit denial rule which may have the effect of denying relief thereunder from Canadian taxation to U.S. Resident Holders in respect of any income attributable to business carried on by us in Canada .
 
Although we do not intend to do so, there can be no assurance that the manner in which we carry on our activities will not change from time to time as circumstances dictate or warrant in a manner that may cause U.S. Resident Holders to be carrying on business in Canada for purposes of the Canada Tax Act. Further, the relevant Canadian federal income tax law may change by legislation or judicial interpretation and the Canadian taxing authorities may take a different view than we have of the current law.

It is the responsibility of each unitholder to investigate the legal and tax consequences, under the laws of pertinent jurisdictions, including Canada, of an investment in us. Accordingly, each unitholder is urged to consult, and depend upon, such unitholder’s tax counsel or other advisor with regard to those matters. Further, it is the responsibility of each unitholder to file all state, local and non-U.S., as well as U.S. federal tax returns, that may be required of such unitholder.
Documents on Display

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Documents concerning us that are referred to herein may be accessed on our website under “Investors - Teekay LNG Partners L.P. - Financials & Presentations” from the home page of our web site at www.teekay.com or may be inspected at our principal executive offices at 4th Floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM 08, Bermuda. Those documents electronically filed via the SEC’s Electronic Data Gathering, Analysis, and Retrieval (or EDGAR ) system may also be obtained from the SEC’s website at www.sec.gov , free of charge.
Item 11.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We are exposed to the impact of interest rate changes primarily through our borrowings that require us to make interest payments based on LIBOR, EURIBOR or NIBOR. Significant increases in interest rates could adversely affect our operating margins, results of operations and our ability to service our debt. From time to time, we use interest rate swaps to reduce our exposure to market risk from changes in interest rates. The principal objective of these contracts is to minimize the risks and costs associated with our floating-rate debt.

We are exposed to credit loss in the event of non-performance by the counterparties to the interest rate swap agreements. In order to minimize counterparty risk, we only enter into derivative transactions with counterparties that are rated A- or better by Standard & Poor’s or A3 or better by Moody’s at the time of the transactions. In addition, to the extent practical, interest rate swaps are entered into with different counterparties to reduce concentration risk.

The table below provides information about our financial instruments at December 31, 2018 , that are sensitive to changes in interest rates, including our long-term debt, obligations related to capital leases and interest rate swaps, but excluding any amounts related to our equity-accounted investments. For long-term debt and obligations related to capital leases, the table presents principal payments and related weighted-average interest rates by expected maturity dates. For interest rate swaps, the table presents notional amounts and weighted-average interest rates by expected contractual maturity dates. The expected contractual maturity dates do not reflect potential prepayments of long-term debt and obligations related to capital leases as well as the potential exercise of early termination options for certain of our interest rate swaps.
Expected Maturity Date
 
 
2019
 
2020
 
2021
 
2022
 
2023
 
There-
after
 
Total
 
Fair
Value
Liability
 
Rate (1)
 
 
(in millions of U.S. Dollars, except percentages)
Long-Term Debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Rate ($U.S.)
 
9.3

 
9.3

 
9.3

 
9.3

 
9.3

 
62.8

 
109.3

 
106.8

 
4.4
%
Variable-Rate ($U.S.) (2)
 
102.6

 
462.2

 
228.9

 
54.6

 
46.0

 
437.2

 
1,331.5

 
1,307.4

 
4.5
%
Variable-Rate (Euro) (3) (4)
 
24.7

 
25.8

 
27.0

 
28.2

 
59.6

 
28.5

 
193.8

 
189.9

 
1.2
%
Variable-Rate (NOK) (4) (5)
 
—

 
115.7

 
138.9

 
—

 
98.4

 
—

 
353.0

 
361.1

 
6.0
%
Obligations Related to Capital Leases:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable-Rate ($U.S.) (6)
 
42.5

 
18.5

 
18.5

 
18.6

 
18.6

 
234.9

 
351.6

 
350.7

 
4.5
%
Fixed-Rate ($U.S.) (6)
 
38.8

 
40.7

 
42.8

 
45.1

 
47.6

 
732.0

 
947.0

 
924.0

 
5.4
%
Average Interest Rate (7)
 
5.4
%
 
5.4
%
 
5.4
%
 
5.4
%
 
5.4
%
 
5.4
%
 
5.4
%
 
 
 
 
Interest Rate Swaps:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contract Amount ($U.S.) (8)
 
174.9

 
197.6

 
190.8

 
25.9

 
26.6

 
188.9

 
804.7

 
(26,525
)
 
3.3
%
Average Fixed-Pay Rate (2)
 
2.8
%
 
3.3
%
 
3.5
%
 
3.7
%
 
3.6
%
 
3.3
%
 
3.3
%
 
 
 
 
Contract Amount (Euro) (4) (9)
 
9.7

 
10.4

 
11.2

 
12.1

 
43.1

 
—
 
86.5

 
(11,092
)
 
3.8
%
Average Fixed-Pay Rate (3)
 
3.7
%
 
3.7
%
 
3.7
%
 
3.7
%
 
3.9
%
 
—
 
3.8
%
 
 
 
 
(1)
Rate refers to the weighted-average effective interest rate for our long-term debt and obligations related to capital leases, including the margin we pay on our floating-rate debt and the average fixed pay rate for our interest rate swap agreements. The average interest rate for our obligations related to capital leases is the weighted-average interest rate implicit in our lease obligations at the inception of the leases. The average fixed pay rate for our interest rate swaps excludes the margin we pay on our drawn floating-rate debt, which as of December 31, 2018 ranged from 0.30% to 3.25% . Please read “Item 18 – Financial Statements: Note 10 – Long-Term Debt.”
(2)
Interest payments on U.S. Dollar-denominated debt and interest rate swaps are based on LIBOR.
(3)
Interest payments on Euro-denominated debt and interest rate swaps are based on EURIBOR.
(4)
Euro-denominated and NOK-denominated amounts have been converted to U.S. Dollars using the prevailing exchange rate as of December 31, 2018 .
(5)
Interest payments on our NOK-denominated debt and on our cross currency swaps are based on NIBOR. Our NOK-denominated bonds have been economically hedged with cross currency swaps, to swap all interest and principal payments into U.S. Dollars, with the respective interest payments fixed

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at a rate ranging from 5.92% to 7.89% , and the transfer of principal locked in at $382.5 million upon maturities. Please see "Foreign Currency Fluctuations" below and read “Item 18 – Financial Statements: Note 13 – Derivative Instruments and Hedging Activities.”
(6)
The amount of obligations related to capital leases represents the present value of minimum lease payments together with our purchase obligation, as applicable.
(7)
The average interest rate is the weighted-average interest rate implicit in the obligations related to our fixed-rate capital leases at the inception of the leases.
(8)
The average variable receive rate for our U.S. Dollar-denominated interest rate swaps is set at 3-month or 6-month LIBOR.
(9)
The average variable receive rate for our Euro-denominated interest rate swaps is set at 1-month EURIBOR or 6-month EURIBOR.
Spot Market Rate Risk
Our seven multi-gas vessels and certain of our LNG and LPG carriers in our equity-accounted joint ventures are trading in the spot market. The cyclical nature of the spot market may cause significant increases or decreases in the revenues we earn from these vessels trading in the spot market.
Foreign Currency Fluctuations
Our functional currency is U.S. Dollars because nearly all of our revenues and most of our operating costs are in U.S. Dollars. Our results of operations are affected by fluctuations in currency exchange rates. The volatility in our financial results due to currency exchange rate fluctuations is attributed primarily to foreign currency revenues and expenses, our Euro-denominated loans and restricted cash deposits and our NOK-denominated bonds. A portion of our voyage revenues are denominated in Euros. A portion of our vessel operating expenses and general and administrative expenses are denominated in Euros, which is primarily a function of the nationality of our crew and administrative staff. We have Euro-denominated interest expense and Euro-denominated interest income related to our Euro-denominated loans of 169.0 million Euros ( $193.8 million ) and Euro-denominated restricted cash deposits of 21.6 million Euros ( $24.8 million ), respectively, as at December 31, 2018 . We also incur NOK-denominated interest expense on our NOK-denominated bonds; however, we entered into cross currency swaps and pursuant to these swaps we receive the principal amount in NOK on the maturity date of the swap, in exchange for payment of a fixed U.S. Dollar amount. In addition, the cross currency swaps exchange a receipt of floating interest in NOK based on NIBOR plus a margin for a payment of U.S. Dollar fixed interest. The purpose of the cross currency swaps is to economically hedge the foreign currency exposure on the payment of interest and principal of our NOK bonds due in 2020 through 2023, and to economically hedge the interest rate exposure. We have not designated, for accounting purposes, these cross currency swaps as cash flow hedges of the NOK-denominated bonds due in 2018 through 2021. Please read “Item 18 – Financial Statements: Note 13 – Derivative Instruments and Hedging Activities.” At December 31, 2018 , the fair value of the cross currency swaps derivative liabilities was $29.1 million and the change from December 2017 to the reporting period has been reported in foreign currency exchange gain (loss) in the consolidated statements of income. As a result, fluctuations in the Euro and NOK relative to the U.S. Dollar have caused, and are likely to continue to cause, fluctuations in our reported voyage revenues, vessel operating expenses, general and administrative expenses, interest expense, interest income, realized and unrealized loss on non-designated derivative instruments and foreign currency exchange gain (loss).
Item 12.
Description of Securities Other than Equity Securities
Not applicable.
PART II
Item 13.
Defaults, Dividend Arrearages and Delinquencies
None.
Item 14.
Material Modifications to the Rights of Unitholders and Use of Proceeds
Not applicable.
Item 15.
Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (or the Exchange Act)) that are designed to ensure that (i) information required to be disclosed in our reports that are filed or submitted under the Exchange Act, are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

We conducted an evaluation of our disclosure controls and procedures under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer of the Service Provider. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer of the Service Provider concluded that our disclosure controls and procedures are effective as of December 31, 2018.


81


The Chief Executive Officer and Chief Financial Officer of the Service Provider do not expect that our disclosure controls or internal controls will prevent all errors and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within us have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining for us adequate internal control over financial reporting.

Our internal controls are designed to provide reasonable assurance as to the reliability of our financial reporting and the preparation and presentation of the consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Our internal control over financial reporting includes those policies and procedures that: 1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; 2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made in accordance with authorizations of management and the directors; and 3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements.

We conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements even when determined to be effective and can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. Based on the evaluation, management has determined that the internal control over financial reporting was effective as of December 31, 2018.

Our independent auditors, KPMG LLP, an independent registered public accounting firm, have audited the accompanying consolidated financial statements and the effectiveness of our internal control over financial reporting as of December 31, 2018. Their attestation report on the effectiveness of our internal control over financial reporting can be found on page F-2 of this Annual Report.

There were no changes in our internal controls that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rule 13a – 15 (f) under the Exchange Act) that occurred during the year ended December 31, 2018 .
Item 16A.
Audit Committee Financial Expert
The Board of Directors of our General Partner has determined that director and Chair of the Audit Committee Ms. Beverlee F. Park qualifies as an audit committee financial expert and is independent under applicable NYSE and SEC standards.

Item 16B.
Code of Ethics
We have adopted a Standards of Business Conduct that applies to all our employees and the employees and directors of our General Partner. This document is available under “Investors – Teekay LNG Partners L.P. - Governance” from the home page of our web site ( www.teekay.com ). We intend to disclose, under “Investors – Teekay LNG Partners L.P. - Governance” in the Investors section of our web site, any waivers to or amendments of our Standards of Business Conduct that benefit any directors and executive officers of our General Partner.
Item 16C.
Principal Accountant Fees and Services
Our principal accountant for 2018 and 2017 was KPMG LLP, Chartered Professional Accountants. The following table shows the fees we paid or accrued for audit and audit-related services provided by KPMG LLP for 2018 and 2017 .


82


Fees  (in thousands of U.S. Dollars)
 
2018
 
2017
Audit Fees (1)
 
859

 
930

Audit-Related Fees (2)
 
5

 
11

Total
 
864

 
941

(1)
Audit fees represent fees for professional services provided in connection with the audits of our consolidated financial statements and effectiveness of internal control over financial reporting, review of our quarterly consolidated financial statements, audit services provided in connection with other statutory audits and professional services in connection with the review of our regulatory filings for our equity offerings.
(2)
Audit-related fees relate to other accounting consultations.

No fees for tax services were provided to the Partnership by the auditor during the term of their appointments in 2018 and 2017 .

The Audit Committee of our General Partner’s Board of Directors has the authority to pre-approve permissible audit, audit-related and non-audit services not prohibited by law to be performed by our independent auditors and associated fees. Engagements for proposed services either may be separately pre-approved by the Audit Committee or entered into pursuant to detailed pre-approval policies and procedures established by the Audit Committee, as long as the Audit Committee is informed on a timely basis of any engagement entered into on that basis. The Audit Committee pre-approved all engagements and fees paid to our principal accountant in 2018 and in 2017 .
Item 16D.
Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E.
Purchases of Units by the Issuer and Affiliated Purchasers
During 2018, we announced that our Board of Directors had authorized a common unit repurchase program of up to $100 million of our common units. Common units may be repurchased in the open market or privately-negotiated transactions or otherwise at times and prices considered appropriate by us. The timing of any purchases and the exact number of common units to be purchased under the common unit repurchase program will be dependent on market conditions and other factors. 

During 2018, we repurchased common units during the month of December, as indicated in the table below. 
(in thousands of U.S. Dollars, except unit data)
 
Number of common units
 
Repurchase amount
December 2018
 
326,780
 
3,710


Item 16F.
Change in Registrant’s Certifying Accountant
Not applicable.
Item 16G.
Corporate Governance
As a foreign private issuer, we are not required to obtain unitholder approval prior to the adoption of equity compensation plans or certain equity issuances, including, among others, issuing 20% or more of our outstanding common units or voting power in a transaction .
There are no other significant ways in which our corporate governance practices differ from those followed by domestic limited partnerships under the listing requirements of the New York Stock Exchange.
Item 16H.
Mine Safety Disclosure
Not applicable.
PART III
Item 17.
Financial Statements
Not applicable.
Item 18.
Financial Statements

83


The following financial statements, together with the related reports of KPMG LLP, Independent Registered Public Accounting Firm are filed as part of this Annual Report:


All schedules for which provision is made in the applicable accounting regulations of the SEC are not required, are inapplicable or have been disclosed in the Notes to the Consolidated Financial Statements and therefore have been omitted.
Item 19.
Exhibits
The following exhibits are filed as part of this Annual Report:

Certificate of Limited Partnership of Teekay LNG Partners L.P. (1)
Fourth Amended and Restated Agreement of Limited Partnership of Teekay LNG Partners L.P. (2)
Certificate of Formation of Teekay GP L.L.C. (1)
Second Amended and Restated Limited Liability Company Agreement of Teekay GP L.L.C., dated March 2005, as amended by Amendment No. 1, dated February 25, 2008, and Amendment No.2, dated February 29, 2008. (3)
Agreement, dated May 18, 2015, for NOK 1,000,000,000, Senior Unsecured Bonds due May 2020, between Teekay LNG Partners L.P. and Nordic Trustee ASA. (4)
Amended Teekay LNG Partners L.P. 2005 Long-Term Incentive Plan.  (3)
Amended and Restated Omnibus Agreement with Teekay Corporation, Teekay Offshore, our General Partner and related parties. (5)
Administrative Services Agreement with Teekay Shipping Limited.  (3)
Advisory, Technical and Administrative Services Agreement between Teekay Shipping Spain S.L. and Teekay Shipping Limited. (3)
LNG Strategic Consulting and Advisory Services Agreement between Teekay LNG Partners L.P. and Teekay Shipping Limited.  (3)
Syndicated Loan Agreement between Naviera Teekay Gas III, S.L. (formerly Naviera F. Tapias Gas III, S.A.) and Caixa de Aforros de Vigo Ourense e Pontevedra, as Agent, dated as of October 2, 2000, as amended. (3)
Deed of Amendment and Restatement dated October 10, 2008, relating to a Loan Agreement for a U.S. $92,400,000 Buyer Credit and a U.S. $117,600,000 Commercial Loan between MiNT LNG I, Ltd., BNP Paribas S.A., and other banks. (6)
Deed of Amendment and Restatement dated October 10, 2008, relating to a Loan Agreement for a U.S. $92,400,000 Buyer Credit and a U.S. $117,600,000 Commercial Loan between MiNT LNG II, Ltd., BNP Paribas S.A., and other banks. (6)
Deed of Amendment and Restatement dated October 10, 2008, relating to a Loan Agreement for a U.S. $92,400,000 Buyer Credit and a U.S. $117,600,000 Commercial Loan between MiNT LNG III, Ltd ., BNP Paribas S.A., and other banks.  (6)
Deed of Amendment and Restatement dated November 10, 2008, relating to a Loan Agreement for a U.S. $92,400,000 Buyer Credit and a U.S. $117,600,000 Commercial Loan between MiNT LNG IV, Ltd., BNP Paribas S.A., and other banks. (6)
Agreement dated January 1, 2012, for business development services between Teekay LNG Operating L.L.C. and Teekay Shipping Limited. (7)
Agreement dated June 27, 2013, for U.S. $195,000,000 senior secured notes between Meridian Spirit ApS and Wells Fargo Bank Northwest N.A. (8)
Agreement dated June 28, 2013, for U.S. $160,000,000 loan facility between Malt Singapore Pte. Ltd. and Commonwealth Bank of Australia. (8)

84


Agreement dated February 12, 2013; Teekay Luxembourg S.a.r.l. entered into a share purchase agreement with Exmar NV and Exmar Marine NV to purchase 50% of the shares in Exmar LPG BVBA. (9)
Agreement dated July 7, 2014; Teekay LNG Operating L.L.C. entered into a shareholder agreement with China LNG Shipping (Holdings) Limited to form TC LNG Shipping L.L.C. in connection with the Yamal LNG Project. (10)
Agreement dated December 17, 2014, for U.S. $450,000,000 loan facility between Nakilat Holdco L.L.C. and Qatar National Bank SAQ. (10)
Amending and Restating Agreement dated June 5, 2015, for a U.S. $460,000,000 secured loan facility between Exmar LPG BVBA and Nordea Bank Norge ASA and other banks. (4)
Agreement dated November 15, 2016, for a U.S. $730,000,000 Secured Loan Facility between Bahrain LNG W.L.L. and Standard Chartered Bank and other banks.  (11)
Agreement dated December 21, 2016, for a U.S. $723,200,000 Secured Loan Facility between Teekay Nakilat (III) Corporation and Qatar National Bank SAQ. (11)
Agreement dated December 8, 2017, for a U.S. $1,632,000,000 Secured Loan Agreement between DSME Hull No. 2423 L.L.C., DSME Hull No. 2425 L.L.C., DSME Hull No. 2430 L.L.C., DSME Hull No. 2431 L.L.C., DSME Hull No. 2433 L.L.C. and DSME Hull No. 2434 L.L.C. (as borrowers) and China Development Bank.
List of Subsidiaries of Teekay LNG Partners L.P.
Rule 13a-15(e)/15d-15(e) Certification of Mark Kremin, President and Chief Executive Officer of Teekay Gas Group Ltd.
Rule 13a-15(e)/15d-15(e) Certification of Scott Gayton, Chief Financial Officer of Teekay Gas Group Ltd.
Certification of Mark Kremin, President and Chief Executive Officer of Teekay Gas Group Ltd., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Scott Gayton, Chief Financial Officer of Teekay Gas Group Ltd., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Consent of KPMG LLP, as independent registered public accounting firm, for Teekay LNG Partners L.P.
101.INS
XBRL Instance Document.
101.SCJ
XBRL Taxonomy Extension Schema.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase.
101.DEF
XBRL Taxonomy Extension Definition Linkbase.
101.LAB
XBRL Taxonomy Extension Label Linkbase.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase.
____________________________
(1)
Previously filed as exhibits 3.1 and 3.5 to the Partnership’s Registration Statement on Form F-1 (File No. 333-120727), filed with the SEC on November 24, 2004, and hereby incorporated by reference to such Annual Report.
(2)
Previously filed as exhibit 4.1 to the Partnership’s Report on Form 6-K filed with the SEC on January 4, 2019, and hereby incorporated by reference to such Report.
(3)
Previously filed as exhibits 3.4, 10.3, 10.5, 10.6, 10.7 and 10.11 to the Partnership’s Amendment No. 3 to Registration Statement on Form F-1 (File No. 333-120727), filed with the SEC on April 11, 2005, and hereby incorporated by reference to such Registration Statement.
(4)
Previously filed as exhibit 2.3 and 4.34 to the Partnership’s Annual Report on Form 20-F (File No. 1-32479), filed with the SEC on April 27, 2016 and hereby incorporated by reference to such report.
(5)
Previously filed as exhibit 4.17 to the Partnership’s Annual Report on Form 20-F (File No. 1-32479), filed with the SEC on April 19, 2007 and hereby incorporated by reference to such report.
(6)
Previously filed as exhibits 4.19, 4.20, 4.21 and 4.22 to the Partnership’s Report on Form 20-F (File No. 1-32479), filed with the SEC on April 11, 2012 and hereby incorporated by reference to such report.
(7)
Previously filed as exhibit 4.26 to the Partnership’s Annual Report on Form 20-F (File No. 1-32479), filed with the SEC on April 16, 2013 and hereby incorporated by reference to such report.
(8)
Previously filed as exhibits 4.1 and 4.2 to the Partnership’s Report on Form 6-K (File No. 1-32479), filed with the SEC on November 27, 2013 and hereby incorporated by reference to such report.
(9)
Previously filed as exhibit 4.31 to the Partnership's Annual Report on Form 20-F (File No. 1-32479), filed with the SEC on April 29, 2014 and hereby incorporated by reference to such report.
(10)
Previously filed as exhibits 4.29 and 4.30 to the Partnership’s Annual Report on Form 20-F (File No. 1-32479), filed with the SEC on April 23, 2015 and hereby incorporated by reference to such report.
(11)
Previously filed as exhibits 4.37 and 4.39 to the Partnership’s Annual Report on Form 20-F (File No. 1-32479), filed with the SEC on April 26, 2017 and hereby incorporated by reference to such report.

85


SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
 
 
 
TEEKAY LNG PARTNERS L.P.
 
 
 
 
By:
 
Teekay GP L.L.C., its General Partner
Date: April 5, 2019
 
 
 
By:
 
/s/ Edith Robinson
 
 
 
 
 
 
Edith Robinson
 
 
 
 
 
 
Corporate Secretary
 
 
 
 
 
 
 


86


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Unitholders of Teekay LNG Partners L.P.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Teekay LNG Partners L.P. and subsidiaries (the Partnership) as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, cash flows, and changes in total equity for each of the years in the three‑year period ended December 31, 2018, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Partnership’s internal control over financial reporting as of December 31, 2018, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 5, 2019 expressed an unqualified opinion on the effectiveness of the Partnership’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Partnership has changed its accounting policies for revenue recognition as of January 1, 2018 due to the adoption of ASU 2014-09 - Revenue from Contracts with Customers, and the classification of restricted cash and final settlements on cross currency swap agreements on the consolidated statements of cash flows for 2018 and comparative periods due to the adoption of ASU 2016-18 - Statement of Cash Flows: Restricted Cash and ASU 2016-15 - Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments , respectively.
Basis for Opinion
These consolidated financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Partnership’s auditor since 2011.

/s/ KPMG LLP
Chartered Professional Accountants
Vancouver, Canada
April 5, 2019




F-1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Unitholders of Teekay LNG Partners L.P.

Opinion on Internal Control Over Financial Reporting
We have audited Teekay LNG Partners L.P. and subsidiaries’ (the Partnership) internal control over financial reporting as of December 31, 2018, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Partnership as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, cash flows, and changes in total equity for each of the years in the three-year period ended December 31, 2018, and the related notes (collectively, the consolidated financial statements), and our report dated April 5, 2019 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion
The Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Partnership’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting
An entity’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. An entity’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the entity are being made only in accordance with authorizations of management and directors of the entity; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the entity’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ KPMG LLP
Chartered Professional Accountants
Vancouver, Canada
April 5, 2019




F-2


TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (notes 1 and 2)
(in thousands of U.S. Dollars, except unit and per unit data)
 
 
Year Ended
December 31,
2018
$
 
Year Ended
December 31,
2017
$
 
Year Ended
December 31,
2016
$
Voyage revenues (notes 6 and 12a )
 
510,762

 
432,676

 
396,444

Voyage expenses
 
(28,237
)
 
(8,202
)
 
(1,656
)
Vessel operating expenses (note 12a)
 
(117,658
)
 
(101,539
)
 
(87,890
)
Time-charter hire expense (note 12a)
 
(7,670
)
 
—

 
—

Depreciation and amortization
 
(124,378
)
 
(105,545
)
 
(95,542
)
General and administrative expenses (notes 12a and 17)
 
(28,512
)
 
(18,141
)
 
(19,199
)
Write-down of goodwill and write-down and loss on sales of vessels (notes 8 and 19)
 
(54,653
)
 
(50,600
)
 
(38,976
)
Restructuring charges  (note 18)
 
(1,845
)
 
—

 
—

Income from vessel operations
 
147,809

 
148,649

 
153,181

Equity income (notes 7 and 14d)
 
53,546

 
9,789

 
62,307

Interest expense
 
(128,303
)
 
(80,937
)
 
(58,844
)
Interest income
 
3,760

 
2,915

 
2,583

Realized and unrealized gain (loss) on non-designated
derivative instruments (note 13)
 
3,278

 
(5,309
)
 
(7,161
)
Foreign currency exchange gain   (loss) (notes 10 and 13)
 
1,371

 
(26,933
)
 
5,335

Other (expense) income (note 14b)
 
(51,373
)
 
1,561

 
1,537

Net income before income tax expense
 
30,088

 
49,735

 
158,938

Income tax expense (notes 11 and 14c)
 
(3,213
)
 
(824
)
 
(973
)
Net income
 
26,875

 
48,911

 
157,965

Non-controlling interest in net income
 
(1,494
)
 
14,946

 
17,514

Preferred unitholders' interest in net income
 
25,701

 
13,979

 
2,719

General Partner's interest in net income
 
53

 
400

 
2,755

Limited partners’ interest in net income
 
2,615

 
19,586

 
134,977

Limited partners’ interest in net income per common unit  (note 16) :
 
 
 
 
 
 
• Basic
 
0.03

 
0.25

 
1.70

• Diluted
 
0.03

 
0.25

 
1.69

Weighted-average number of common units outstanding (note 16) :
 
 
 
 
 
 
• Basic
 
79,672,435

 
79,617,778

 
79,568,352

• Diluted
 
79,842,328

 
79,791,041

 
79,671,858

Cash distributions declared per common unit
 
0.56

 
0.56

 
0.56

Related party transactions (note 12)
Subsequent events (note 20)
The accompanying notes are an integral part of the consolidated financial statements.

F-3


TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (notes 1 and 2)
(in thousands of U.S. Dollars)
 
 
Year Ended
December 31,
2018
$
 
Year Ended
December 31,
2017
$
 
Year Ended
December 31,
2016
$
Net income
 
26,875

 
48,911

 
157,965

Other comprehensive (loss) income:
 
 
 
 
 
 
Other comprehensive (loss) income before reclassifications
 
 
 
 
 
 
Unrealized (loss) gain on qualifying cash flow hedging instruments,
net of tax (note 13)
 
(893
)
 
1,140

 
(486
)
Amounts reclassified from accumulated other comprehensive
income, net of tax
 
 
 
 
 
 
To equity income:
 
 
 
 
 
 
Realized (gain) loss on qualifying cash flow hedging instruments
 
(383
)
 
2,465

 
3,289

To interest expense:
 
 
 
 
 
 
Realized loss on qualifying cash flow hedging instruments (note 13)
 
152

 
427

 
—

Other comprehensive (loss) income
 
(1,124
)
 
4,032

 
2,803

Comprehensive income
 
25,751

 
52,943

 
160,768

Non-controlling interest in comprehensive (loss) income
 
(856
)
 
15,074

 
17,691

Preferred unitholders' interest in comprehensive income
 
25,701

 
13,979

 
2,719

General and limited partners' interest in comprehensive income
 
906

 
23,890

 
140,358

The accompanying notes are an integral part of the consolidated financial statements.

F-4


TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (notes 1 and 2)
(in thousands of U.S. Dollars)
 
 
As at
December 31,
2018
$
 
As at
December 31,
2017
$
 
 
 
 
 
ASSETS
 
 
 
 
Current
 
 
 
 
Cash and cash equivalents
 
149,014

 
244,241

Restricted cash – current (note 15a)
 
38,329

 
22,326

Accounts receivable, including non-trade of $6,461 (2017 – $13,203) (note 7a iii)
 
20,795

 
24,054

Prepaid expenses
 
8,076

 
6,539

Vessels held for sale (note 19c and 19d)
 
—

 
33,671

Current portion of derivative assets (note 13)
 
835

 
1,078

Current portion of net investments in direct financing leases (note 6)
 
12,635

 
9,884

Current portion of advances to equity-accounted joint ventures (note 7)
 
79,108

 
—

Advances to affiliates (notes 12c and 13)
 
8,229

 
7,300

Other current assets (note 2)
 
2,306

 
—

Total current assets
 
319,327

 
349,093

Restricted cash – long-term (note 15a)
 
35,521

 
72,868

Vessels and equipment
 
 
 
 
At cost, less accumulated depreciation of $665,206 (2017 – $681,991)
 
1,657,338

 
1,416,381

Vessels related to capital leases, at cost, less accumulated depreciation of $66,878 (2017 – $25,883)  (note 5a)
 
1,585,243

 
1,044,838

Advances on newbuilding contracts (notes 12b and 14a)
 
86,942

 
444,493

Total vessels and equipment
 
3,329,523

 
2,905,712

Investment in and advances to equit y- accounted joint ventures (note 7)
 
1,037,025

 
1,094,596

Net investments in direct financing leases (note 6)
 
562,528

 
486,106

Other assets (notes 6 and 11)
 
11,432

 
8,043

Derivative assets (note 13)
 
2,362

 
6,172

Intangible assets  – net  (note 8)
 
52,222

 
61,078

Goodwill (note 8)
 
34,841

 
35,631

Total assets
 
5,384,781

 
5,019,299

LIABILITIES AND EQUITY
 
 
 
 
Current
 
 
 
 
Accounts payable
 
3,830

 
3,509

Accrued liabilities (notes 9 and 13)
 
74,753

 
45,757

Unearned revenue (notes 5c and 6)
 
30,108

 
25,873

Current portion of   long - term debt (note 10)
 
135,901

 
552,404

Current obligations related to capital leases (note 5a)
 
81,219

 
106,946

In-process contracts (note 7a iii)
 
—

 
7,946

Current portion of derivative liabilities (note 13)
 
11,604

 
79,139

Advances from affiliates (note 12c)
 
14,731

 
12,140

Total current liabilities
 
352,146

 
833,714

Long-term debt (note 10)
 
1,833,875

 
1,245,588

Long-term obligations related to capital leases (note 5a)
 
1,217,337

 
904,603

Other long-term liabilities (notes 5c and 7a)
 
43,788

 
58,174

Derivative liabilities (note 13)
 
55,038

 
45,797

Total liabilities
 
3,502,184

 
3,087,876

Commitments and contingencies  (notes 5, 7, 10, 13 and 14)
 


 


 
 
 
 
 
Equity
 


 


Limited Partners - common units (79.4 million units and 79.6 million units issued and outstanding at December 31, 2018 and 2017, respectively) (note 16)
 
1,496,107

 
1,539,248

Limited Partners - preferred units (11.8 million units issued and outstanding at December 31, 2018 and 2017) (note 16)
 
285,159

 
285,159

General Partner
 
49,271

 
50,152

Accumulated other comprehensive income
 
2,717

 
4,479

Partners' equity
 
1,833,254

 
1,879,038

Non-controlling interest
 
49,343

 
52,385

Total equity
 
1,882,597

 
1,931,423

Total liabilities and total equity
 
5,384,781

 
5,019,299

The accompanying notes are an integral part of the consolidated financial statements.

F-5


TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (notes 1 and 2)
(in thousands of U.S. Dollars)
 
 
Year Ended
December 31,
2018
$
 
Year Ended
December 31,
2017
$
 
Year Ended
December 31,
2016
$
Cash, cash equivalents and restricted cash provided by (used for)
 
 
 
 
 
 
OPERATING ACTIVITIES
 
 
 
 
 
 
Net income
 
26,875

 
48,911

 
157,965

Non-cash and non-operating items:
 
 
 
 
 
 
Unrealized gain on non-designated derivative instruments (note 13)
 
(30,133
)
 
(13,448
)
 
(19,433
)
Depreciation and amortization
 
124,378

 
105,545

 
95,542

Write-down of goodwill and write-down and loss on sales of vessels
 
54,653

 
50,600

 
38,976

Unrealized foreign currency exchange (gain) loss including the effect of the termination of cross currency swaps  (note 13)
 
(7,525
)
 
23,153

 
(15,345
)
Equity income, net of dividends received of $14,421 (2017 – $42,692 and 2016 – $31,113)
 
(39,125
)
 
32,903

 
(31,194
)
Ineffective portion of qualifying hedge-accounted interest rate swaps included in interest expense
 
(740
)
 
740

 
—

Other non-cash items
 
(1,035
)
 
(5,616
)
 
(9,602
)
Change in non-cash operating assets and liabilities (note 15b)
 
19,218

 
(2,396
)
 
(9,861
)
Expenditures for dry docking
 
(15,368
)
 
(21,642
)
 
(12,686
)
Net operating cash flow
 
131,198


218,750

 
194,362

 
 
 
 
 
 
 
FINANCING ACTIVITIES
 
 
 
 
 
 
Proceeds from issuance of long-term debt
 
1,135,304

 
362,527

 
573,514

Scheduled repayments of long-term debt and settlement of related swaps
 
(506,437
)
 
(194,237
)
 
(316,450
)
Prepayments of long-term debt and settlement of related swaps
 
(465,122
)
 
(236,474
)
 
(481,133
)
Financing issuance costs
 
(11,932
)
 
(8,361
)
 
(3,462
)
Proceeds from financing related to sales and leaseback of vessels
 
370,050

 
656,935

 
355,306

Scheduled repayments of obligations related to capital leases
 
(59,722
)
 
(42,000
)
 
(21,594
)
Proceeds from issuance of preferred units net of offering   costs (note 16)
 
—

 
164,411

 
120,707

Repurchase of common units (note 16)
 
(3,786
)
 
—

 
—

Cash distributions paid
 
(70,345
)
 
(56,650
)
 
(45,467
)
Dividends paid to non-controlling interest
 
(2,925
)
 
(1,595
)
 
(3,402
)
Other
 
—

 
(605
)
 
—

Net financing cash flow
 
385,085

 
643,951

 
178,019

 
 
 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
 
 
Expenditures for vessels and equipment
 
(686,148
)
 
(708,608
)
 
(345,790
)
Capital contributions and advances to equity-accounted joint ventures
 
(40,544
)
 
(183,874
)
 
(120,879
)
Return of capital and repayment of advances from equity-accounted joint ventures
 
—

 
92,320

 
5,500

Proceeds from sale of equity-accounted joint venture
 
54,438

 
—

 
—

Receipts from direct financing leases
 
10,882

 
13,143

 
23,650

Proceeds from sales of vessels (note 19a)
 
28,518

 
20,580

 
94,311

Net investing cash flow
 
(632,854
)
 
(766,439
)
 
(343,208
)
(Decrease) increase in cash, cash equivalents and restricted cash
 
(116,571
)
 
96,262

 
29,173

Cash, cash equivalents and restricted cash, beginning of the year
 
339,435

 
243,173

 
214,000

Cash, cash equivalents and restricted cash, end of the year
 
222,864

 
339,435

 
243,173

Supplemental cash flow information (note 15)
The accompanying notes are an integral part of the consolidated financial statements.

F-6


TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY (notes 1 and 2)
(in thousands of U.S. Dollars and units)
 
 
TOTAL EQUITY
 
 
Partners’ Equity
 
 
 
 
 
 
Limited Partners
 
 
 
 
 
 
 
 
 
 
Common
Units
 
Common
Units
 
Preferred
Units
 
Preferred
Units
 
General
Partner
 
Accumulated
Other Comprehensive Income (Loss)
 
Non-
controlling
Interest
 
Total
 
 
#
 
$
 
#
 
$
 
$
 
$
 
$
 
$
Balance as at December 31, 2015
 
79,551

 
1,472,327

 
—

 
—

 
48,786

 
(2,051
)
 
24,617

 
1,543,679

Net income
 
—

 
134,977

 
—

 
2,719

 
2,755

 
—

 
17,514

 
157,965

Other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
2,626

 
177

 
2,803

Distributions declared
 
—

 
(44,557
)
 
—

 
—

 
(910
)
 
—

 
—

 
(45,467
)
Dividends paid to non-controlling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
(3,402
)
 
(3,402
)
Equity based compensation, net of withholding tax of $0.2 million
 
21

 
1,105

 
—

 
—

 
22

 
—

 
—

 
1,127

Proceeds from equity offerings (note 16)
 
—

 
—

 
5,000

 
120,707

 
—

 
—

 
—

 
120,707

Balance as at December 31, 2016
 
79,572

 
1,563,852

 
5,000

 
123,426

 
50,653

 
575

 
38,906

 
1,777,412

Net income
 
—

 
19,586

 
—

 
13,979

 
400

 
—

 
14,946

 
48,911

Other comprehensive income
 
—

 
—

 
—

 
—

 
—

 
3,904

 
128

 
4,032

Distributions declared
 
—

 
(44,584
)
 
—

 
(16,657
)
 
(909
)
 
—

 
—

 
(62,150
)
Dividends paid to non-controlling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
(1,595
)
 
(1,595
)
Equity based compensation, net of withholding tax of $0.6 million
 
55

 
394

 
—

 
—

 
8

 
—

 
—

 
402

Proceeds from equity offerings (note 16)
 
—

 
—

 
6,800

 
164,411

 
—

 
—

 
—

 
164,411

Balance as at December 31, 2017
 
79,627

 
1,539,248

 
11,800

 
285,159

 
50,152

 
4,479

 
52,385

 
1,931,423

Net income (loss)
 
—

 
2,615

 
—

 
25,701

 
53

 
—

 
(1,494
)
 
26,875

Other comprehensive (loss) income
 
—

 
—

 
—

 
—

 
—

 
(1,762
)
 
638

 
(1,124
)
Distributions declared
 
—

 
(44,617
)
 
—

 
(25,701
)
 
(911
)
 
—

 
—

 
(71,229
)
Dividends paid to non-controlling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
(2,925
)
 
(2,925
)
Change in accounting policy (note 2)
 
—

 
1,959

 
—

 
—

 
41

 
—

 
739

 
2,739

Equity based compensation, net of withholding tax of $0.7 million
 
61

 
612

 
—

 
—

 
12

 
—

 
—

 
624

Repurchase of common units (note 16)
 
(327
)
 
(3,710
)
 
—

 
—

 
(76
)
 
—

 
—

 
(3,786
)
Balance as at December 31, 2018
 
79,361

 
1,496,107

 
11,800

 
285,159

 
49,271

 
2,717

 
49,343

 
1,882,597

The accompanying notes are an integral part of the consolidated financial statements.


F-7


1.
Summary of Significant Accounting Policies
Basis of presentation
These consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (or GAAP ). They include the accounts of Teekay LNG Partners L.P., which is a limited partnership organized under the laws of the Republic of The Marshall Islands, its wholly-owned or controlled subsidiaries and any variable interest entities (or VIEs ) of which it is the primary beneficiary (collectively, the Partnership ) .

The preparation of these consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. Significant intercompany balances and transactions have been eliminated upon consolidation.

In addition, certain comparative figures have been reclassified to conform to the presentation adopted in the current period relating to a change in the Partnership's reportable segments (see Note 4) and to reclassifications of certain related party transactions between vessel operating expenses and general and administrative expenses in the Partnership's consolidated statements of income that resulted in a decrease in vessel operating expenses and an offsetting increase in general and administrative expenses of $1.6 million and $0.7 million for the years ended December 31, 2017 and December 31, 2016, respectively.

Foreign currency

The consolidated financial statements are stated in U.S. Dollars and the functional currency of the Partnership is the U.S. Dollar. Transactions involving other currencies during the year are converted into U.S. Dollars using the exchange rates in effect at the time of the transactions. At the balance sheet date, monetary assets and liabilities that are denominated in currencies other than the U.S. Dollar are translated to reflect the year- end exchange rates. Resulting gains or losses are reflected in foreign currency exchange gain (loss) in the accompanying consolidated statements of income.

Revenues

Time charters

Revenues from time-charters accounted for as operating leases are recognized by the Partnership on a straight-line basis daily over the term of the charter. Upon commencement of a time charter accounted for as a direct financing lease, the carrying value of the vessel is derecognized and the net investment in the lease is recognized. The lease element of time-charter hire receipts is allocated to the lease receivable and voyage revenues over the term of the lease using the effective interest rate method. The non-lease element of time-charter hire receipts is recognized by the Partnership on a straight-line basis daily over the term of the charter. For time-charter contracts where the charterer is responsible for the operation of the vessel, the Partnership offsets any vessel operating expenses it incurs against reimbursements from the charterer. The Partnership does not recognize revenues during days that the vessel is off-hire or if collectability of receipts of charter payments from charterers is not reasonably assured. When the time charter contains a profit-sharing agreement, the Partnership recognizes the profit-sharing or contingent revenues when the contingency is resolved.

Voyage charters

Revenues from voyage charters are recognized on a proportionate performance method. The Partnership uses a discharge-to-discharge basis in determining proportionate performance for all spot voyages that contain a lease and a load-to-discharge basis in determining proportionate performance for all spot voyages that do not contain a lease. The Partnership does not begin recognizing revenue until a charter has been agreed to by the customer, even if the vessel has discharged its cargo and is sailing to the anticipated load port on its next voyage. The consolidated balance sheets reflect, in other current assets, the accrued portion of revenues for those voyages that commence prior to balance sheet date and complete after the balance sheet date.

Bareboat charters

Revenues from bareboat charters accounted for as operating leases are recognized by the Partnership on a straight-line basis daily over the term of the charter. Upon commencement of a bareboat charter accounted for as a direct financing lease, the carrying value of the vessel is derecognized and the net investment in the lease is recognized. Bareboat hire receipts are allocated to the lease receivable and voyage revenues over the term of the lease using the effective interest rate method. The Partnership does not recognize revenues if collectability of charter hire payments is not reasonably assured.

Operating expenses

Voyage expenses include all expenses unique to a particular voyage, including fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions. The Partnership, as shipowner, pays voyage expenses under voyage charters. The Partnership’s customers pay voyage expenses under time charters, except when the vessel is off-hire during the term of a time-charter, in which case the Partnership pays voyage expenses.


F-8

Vessel operating expenses include crewing, ship management services, repairs and maintenance, insurance, stores, lube oils and communication expenses.

Voyage expenses and vessel operating expenses are recognized when incurred except when the Partnership incurs pre-operational costs related to the repositioning of a vessel (i) that relates directly to a specific customer contract, (ii) that generates or enhances resources of the Partnership that will be used in satisfying performance obligations in the future; and (iii) where such costs are expected to be recovered via the customer contract. In this case, such costs are deferred and amortized over the duration of the customer contract.

The Partnership recognizes the expense from vessels accounted for as operating leases, which is included in time-charter hire expense, on a straight-line basis over the firm period of the charters.

Cash and cash equivalents

The Partnership classifies all highly liquid investments with an original maturity date of three months or less as cash and cash equivalents.

Restricted cash

The Partnership maintains restricted cash deposits relating to certain term loans, collateral for derivatives, project tenders, leasing arrangements, amounts received from charterers to be used only for dry-docking expenditures and emergency repairs and other obligations.

Accounts receivable and allowance for doubtful accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Partnership’s best estimate of the amount of probable credit losses in existing accounts receivable. The Partnership determines the allowance based on historical write-off experience and customer economic data. The Partnership reviews the allowance for doubtful accounts regularly and past due balances are reviewed for collectability. Account balances are charged against the allowance when the Partnership believes that the receivable will not be recovered. The consolidated balance sheets reflect amounts where the right to consideration is conditioned upon the passage of time as "accounts receivable," and reflect accrued revenue where the right to consideration is conditioned upon something other than the passage of time as "other current assets."

Other loan receivables

The Partnership’s advances to equity-accounted joint ventures and any other investments in loan receivables are recorded at cost. The Partnership analyzes its loans for collectability during each reporting period. A loan loss provision is recognized, based on current information and events, if it is probable that the Partnership will be unable to collect all amounts due according to the contractual terms of the loan agreement. Factors the Partnership considers in determining if a loan loss provision is required include, among other things, an assessment of the financial condition of the debtor , payment history of the debtor, general economic conditions, the credit rating of the debtor (when available), any information provided by the debtor regarding its ability to repay the loan, and the fair value of the underlying collateral. When a loan loss provision is recognized, the Partnership measures the amount of the loss provision based on the present value of expected future cash flows discounted at the loan’s effective interest rate and recognizes the resulting loss in the consolidated statements of income. The carrying value of the loan is adjusted each subsequent period to reflect any changes in the present value of the expected future cash flows, which may result in increases or decreases to the loan loss provision.

The following table contains a summary of the carrying value of the Partnership’s financing receivables by type of borrower, the method by which the Partnership monitors the credit quality of its financing receivables on a quarterly basis and the grade as at December 31, 2018 .
Class of Financing Receivable
 
Credit Quality Indicator
 
Grade
 
December 31,
2018
$
 
December 31,
2017
$
Direct financing leases
 
Payment activity
 
Performing
 
575,163

 
495,990

Other receivables:
 
 
 
 
 
 
 
 
Long-term receivable and accrued revenue included in accounts receivable and other assets
 
Payment activity
 
Performing
 
5,694

 
5,476

Advances to equity-accounted joint ventures (note 7)
 
Other internal metrics
 
Performing
 
131,386

 
131,685

 
 
 
 
 
 
712,243

 
633,151


Vessels and equipment

All pre-delivery costs incurred during the construction of newbuildings, including interest and supervision and technical costs, are capitalized. The acquisition cost and all costs incurred to restore used vessels purchased by the Partnership to the standards required to properly service the Partnership’s customers are capitalized.

Interest costs capitalized to vessels and equipment for the years ended December 31, 2018 , 2017 and 2016 aggregated $14.8 million , $13.9 million and $9.9 million , respectively.


F-9

Vessel capital modifications include the addition of new equipment or certain modifications to the vessel which are aimed at improving or increasing the operational efficiency and functionality of the asset. This type of expenditure is capitalized and depreciated over the estimated useful life of the modification. Expenditures covering recurring routine repairs and maintenance are expensed as incurred.

Depreciation is calculated on a straight-line basis over a vessel’s estimated useful life, less an estimated residual value. Depreciation is calculated using an estimated useful life of 25 years for conventional tankers, 30 years for liquefied petroleum gas (or LPG ) carriers and 35 years for liquefied natural gas (or LNG ) carriers, from the date the vessel is delivered from the shipyard, or a shorter period if regulations prevent the Partnership from operating the vessels for 25 years , 30 years , or 35 years , respectively. Depreciation of vessels and equipment, excluding amortization of dry-docking expenditures, for the years ended December 31, 2018 , 2017 and 2016 aggregated $115.5 million , $96.7 million and $86.6 million , respectively. Depreciation and amortization includes depreciation on all owned vessels and amortization of vessels accounted for as capital leases.

Generally, the Partnership dry docks each of its vessels every two and a half to five years. The Partnership capitalizes certain costs incurred during dry docking and amortizes those costs on a straight-line basis from the completion of a dry docking to the estimated completion of the next dry docking. The Partnership includes in capitalized dry docking those costs incurred as part of the dry docking to meet classification and regulatory requirements. The Partnership expenses costs related to routine repairs and maintenance performed during dry docking.

The following table summarizes the change in the Partnership’s capitalized dry docking costs, from January 1, 2016 to December 31, 2018 :

 
 
Year Ended
December 31,
2018
$
 
Year Ended
December 31,
2017
$
 
Year Ended
December 31,
2016
$
Balance at January 1,
 
39,144

 
33,538

 
33,916

Cost incurred for dry docking
 
15,259

 
22,283

 
13,944

Write-downs and sales of vessels
 
(2,448
)
 
(2,782
)
 
(2,886
)
Dry-dock amortization
 
(11,590
)
 
(13,895
)
 
(11,436
)
Balance at December 31,
 
40,365

 
39,144

 
33,538


Vessels and equipment that are intended to be held and used in the Partnership's business are assessed for impairment when events or circumstances indicate the carrying amount of the asset may not be recoverable. If the asset’s net carrying value exceeds the net undiscounted cash flows expected to be generated over its remaining useful life, the carrying amount of the asset is reduced to its estimated fair value. The estimated fair value for the Partnership’s impaired vessels is determined using discounted cash flows or appraised values. In cases where an active second-hand sale and purchase market does not exist, the Partnership uses a discounted cash flow approach to estimate the fair value of an impaired vessel. In cases where an active second-hand sale and purchase market exists, an appraised value is used to estimate the fair value of an impaired vessel. An appraised value is generally the amount the Partnership would expect to receive if it were to sell the vessel. Such appraisal is normally completed by the Partnership and is based on second-hand sale and purchase data.

Vessels and equipment that are "held for sale" are measured at the lower of their carrying amount or fair value less costs to sell and are not depreciated while classified as held for sale. Interest and other expenses and related liabilities attributable to vessels and equipment classified as held for sale continue to be recognized as incurred.

Gains on vessels sold and leased back under capital leases are deferred and amortized over the remaining term of the capital lease. Losses on vessels sold and leased back under capital leases are recognized immediately when the fair value of the vessel at the time of a sale-leaseback transaction is less than its book value. In such case, the Partnership would recognize a loss in the amount by which book value exceeds fair value.

Equity-accounted investments

The Partnership’s investments in certain joint ventures, in which the Partnership has the ability to exercise significant influence over the operating and financial policies of the entity, are accounted for using the equity method of accounting. Under the equity method of accounting, investments are stated at initial cost and are adjusted for subsequent additional investments and the Partnership’s proportionate share of earnings or losses and distributions. The Partnership evaluates its equity-accounted investments for impairment when events or circumstances indicate that the carrying value of such investments may have experienced an other-than-temporary decline in value below its carrying value. If an equity-accounted investment is impaired and if the estimated fair value is less than its carrying value, the carrying value is written down to its estimated fair value and the resulting impairment is recorded in the Partnership’s consolidated statements of income. The Partnership’s maximum exposure to loss is the amount it has invested in its equity-accounted for investments.

Debt issuance costs

Debt issuance costs related to a recognized debt liability, including fees, commissions and legal expenses, are deferred and presented as a direct reduction from the carrying amount of that debt liability and amortized on an effective interest rate method over the term of the relevant loan. Debt issuance costs that are not attributable to a specific debt liability or where the debt issuance costs exceed the carrying value of the related debt liability (primarily undrawn revolving credit facilities) are deferred and presented as other non-current assets in the Partnership's

F-10

consolidated balance sheets. Amortization of debt issuance costs is included in interest expense in the Partnership’s consolidated statements of income.

Fees paid to substantially amend a non-revolving credit facility are associated with the extinguishment of the old debt instrument and included in determining the debt extinguishment gain or loss to be recognized. In addition, any unamortized debt issuance costs are written off. If the amendment is considered not to be a substantial amendment, then the fees would be associated with the replacement or modified debt instrument and, along with any existing unamortized premium, discount and unamortized debt issuance costs, would be amortized as an adjustment of interest expense over the remaining term of the replacement or modified debt instrument using the effective interest method. Other related costs incurred with third parties directly related to the modification, other than the loan amendment fee, are expensed as incurred.

Fees paid to amend a revolving credit facility are deferred and amortized over the term of the modified revolving credit facility. If the borrowing capacity of the revolving credit facility increases as a result of the amendment, unamortized debt issuance costs of the original revolving credit facility are amortized over the remaining term of the modified revolving credit facility. If the borrowing capacity of the revolving credit facility decreases as a result of the amendment, a proportionate amount, based on the reduction in borrowing capacity, of the unamortized debt issuance costs of the original revolving credit facility are written off and the remaining amount is amortized over the remaining term of the modified revolving credit facility.

Goodwill and intangible assets

Goodwill is not amortized but is reviewed for impairment at the reporting unit level on an annual basis or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. A reporting unit is a component of the Partnership that constitutes a business for which discrete financial information is available and regularly reviewed by management. When goodwill is reviewed for impairment, the Partnership may elect to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. Alternatively, the Partnership may bypass this step and use a fair value approach to identify potential goodwill impairment and, when necessary, measure the amount of impairment. The Partnership uses a discounted cash flow model to determine the fair value of reporting units, unless there is a readily determinable fair market value. The Partnership adopted ASU 2017-04, Simplifying the Test for Goodwill Impairment, effective October 1, 2018. Consequently, goodwill impairment is measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill.

Customer-related intangible assets are amortized over the expected life of a customer contract. The amount amortized each year is weighted based on the projected revenue to be earned under the contracts. Intangible assets are assessed for impairment when and if impairment indicators exist. An impairment loss is recognized if the carrying amount of an intangible asset is not recoverable and its carrying amount exceeds its fair value.

Derivative instruments

All derivative instruments are initially recorded at fair value as either assets or liabilities in the accompanying consolidated balance sheets and subsequently remeasured to fair value each period end, regardless of the purpose or intent for holding the derivative. The method of recognizing the resulting gain or loss is dependent on whether the derivative contract is designed to hedge a specific risk and whether the contract qualifies for hedge accounting.

When a derivative is designated as a cash flow hedge, the Partnership formally documents the relationship between the derivative and the hedged item. This documentation includes the strategy and risk management objective for undertaking the hedge and the method that will be used to assess the effectiveness of the hedge. Any hedge ineffectiveness is recognized immediately in earnings, as are any gains and losses on the derivative that are excluded from the assessment of hedge effectiveness. The Partnership does not apply hedge accounting if it is determined that the hedge was not effective or will no longer be effective, the derivative was sold or exercised, or the hedged item was sold, repaid or no longer probable of occurring.

For derivative financial instruments designated and qualifying as cash flow hedges, changes in the fair value of the effective portion of the derivative financial instruments are initially recorded as a component of accumulated other comprehensive income in total equity. In the periods when the hedged items affect earnings, the associated fair value changes on the hedging derivatives are transferred from total equity to the corresponding earnings line item (e.g. interest expense) in the Partnership’s consolidated statements of income. The ineffective portion of the change in fair value of the derivative financial instruments is immediately recognized in the corresponding earnings line item in the Partnership’s consolidated statements of income. If a cash flow hedge is terminated and the originally hedged item is still considered probable of occurring, the gains and losses initially recognized in total equity remain there until the hedged item impacts earnings, at which point they are transferred to the corresponding earnings line item in the Partnership’s consolidated statements of income. If the hedged items are no longer probable of occurring, amounts recognized in total equity are immediately transferred to the earnings item in the Partnership’s consolidated statements of income.

For derivative financial instruments that are not designated or that do not qualify as hedges under Financial Accounting Standards Board (or FASB ) Accounting Standards Codification (or ASC ) 815, Derivatives and Hedging , the changes in the fair value of the derivative financial instruments are recognized in earnings. Gains and losses from the Partnership’s non-designated interest rate swaps, non-designated interest rate swaptions, and the Partnership’s agreement with Teekay Corporation for the Suezmax tanker the Toledo Spirit (see Note 12d) are recorded in realized and unrealized loss on non-designated derivative instruments in the Partnership’s consolidated statements of income. Gains and

F-11

losses from the Partnership’s cross currency swaps are recorded in foreign currency exchange gain (loss) in the Partnership’s consolidated statements of income.

Unit-based compensation

The Partnership grants restricted unit awards as incentive-based compensation under the Teekay LNG Partners L.P. 2005 Long-Term Incentive Plan to certain of the Partnership’s employees and to certain employees of Teekay Corporation’s subsidiaries that provide services to the Partnership and its subsidiaries. The Partnership measures the cost of such awards using the grant date fair value of the award and recognizes that cost, net of estimated forfeitures, over the requisite service period. The requisite service period consists of the period from the grant date of the award to the earlier of the date of vesting or the date the recipient becomes eligible for retirement. For unit-based compensation awards subject to graded vesting, the Partnership calculates the value of the award as if it was one single award with one expected life and amortizes the calculated expense for the entire award on a straight-line basis over the requisite service period. The compensation cost of the Partnership’s unit-based compensation awards is reflected in general and administrative expenses in the Partnership’s consolidated statements of income.

Income taxes

The Partnership accounts for income taxes using the liability method. Under the liability method, deferred tax assets and liabilities are recognized for the anticipated future tax effects of temporary differences between the consolidated financial statement basis and the tax basis of the Partnership’s assets and liabilities using the applicable jurisdictional tax rates. A valuation allowance for deferred tax assets is recorded when it is more likely than not that some or all of the benefit from the deferred tax asset will not be realized. Three of the five Partnership’s Spanish-flagged vessels are subject to the Spanish Tonnage Tax Regime (or TTR ). Under this regime, the applicable tax is based on the weight (measured as net tonnage) of the vessel and the number of days during the taxable period that the vessel is at the Partnership’s disposal, excluding time required for repairs. The income the Partnership receives with respect to the remaining two Spanish-flagged vessels is taxed in Spain at a rate of 25% . However, these two vessels are registered in the Canary Islands Special Ship Registry. Consequently, the Partnership is allowed a credit, equal to 90% of the tax payable on income from the commercial operation of these vessels, against the tax otherwise payable. This effectively results in an income tax rate of approximately 2.5% on income from the operation of these two Spanish-flagged vessels.

The Partnership recognizes the tax benefits of uncertain tax positions only if it is more-likely-than-not that a tax position taken or expected to be taken in a tax return will be sustained upon examination by the taxing authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefits recognized in the Partnership’s consolidated financial statements from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Partnership recognizes interest and penalties related to uncertain tax positions in income tax expense in the Partnership’s consolidated statements of income.

Guarantees

Guarantees issued by the Partnership, excluding those that are guaranteeing its own performance, are recognized at fair value at the time the guarantees are issued and are presented in the Partnership’s consolidated balance sheets as other long-term liabilities. The liability recognized on issuance is amortized to other income on the Partnership’s consolidated statements of income over the term of the guarantee. If it becomes probable that the Partnership will have to perform under a guarantee, the Partnership will recognize an additional liability if the amount of the loss can be reasonably estimated.
2.
Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers , (or ASU 2014-09 ). ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update creates a five-step model that requires entities to exercise judgment when considering the terms of the contract(s) which include (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue as each performance obligation is satisfied. ASU 2014-09 became effective for the Partnership as of January 1, 2018, and may be applied, at the Partnership’s option, retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Partnership adopted ASU 2014-09 as a cumulative-effect adjustment as of such date. The Partnership has elected to apply ASC 2014-09 only to those contracts that were not completed as of January 1, 2018. The Partnership has identified the following differences on adoption of ASU 2014-09:

•
In certain cases, the Partnership incurs pre-operational costs relating directly to a specific customer contract, that generate or enhance resources of the Partnership that will be used in satisfying performance obligations in the future, whereby such costs are expected to be recovered via the customer contract. Such costs are deferred and amortized over the duration of the customer contract. The Partnership previously expensed such costs as incurred unless the costs were directly reimbursable by the contract. This change increased net income by $1.1 million for the year ended December 31, 2018 , and increased other assets by $3.5 million , investments in equity-accounted joint ventures by $0.3 million , and total equity by $3.8 million as at December 31, 2018 . The cumulative increase to opening equity as at January 1, 2018 was $2.7 million .
•
The Partnership previously presented all accrued revenue as a component of accounts receivable. The Partnership has determined that if the right to such consideration is conditional upon something other than the passage of time, such accrued revenue should be presented

F-12

apart from accounts receivable. This had the impact of increasing other current assets and decreasing accounts receivable by $2.3 million at December 31, 2018 . There was no cumulative impact to opening equity as at January 1, 2018.
In February 2016, FASB issued Accounting Standards Update 2016-02, Leases (or ASU 2016-02 ). ASU 2016-02 establishes a right-of-use model that requires a lessee to record a right of use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. For lessees, leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 requires lessors to classify leases as a sales-type, direct financing, or operating lease. A lease is a sales-type lease if any one of five criteria are met, each of which indicate that the lease, in effect, transfers control of the underlying asset to the lessee. If none of those five criteria are met, but two additional criteria are both met, indicating that the lessor has transferred substantially all of the risks and benefits of the underlying asset to the lessee and a third party, the lease is a direct financing lease. All leases that are not sales-type leases or direct financing leases are operating leases. ASU 2016-02 is effective January 1, 2019, with early adoption permitted. FASB issued an additional accounting standards update in July 2018 that made further amendments to accounting for leases, including allowing the use of a transition approach whereby a cumulative effect adjustment is made as of the effective date, with no retrospective effect. The Partnership will adopt ASU 2016-02 on January 1, 2019. To determine the cumulative effect adjustment, the Partnership will no t reassess lease classification, initial direct costs for any existing leases and whether any expired or existing contracts are or contain leases. The Partnership identified the following differences :

•
The adoption of ASU 2016-02 will result in a change in the accounting method for the lease portion of the daily charter hire accounted for as operating leases with firm periods of greater than one year for certain of the chartered-in vessels of the Partnership and the Partnership's equity-accounted joint ventures. Under ASU 2016-02, one of the Partnership's in-charter contracts currently accounted for as an operating lease will be treated as a right-of-use asset and a lease liability, which will result in an increase of the Partnership's assets and liabilities. The right-of-use asset and lease liability to be recognized on January 1, 2019 is $22.7 million . In addition, certain equity-accounted joint ventures will recognize a right-of-use asset and a lease liability on the balance sheet for these charters based on the present value of future minimum lease payments, whereas currently no right-of-use asset or lease liability is recognized. This will have the result of increasing the equity-accounted joint venture’s assets and liabilities. The pattern of expense recognition of chartered-in vessels is expected to remain substantially unchanged, unless the right-of-use asset becomes impaired.
•
The adoption of ASU 2016-02 will result in the Partnership's lease classification assessment being determined when a lease commences instead of when the lease is entered into. The Partnership has entered into charters in prior periods for certain of its vessels currently under construction and which are expected to deliver in 2019. Historically, for charters that were negotiated concurrently with the construction of the related vessels, the fair value of the constructed asset was presumed to be its newbuilding cost and no gain or loss was recognized on commencement of the charter if such charters were classified as direct finance leases. Subsequent to the adoption of ASU 2016-02, the fair value of the vessel will be determined based on information available at the lease commencement date and any difference in the fair value of the ship upon commencement of the charter and its carrying value is recognized as a gain or loss upon commencement of the charter.
•
The adoption of ASU 2016-02 will result in the recognition of revenue from the reimbursement of scheduled dry-dock expenditures, where such charter contract is accounted for as an operating lease, occurring upon completion of the scheduled dry-dock, instead of ratably over the period between the previous scheduled dry-dock and the next scheduled dry-dock. The cumulative decrease to opening equity as at January 1, 2019 was $3.0 million .
•
In addition, direct financing lease payments received will be presented as an operating cash inflow instead of an investing cash inflow in the consolidated statements of cash flows.

In August 2016, the FASB issued Accounting Standards Update 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts
and Cash Payments (or ASU 2016-15 ), which, among other things, provides guidance on two acceptable approaches of classifying distributions received from equity-method investees in the statements of cash flows and application of the predominance principle on the cash flow statement classification of cash receipts and payments that have aspects of more than one class of cash flows. ASU 2016-15 became effective for the Partnership as of January 1, 2018, with a retrospective approach required on adoption. The Partnership has elected to classify distributions received from equity method investees in the consolidated statements of cash flows based on the nature of the distribution. In addition, the adoption of ASU 2016-15 resulted in $25.7 million and $17.7 million of cross currency swap payments that were related to the principal repayment of long-term debt for the years ended December 31, 2017 and December 31, 2016 , respectively, being reclassified from unrealized foreign currency exchange (gain) loss including the effect of the termination of cross currency swaps in net operating cash flow, to scheduled repayments of long-term debt and settlement of related swaps in net financing cash flow for the year ended December 31, 2017 and to prepayments of long-term debt and settlement of related swaps for the year ended December 31, 2016 as the amounts related to the termination of final settlement of the cross currency swaps.

In November 2016, the FASB issued Accounting Standards Update 2016-18, Statement of Cash Flows: Restricted Cash ( or ASU 2016-18 ).
ASU 2016-18 requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Entities are also required to reconcile such total to amounts on the balance sheet and disclose the nature of the restrictions. ASU 2016-18 became effective for the Partnership as of January 1, 2018. Adoption of ASU 2016-18 resulted in the Partnership including in the consolidated statement of cash flows changes in cash, cash equivalents and restricted cash.

In August 2017, the FASB issued Accounting Standards Update 2017-12, Derivatives and Hedging - Targeted Improvements to Accounting
for Hedging Activities ( or ASU 2017-12 ) . ASU 2017-12 eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires, for qualifying hedges, the entire change in the fair value of a hedging instrument to be presented in the same income

F-13

statement line as the hedged item. The guidance also modifies the accounting for components excluded from the assessment of hedge effectiveness, eases documentation and assessment requirements and modifies certain disclosure requirements. ASU 2017-12 became effective for the Partnership as of January 1, 2019. The Partnership is currently evaluating the effect of adopting this new guidance.

In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses
on Financial Instruments ( or ASU 2016-13 ). ASU 2016-13 replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This update is effective for the Partnership January 1, 2020, with a modified-retrospective approach required on adoption. The Partnership is currently evaluating the effect of adopting this new guidance.

In October 2017, the FASB issued Accounting Standards Update 2017-04, Simplifying the Test for Goodwill Impairment ( or ASU 2017-04 ) . Pursuant to this update, goodwill impairment is now measured as the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying value of goodwill. This update eliminates previous guidance that required an entity to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. ASU 2017-04 requires a prospective adoption approach and is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. ASU 2017-04 was adopted by the Partnership on October 1, 2018, and such adoption did not have a material impact on the Partnership's consolidated financial statements and related disclosures.

In August 2018, the FASB issued Accounting Standards Update 2018-15,  Intangibles-Goodwill and Other-Internal Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract , (or ASU 2018-15 ). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. The Partnership elected to adopt ASU 2018-15 on October 1, 2018, and such adoption did not have a material impact on the Partnership’s consolidated financial statements and related disclosures.
3.
Financial Instruments
Fair Value Measurements

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Cash and cash equivalents and restricted cash – The fair value of the Partnership’s cash and cash equivalents and restricted cash approximates its carrying amounts reported in the consolidated balance sheets.

Interest rate swap/swaption and cross currency swap agreements – The fair value of these derivative instruments of the Partnership is the estimated amount that the Partnership would receive or pay to terminate the agreements at the reporting date, taking into account current interest rates, foreign exchange rates and the current credit worthiness of both the Partnership and the derivative counterparties. The estimated amount is the present value of future cash flows. The Partnership transacts all of these derivative instruments through investment-grade rated financial institutions at the time of the transaction. The Partnership's interest rate swap agreements do not require the Partnership to provide cash collateral to these institutions; however, cash collateral may be required by certain institutions on some of the Partnership's cross currency swap agreements and as at December 31, 2018 , the Partnership had pledged $6.8 million cash as collateral ( December 31, 2017 – $22.3 million ), which has been recorded as restricted cash – current and long-term on the Partnership's consolidated balance sheets. Given the current volatility in the credit markets, it is reasonably possible that the amount recorded as a derivative asset or liability could vary by a material amount in the near term.

Other derivative – The Partnership’s other derivative agreement is between Teekay Corporation and the Partnership and relates to hire payments under the time-charter contract for the Suezmax tanker Toledo Spirit (see Note 12d). The fair value of this derivative agreement is the estimated amount that the Partnership would receive or pay to terminate the agreement at the reporting date, based on the present value of the Partnership’s projection of future spot market tanker rates, which have been derived from current spot market tanker rates and long-term historical average rates. As projections of future spot rates are specific to the Partnership, these are considered Level 3 inputs for the purposes of estimating the fair value.

Long-term receivable included in accounts receivable and other assets – The fair value of the Partnership’s long-term loan receivable is estimated using discounted cash flow analysis based on rates currently available for debt with similar terms and remaining maturities and the current credit worthiness of the counterparty.

Long-term debt – The fair values of the Partnership’s fixed-rate and variable-rate long-term debt are either based on quoted market prices or estimated using discounted cash flow analyses based on rates currently available for debt with similar terms and remaining maturities and the current credit worthiness of the Partnership.

Long-term obligations related to capital leases – The fair values of the Partnership's long-term obligations related to capital leases are estimated using discounted cash flow analyses, based on rates currently available for debt with similar terms and remaining maturities.

The Partnership categorizes the fair value estimates by a fair value hierarchy based on the inputs used to measure fair value. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value as follows:


F-14

Level 1.
Observable inputs such as quoted prices in active markets;
Level 2.
Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3.
Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The following table includes the estimated fair value and carrying value of those assets and liabilities that are measured at fair value on a recurring and non-recurring basis, as well as the estimated fair value of the Partnership’s financial instruments that are not accounted for at a fair value on a recurring basis.
 
 
 
 
December 31, 2018
 
December 31, 2017
 
 
Fair Value
Hierarchy
Level
 
Carrying
Amount
Asset
(Liability)
$
 
Fair
Value
Asset
(Liability)
$
 
Carrying
Amount
Asset
(Liability)
$
 
Fair
Value
Asset
(Liability)
$
Recurring:
 
 
 
 
 
 
 
 
 
 
   Cash and cash equivalents and restricted cash
 
Level 1
 
222,864

 
222,864

 
339,435

 
339,435

   Derivative instruments (note 13)
 
 
 
 
 
 
 
 
 
 
      Interest rate swap agreements – assets
 
Level 2
 
3,341

 
3,341

 
878

 
878

      Interest rate swap agreements – liabilities
 
Level 2
 
(40,958
)
 
(40,958
)
 
(73,984
)
 
(73,984
)
      Cross currency swap agreements – assets
 
Level 2
 
—

 
—

 
3,758

 
3,758

      Cross currency swap agreements – liabilities
 
Level 2
 
(29,122
)
 
(29,122
)
 
(54,217
)
 
(54,217
)
      Other derivative
 
Level 3
 
1,061

 
1,061

 
1,648

 
1,648

Non-recurring:
 
 
 
 
 
 
 
 
 
 
   Vessels held for sale (notes 19c and 19d)
 
Level 2
 
—

 
—

 
16,671

 
16,671

Other:
 
 
 
 
 
 
 
 
 
 
Advances to equity-accounted joint ventures, current and long-term (note 7)
 
(i)  
 
131,386

 
(i)  

 
131,685

 
(i)  

Long-term receivable included in accounts receivable and other assets (ii)
 
Level 3
 
175

 
174

 
3,476

 
3,459

Long-term debt – public (note 10)
 
Level 1
 
(350,813
)
 
(361,095
)
 
(376,581
)
 
(384,820
)
Long-term debt – non-public (note 10)
 
Level 2
 
(1,618,963
)
 
(1,604,106
)
 
(1,421,411
)
 
(1,391,524
)
Obligations related to capital leases  (note 5)
 
Level 2
 
(1,298,556
)
 
(1,274,693
)
 
(1,011,549
)
 
(1,001,588
)
(i)
The advances to equity-accounted joint ventures together with the Partnership’s equity investments in the joint ventures form the net aggregate carrying value of the Partnership’s interests in the joint ventures in these consolidated financial statements. The fair values of the individual components of such aggregate interests are not determinable.
(ii)
As at December 31, 2018 , the estimated fair value of the non-interest bearing receivable is based on the remaining future fixed payments of $0.2 million , to be received from Royal Dutch Shell Plc (or Shell ) (formerly BG International Limited) as part of the ship construction support agreement, and using an estimated discount rate of 8.0% . As there is no market rate for the equivalent of an unsecured non-interest bearing receivable from Shell, the discount rate is based on unsecured debt instruments of similar maturity held, adjusted for a liquidity premium. A higher or lower discount rate would result in a lower or higher fair value asset.

Changes in fair value during the years ended December 31, 2018 and 2017 for the Partnership’s other derivative asset, the Toledo Spirit time-charter derivative, which is described below and is measured at fair value on a recurring basis using significant unobservable inputs (Level 3), are as follows:
 
 
Year Ended
December 31,
2018
$
 
Year Ended
December 31,
2017
$
Fair value at beginning of year
 
1,648

 
2,134

Realized and unrealized gains included in earnings
 
550

 
788

Settlements
 
(1,137
)
 
(1,274
)
Fair value at end of year
 
1,061

 
1,648


The Partnership’s Suezmax tanker the Toledo Spirit operates pursuant to a time-charter contract that increases or decreases the otherwise fixed-hire rate established in the charter depending on the spot charter rates that the Partnership would have earned had it traded the vessel in the spot tanker market. The time-charter contract ended in January 2019 upon the charterer, which was also the owner, selling the vessel (see Note 20a). In order to reduce the variability of its revenue under the Toledo Spirit time-charter, the Partnership entered into an agreement with Teekay Corporation under which Teekay Corporation paid the Partnership any amounts payable to the charterer of the Toledo Spirit as a result of spot rates being below the fixed rate, and the Partnership paid Teekay Corporation any amounts payable to the Partnership by the

F-15

charterer of the Toledo Spirit as a result of spot rates being in excess of the fixed rate. The estimated fair value of this other derivative was based in part upon the Partnership’s projection of future spot market tanker rates, which was derived from current spot market tanker rates and long-term historical average rates as well as an estimated discount rate. The estimated fair value of this other derivative as of December 31, 2018 was based upon an average daily tanker rate of $24,000 ( December 31, 2017 – $17,500 ) over the remaining duration of the charter contract, which ended January 2019, and a discount rate of 9.5% ( December 31, 2017 – 8.7% ). In developing and evaluating this estimate, the Partnership considered the current tanker market fundamentals as well as the short and long-term outlook at that time. A higher or lower average daily tanker rate would result in a higher or lower fair value liability or a lower or higher fair value asset. A higher or lower discount rate would result in a lower or higher fair value asset or liability.

4.
Segment Reporting

Prior to 2018, the Partnership reported its financial results on the basis of two business segments: a liquefied gas segment and a conventional tanker segment. During 2018, the Partnership’s Teekay Multi-Gas Pool commenced operations. As part of this initiative, the Partnership completed an internal reorganization and revised its reportable segments, as such changes resulted in management viewing the gas fleet and its components differently. As a result, the Partnership’s LPG and multi-gas carriers are reported in a separate segment apart from its LNG carriers. All segment information for comparative periods has been retroactively adjusted to conform with the change in segment presentation adopted in 2018.

The Partnership has three reportable segments, its LNG segment, LPG segment and its conventional tanker segment. The Partnership’s LNG segment consists of LNG carriers which generally operate under long-term, fixed-rate charters to international energy companies. The Partnership's LPG segment consists of LPG and multi-gas carriers which generally operate under voyage charters or time-charters. As at December 31, 2018 , the Partnership’s LNG segment consisted of 49 LNG carriers and LNG carrier newbuildings (including 25 LNG carriers and LNG carrier newbuildings included in joint ventures that are accounted for under the equity method). As at December 31, 2018 , the Partnership's LPG segment consisted of 29 LPG/multi-gas carriers and LPG carrier newbuildings (including 22 LPG carriers included in a joint venture that is accounted for under the equity method). As at December 31, 2018 , the Partnership’s conventional tanker segment consisted of one Suezmax-class crude oil tankers and one Handymax product tanker. Segment results are evaluated based on income from vessel operations. The accounting policies applied to the reportable segments are the same as those used in the preparation of the Partnership’s consolidated financial statements.

The following table presents voyage revenues and percentage of consolidated voyage revenues for the Partnership’s customers who accounted for 10% or more of the Partnership's consolidated voyage revenues during any of the periods presented.

(U.S. Dollars in millions)
Year Ended
December 31, 2018
  
Year Ended
December 31, 2017
  
Year Ended
December 31, 2016
Royal Dutch Shell Plc. (i) (ii)
$115.4 or 23%
  
$53.8 or 12%
  
$48.2 or 12%
Ras Laffan Liquefied Natural Gas Company Ltd. (i)
$70.6 or 14%
 
$70.3 or 16%
 
$70.3 or 18%
Cheniere Marketing International (i)
$60.1 or 12%
  
$60.2 or 14%
  
Less than 10%
The Tangguh Production Sharing Contractors (i)
Less than 10%
  
$49.7 or 11%
  
$44.4 or 11%
(i)
LNG segment.
(ii)
Includes its subsidiaries Shell Spain LNG S.A.U. and Shell Tankers (Singapore) Private Ltd.


F-16

The following tables include results for these segments for the years presented in these consolidated financial statements.

 
Year Ended December 31, 2018
 
Liquefied Natural Gas
Segment
$
 
Liquefied Petroleum Gas
Segment
$
 
Conventional
Tanker
Segment
$
 
Total
$
Voyage revenues
454,517

 
23,922

 
32,323

 
510,762

Voyage expenses
(2,750
)
 
(15,907
)
 
(9,580
)
 
(28,237
)
Vessel operating expenses
(82,952
)
 
(20,932
)
 
(13,774
)
 
(117,658
)
Time-charter hire expense
(7,670
)
 
—

 
—

 
(7,670
)
Depreciation and amortization
(111,360
)
 
(7,748
)
 
(5,270
)
 
(124,378
)
General and administrative expenses (i)
(23,270
)
 
(2,932
)
 
(2,310
)
 
(28,512
)
Write-down of goodwill and vessels
—

 
(33,790
)
 
(20,863
)
 
(54,653
)
Restructuring charges
—

 
—

 
(1,845
)
 
(1,845
)
Income (loss) from vessel operations
226,515

 
(57,387
)
 
(21,319
)
 
147,809

 
 
 
 
 
 
 
 
Equity income (loss)
60,228

 
(6,682
)
 
—

 
53,546

Investment in and advances to equity-accounted joint ventures
962,236

 
153,897

 
—

 
1,116,133

Total assets at December 31, 2018
4,861,977

 
326,111

 
39,450

 
5,227,538

Expenditures for vessels and equipment
(684,951
)
 
(1,230
)
 
(124
)
 
(686,305
)
Expenditures for dry docking
(7,505
)
 
(5,059
)
 
(15
)
 
(12,579
)

 
Year Ended December 31, 2017
 
Liquefied Natural Gas
Segment
$
 
Liquefied Petroleum Gas
Segment
$
 
Conventional
Tanker
Segment
$
 
Total
$
Voyage revenues
365,914

 
19,769

 
46,993

 
432,676

Voyage expenses
(1,802
)
 
(1,218
)
 
(5,182
)
 
(8,202
)
Vessel operating expenses
(80,245
)
 
(3,083
)
 
(18,211
)
 
(101,539
)
Depreciation and amortization
(86,592
)
 
(8,433
)
 
(10,520
)
 
(105,545
)
General and administrative expenses (i)
(13,223
)
 
(2,411
)
 
(2,507
)
 
(18,141
)
Write-down of vessels
—

 
—

 
(50,600
)
 
(50,600
)
Income (loss) from vessel operations
184,052

 
4,624

 
(40,027
)
 
148,649

 
 
 
 
 
 
 
 
Equity income (loss)
17,652

 
(7,863
)
 
—

 
9,789

Investment in and advances to equity-accounted joint ventures
933,970

 
160,626

 
—

 
1,094,596

Total assets at December 31, 2017
4,284,767

 
364,164

 
118,827

 
4,767,758

Expenditures for vessels and equipment
(701,116
)
 
(13,412
)
 
—

 
(714,529
)
Expenditures for dry docking
(20,047
)
 
(107
)
 
(2,130
)
 
(22,283
)


F-17

 
Year Ended December 31, 2016
 
Liquefied Natural Gas
Segment
$
 
Liquefied Petroleum Gas
Segment
$
 
Conventional
Tanker
Segment
$
 
Total
$
Voyage revenues
314,591

 
21,939

 
59,914

 
396,444

Voyage expenses
(449
)
 
—

 
(1,207
)
 
(1,656
)
Vessel operating expenses
(65,371
)
 
(16
)
 
(22,503
)
 
(87,890
)
Depreciation and amortization
(72,190
)
 
(7,894
)
 
(15,458
)
 
(95,542
)
General and administrative expenses (i)
(13,955
)
 
(2,055
)
 
(3,189
)
 
(19,199
)
Write-down and loss on sales of vessels
—

 
—

 
(38,976
)
 
(38,976
)
Income (loss) from vessel operations
162,626

 
11,974

 
(21,419
)
 
153,181

 
 
 
 
 
 
 
 
Equity income
48,633

 
13,674

 
—

 
62,307

Expenditures for vessels and equipment
(344,924
)
 
—

 
(63
)
 
(344,987
)
Expenditures for dry docking
(13,944
)
 
—

 
—

 
(13,944
)
(i)
Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of corporate resources (Note 12a)).

A reconciliation of total segment assets presented in the consolidated balance sheets is as follows:
 
December 31,
2018
$
 
December 31,
2017
$
Total assets of the liquefied natural gas segment
4,861,977

 
4,284,767

Total assets of the liquefied petroleum gas segment
326,111

 
364,164

Total assets of the conventional tanker segment
39,450

 
118,827

Unallocated:
 
 
 
Cash and cash equivalents
149,014

 
244,241

Advances to affiliates
8,229

 
7,300

Consolidated total assets
5,384,781

 
5,019,299

5.
Chartered-in Vessels

a) Capital Leases
 
 
December 31,
2018
$
 
December 31,
2017
$
LNG Carriers
 
1,274,569

 
961,711

Suezmax Tanker
 
23,987

 
49,838

Total obligations related to capital leases
 
1,298,556

 
1,011,549

Less current portion
 
(81,219
)
 
(106,946
)
Long-term obligations related to capital leases
 
1,217,337

 
904,603


LNG Carriers. As at December 31, 2018 , the Partnership was a party to capital leases on eight LNG carriers, the Creole Spirit, the Oak Spirit, the Torben Spirit, the Macoma, the Murex, the Magdala, the Myrina and the Megara . Upon delivery of these eight LNG carriers between February 2016 and July 2018, the Partnership sold these vessels to third parties (or Lessors ) and leased them back under 10 -year bareboat charter contracts ending in 2026 through to 2028. At inception of these leases, the weighted-average interest rate implicit in these leases was 5.1% . The bareboat charter contracts are accounted for as obligations related to capital leases and have purchase obligations at the end of the lease terms.

The Partnership understands that these vessels and lease operations are the only assets and operations of the Lessors. The Partnership operates the vessels during the lease term and as a result, is considered to be, under GAAP, the Lessor's primary beneficiary; therefore, the Partnership consolidates the Lessors for financial reporting purposes as VIEs.

The liabilities of the Lessors are loans and are non-recourse to the Partnership. The amounts funded to the Lessors in order to purchase the vessels materially match the funding to be paid by the Partnership's subsidiaries under the sale-leaseback transaction. As a result, the amounts

F-18

due by the Partnership's subsidiaries to the Lessors have been included in obligations related to capital leases as representing the Lessors' loans.

The obligations of the Partnership under the bareboat charter contracts are guaranteed by the Partnership. In addition, the guarantee agreements require the Partnership to maintain minimum levels of tangible net worth and aggregate liquidity, and not to exceed a maximum amount of leverage. As at December 31, 2018 , the Partnership was in compliance with all covenants in respect of the obligations related to its capital leases.

As at December 31, 2018 , the remaining commitments related to the eight capital leases for the Partnership's LNG carriers, including the related purchase obligations, approximated $1.7 billion , including imputed interest of $435.3 million , repayable from 2019 through 2028, as indicated below:

Year
 
Commitment
2019
 
$
119,517

2020
 
$
118,685

2021
 
$
117,772

2022
 
$
116,978

2023
 
$
116,338

Thereafter
 
$
1,120,670


Suezmax Tanker. As at December 31, 2018 , the Partnership was a party, as lessee, to a capital lease on one Suezmax tanker, the Toledo Spirit . Under this capital lease, the owner had the option to require the Partnership to purchase the vessel. The charterer, who is also the owner, also had the option to cancel the charter contract and the cancellation option was first exercisable in August 2018. In January 2019, the charterer of the Toledo Spirit sold the vessel and the capital lease was terminated.

As at December 31, 2018 , the remaining commitments related to the one capital lease for the Suezmax tanker, including the related purchase obligations, approximated $24.2 million including imputed interest of $0.2 million , repayable in 2019. Upon sale of the vessel in January 2019, the Partnership returned the vessel to the owner and the full amount of the associated obligation related to the capital lease was concurrently extinguished.

The Partnership’s capital lease relating to its Suezmax tanker does not contain financial or restrictive covenants other than those relating to operation and maintenance of the vessels.

b) Operating Leases
The minimum estimated charter hire payments for the following two fiscal years, as at December 31, 2018 , for the Partnership's chartered-in vessel accounted for as an operating lease were as follows:
 
2019
2020
Vessel Charters
$
$
Charters-in – operating leases (i)
23,725
16,055
(i) As at December 31, 2018 , the Partnership was chartering in a vessel at a fixed-rate from its 52% -owned joint venture with Marubeni Corporation (or the Teekay LNG-Marubeni Joint Venture ) for a period of two years until September 2020. The Partnership recognizes the expense from this charter on a straight-line basis over the firm period of the charter and is presented as time-charter hire expense in the Partnership's consolidated statements of income.

c) Teekay Tangguh Joint Venture Operating Leases
As at December 31, 2018 , the Teekay BLT Corporation (or the Teekay Tangguh Joint Venture ), of which the Partnership has a 69% ownership interest and consolidates, was a party to operating leases (or Head Leases ) whereby it leases its two LNG carriers (or the Tangguh LNG Carriers ) to a third-party company. The Teekay Tangguh Joint Venture then leases back the LNG carriers from the same third-party company (or the Subleases ). Under the terms of these leases, the third-party company claims tax depreciation on the capital expenditures it incurred to lease the vessels. As is typical in these leasing arrangements, tax and change of law risks are assumed by the Teekay Tangguh Joint Venture. Lease payments under the Subleases are based on certain tax and financial assumptions at the commencement of the leases. If an assumption proves to be incorrect, the lease payments are increased or decreased under the Sublease to maintain the agreed after-tax margin. The Teekay Tangguh Joint Venture’s carrying amounts of this estimated tax indemnification guarantee as at December 31, 2018 and 2017 were $ 6.6 million and $7.1 million , respectively, and are included as part of other long-term liabilities in the consolidated balance sheets of the Partnership. The tax indemnification is for the duration of the lease contract with the third party plus the years it would take for the lease payments to be statute barred and ends in 2033. Although there is no maximum potential amount of future payments, the Teekay Tangguh Joint Venture may terminate the lease arrangements on a voluntary basis at any time. If the lease arrangements terminate, the Teekay Tangguh Joint Venture will be required to make termination payments to the third-party company sufficient to repay the third-party company’s investment

F-19

in the vessels and to compensate it for the tax effect of the terminations, including recapture of any tax depreciation. The Head Leases and the Subleases have 20 -year terms and are classified as operating leases. The Head Leases and the Subleases for the two Tangguh LNG Carriers commenced in November 2008 and March 2009.

As at December 31, 2018 , the total estimated future minimum rental payments to be received and paid by the Teekay Tangguh Joint Venture related to the lease contracts are as follows:

Year
 
Head Lease Receipts (i)
 
Sublease Payments (i) (ii)
2019
 
$
21,242

 
$
23,875

2020
 
$
21,242

 
$
23,875

2021
 
$
21,242

 
$
23,875

2022
 
$
21,242

 
$
23,875

2023
 
$
21,242

 
$
23,875

Thereafter
 
$
111,611

 
$
125,485

Total
 
$
217,821

 
$
244,860

(i)
The Head Leases are fixed-rate operating leases while the Subleases have a variable-rate component. As at December 31, 2018 , the Partnership had received $ 292.6 million of aggregate Head Lease receipts and had paid $236.3 million of aggregate Sublease payments. The portion of the Head Lease receipts that has not been recognized into earnings is deferred and amortized on a straight-line basis over the lease terms and, as at December 31, 2018 , $ 3.7 million ( December 31, 2017 – $3.7 million ) and $ 29.3 million ( December 31, 2017 – $33.0 million ) of Head Lease receipts had been deferred and included in unearned revenue and other long-term liabilities, respectively, in the Partnership’s consolidated balance sheets.
(ii)
The amount of payments related to the Subleases are updated annually to reflect any changes in the lease payments due to changes in tax law.

6.
Revenue

The Partnership’s primary source of revenue is chartering its vessels to customers. The Partnership utilizes three primary forms of contracts, consisting of time-charter contracts, voyage charter contracts and bareboat charter contracts. The Partnership also generates revenue from construction supervision and crew-training for the vessels under construction in its joint venture with China LNG Shipping (Holdings) Limited (or China LNG ), CETS Investment Management (HK) Co. Ltd. and BW Investments Pte. Ltd (or the Pan Union Joint Venture ), in which the Partnership's ownership interests range from 20% to 30% , and from the start-up of an LNG receiving and regasification terminal under construction related to its 30% -owned joint venture with National Oil and Gas Authority 30% ), Gulf Investment Corporation ( 24% ), and Samsung C&T ( 16% ) (or the Bahrain LNG Joint Venture ). Such services may include the procurement of third party goods and services for the asset’s owner.

Time Charters

Pursuant to a time-charter contract, the Partnership charters a vessel to a customer for a fixed period of time, generally one year or more. The performance obligations of a time-charter contract, which include the lease of the vessel to the charterer as well as the operation of the vessel, are satisfied as services are rendered over the duration of such contract, as measured using the time that has elapsed from commencement of performance. In addition, any expenses unique to a particular voyage, including any fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions, are the responsibility of the customer, as long as the vessel is not off-hire. Hire is based on a fixed daily hire amount and is typically invoiced monthly in advance for time-charter contracts. However, certain sources of variability exist, including penalties, such as those that relate to periods the vessels are off-hire and where minimum speed and performance metrics are not met. In addition, certain time-charter contracts contain provisions allowing the Partnership to be compensated for increases in the Partnership's costs during the term of the charter. Such provisions may be in the form of annual hire rate adjustments for changes in inflation indices or interest rates or in the form of cost reimbursements for vessel operating expenditures or dry-docking expenditures. Finally, in a small number of charters, the Partnership may earn a profit share consideration, which occurs when actual spot tanker rates earned by the vessel exceed certain thresholds for a period of time. Variable consideration of the Partnership’s contracts is typically recognized in the period in which the changes in facts and circumstances on which the variable lease payments are based occur as either such revenue is allocated and accounted for under lease accounting requirements or alternatively such consideration is allocated to distinct periods within a contract that such variable consideration was incurred in. The Partnership does not engage in any specific tactics to minimize residual value risk.

As at December 31, 2018 , a substantial majority of the Partnership’s consolidated vessels operated under time-charter contracts with the Partnership’s customers. Such contracts are scheduled to expire between 2019 and 2038. The time-charter contracts for many of the Partnership's LNG carriers have options whereby the charterer can extend the contract for periods up to a total extension between three and 15 years. In addition, each of the Partnership's time-charter contracts are subject to certain termination and purchase provisions. As at December 31, 2018 , the Partnership had $ 26.4 million of advanced payments recognized as contract liabilities included in unearned revenue ( December 31, 2017 – $ 22.2 million ) which are expected to be recognized as voyage revenues in 2019 and are included in unearned revenue on the Partnership's consolidated balance sheets. During the year ended December 31, 2018 , the Partnership recognized $22.2 million of revenue that was included in the contract liability balance on transition.


F-20

Voyage Charters

Voyage charters are charters for a specific voyage that are usually priced on a current or “spot” market rate. The performance obligations of a voyage charter contract, which typically include the lease of the vessel to the charterer as well as the operation of the vessel, are satisfied as services are rendered over the duration of the voyage, as measured using the time that has elapsed from commencement of performance. In addition, any expenses that are unique to a particular voyage, including any fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions, are the responsibility of the vessel owner. The Partnership’s voyage charters will normally contain a lease; however, judgment is necessary to determine this based upon the decision-making rights of the charterer under the contract. Consideration for such contracts is generally fixed, although certain sources of variability exist - for example, delays caused by the charterer result in additional consideration. Payment for the voyage is not due until the voyage is completed. The duration of a single voyage is typically less than three months. The Partnership does not engage in any specific tactics to minimize residual value risk due to the short-term nature of the contracts.

Bareboat Charters

Pursuant to a bareboat charter, the Partnership charters a vessel to a customer for a fixed period of time, generally one year or more, at rates that are generally fixed. However, the customer is responsible for operation and maintenance of the vessel with its own crew as well as any expenses that are unique to a particular voyage, including any fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions. If the vessel goes off-hire due to a mechanical issue or any other reason, the monthly hire received by the Partnership is normally not impacted. The performance obligations of a bareboat charter, which include the lease of the vessel to the charterer, are satisfied over the duration of such contract, as measured using the time elapsed from commencement of the lease. Hire is typically invoiced monthly in advance for bareboat charters, based on a fixed daily hire amount.

Revenue Table
The following tables contain the Partnership's revenue for the year ended December 31, 2018 , 2017 and 2016 , by contract type and by segment.
 
Year Ended December 31, 2018
 
Liquefied 
Natural Gas
Segment
$
 
Liquefied 
Petroleum Gas
Segment
$
 
Conventional
Tanker
Segment
$
 
Total
$
Time charters
420,262


—


17,405


437,667

Voyage charters
—


23,922


14,591


38,513

Bareboat charters
23,820


—


—


23,820

Management fees and other income
10,435


—


327


10,762

 
454,517


23,922


32,323


510,762

 
Year Ended December 31, 2017
 
Liquefied 
Natural Gas
Segment
$
 
Liquefied 
Petroleum Gas
Segment
$
 
Conventional
Tanker
Segment
$
 
Total
$
Time charters
332,751

 
—

 
39,171

 
371,922

Voyage charters
—

 
2,285

 
6,709

 
8,994

Bareboat charters
22,574

 
17,484

 
—

 
40,058

Management fees and other income
10,589

 
—

 
1,113

 
11,702

 
365,914

 
19,769

 
46,993

 
432,676


F-21

 
Year Ended December 31, 2016
 
Liquefied 
Natural Gas
Segment
$
 
Liquefied 
Petroleum Gas
Segment
$
 
Conventional
Tanker
Segment
$
 
Total
$
Time charters
283,159

 
—


58,802


341,961

Bareboat charters
23,824

 
21,939


—


45,763

Management fees and other income
7,608

 
—


1,112


8,720

 
314,591

 
21,939


59,914


396,444


The following table contains the Partnership’s revenue from contracts that do not contain a lease element and the non-lease element of time-charter contracts accounted for as direct financing leases for the years ended December 31, 2018 , 2017 and 2016 .
 
 
December 31,
2018
$
 
December 31,
2017
$
 
December 31,
2016
$
Non-lease revenue - related to sales type or direct financing leases
 
18,554

 
21,228

 
13,855

Management fees and other income
 
10,762

 
11,702

 
8,720

Total
 
29,316

 
32,930

 
22,575

Net Investments in Direct Financing Leases

The Tangguh LNG Carriers commenced their time-charters with their charterers in 2009. Both time-charter contracts are accounted for as direct financing leases with 20 -year terms. In 2013, the Partnership acquired two 155,900 -cubic meter LNG carriers (or Awilco LNG Carriers ) from Norway-based Awilco LNG ASA (or Awilco ) and chartered them back to Awilco on five - and four -year fixed-rate bareboat charter contracts (plus a one -year extension option), respectively, with Awilco holding fixed-price purchase obligations at the end of the charter. The bareboat charters with Awilco were accounted for as direct financing leases. In June 2017, the Partnership agreed to amend the charter contracts with Awilco to defer a portion of charter hire and extend the bareboat charter contracts and related purchase obligations on both vessels to December 2019. The amendments have the effect of deferring charter hire of between $10,600 per day and $20,600 per day per vessel from July 1, 2017 until December 2019, with such deferred amounts added to the purchase obligation amounts. As a result of the contract amendments, both of the charter contracts with Awilco were reclassified as operating leases upon the expiry of its original contract terms in November 2017 and August 2018. In addition, the 21 -year charter contract for the Bahrain Spirit floating storage unit (or FSU ) commenced in September 2018 and is accounted for as a direct finance lease. The following table lists the components of the net investments in direct financing leases:
 
 
December 31,
2018
$
 
December 31,
2017
$
Total minimum lease payments to be received
 
897,130

 
568,710

Estimated unguaranteed residual value of leased properties
 
291,098

 
194,965

Initial direct costs
 
328

 
361

Less unearned revenue
 
(613,394
)
 
(268,046
)
   Total net investments in direct financing leases
 
575,163

 
495,990

Less current portion
 
(12,635
)
 
(9,884
)
Net investments in direct financing leases
 
562,528

 
486,106


As at December 31, 2018 , estimated minimum lease payments to be received by the Partnership related to its direct financing leases in each of the next five succeeding fiscal years are approximately $ 64.2 million ( 2019 ), $ 64.3 million ( 2020 ), $ 64.2 million ( 2021 ), $ 64.2 million ( 2022 ), $ 64.0 million ( 2023 ) and an aggregate of $ 576.2 million thereafter. The leases are scheduled to end between 2029 and 2039.
Operating Leases
As at December 31, 2018 , the minimum scheduled future rentals to be received by the Partnership in each of the next five years for the lease and non-lease elements related to charters that were accounted for as operating leases are approximately $482.7 million ( 2019 ), $438.2 million ( 2020 ), $398.3 million ( 2021 ), $321.9 million ( 2022 ), and $278.1 million ( 2023 ). Minimum scheduled future rentals on operating lease contracts do not include rentals generated from new contracts entered into after December 31, 2018 , rentals from vessels in the Partnership’s equity-accounted investments, rentals from unexercised option periods of contracts that existed on December 31, 2018 , variable or contingent rentals, or rentals from contracts which commenced after December 31, 2018 . Therefore, the minimum scheduled future rentals on operating leases should not be construed to reflect total charter hire revenues for any of these five years.

F-22

The carrying amount of the Partnership's vessels which are employed on these charter contracts as at December 31, 2018 , was $ 3.1 billion ( December 31, 2017 – $ 2.2 billion ). The cost and accumulated depreciation of these vessels employed on these charter contracts as at December 31, 2018 were $ 3.8 billion ( December 31, 2017 – $ 2.9 billion ) and $ 698.5 million ( December 31, 2017 – $ 646.2 million ), respectively.
Contract Costs
In certain cases, the Partnership incurs pre-operational costs that relate directly to a specific customer contract, that generate or enhance resources of the Partnership that will be used in satisfying performance obligations in the future, whereby such costs are expected to be recovered via the customer contract. Those costs include costs incurred to reposition a vessel to a location where a charterer will take delivery of the vessel. In certain cases, the Partnership must make judgments about whether costs relate directly to a specific customer contract or whether costs were factored into the pricing of a customer contract and thus expected to be recovered. Such deferred costs are amortized on a straight-line basis over the duration of the customer contract. Amortization of such costs for the year ended December 31, 2018 was $ 0.2 million ($ nil during 2017 and 2016). As at December 31, 2018 , repositioning costs of $ 3.5 million ( December 31, 2017 – $ nil ) were included as part of other assets in the Partnership's consolidated balance sheets.
7.
Equity-Accounted Investments
a)
A summary of the Partnership's investments in and advances to equity-accounted joint ventures are as follows:

 
 
 
 
As at December 31, 2018
 
As at December 31,
Name
 
Ownership Percentage
 
# of Delivered Vessels
 
Newbuildings on order
 
2018
$
 
2017
$
Bahrain LNG Joint Venture  (i)
 
30%
 
-
 
1
 
81,353

 
77,706

Yamal LNG Joint Venture  (ii)
 
50%
 
2
 
4
 
205,839

 
193,774

Pan Union Joint Venture (iii)
 
20%-30%
 
3
 
1
 
73,545

 
43,538

Exmar LPG Joint Venture  (iv)
 
50%
 
22
 
-
 
153,808

 
160,626

Teekay LNG-Marubeni Joint Venture (v)
 
52%
 
6
 
-
 
351,529

 
341,712

Excalibur Joint Venture (vi)
 
49%
 
1
 
-
 
32,402

 
79,915

Angola Joint Venture  (vii)
 
33%
 
4
 
-
 
85,469

 
74,775

RasGas 3 Joint Venture  (viii)
 
40%
 
4
 
-
 
132,188

 
122,550

 
 
 
 
42
 
6
 
1,116,133

 
1,094,596

Less current portion
 
 
 
 
 
 
 
(79,108
)

—

Investment in and advances to equity-accounted joint ventures
 
 
 
 
 
 
 
1,037,025


1,094,596

(i)
Bahrain LNG Joint Venture
On December 2, 2015, the Partnership ( 30% ) entered into a joint venture agreement with National Oil & Gas Authority (or Nogaholding ) ( 30% ), Gulf Investment Corporation (or GIC ) ( 24% ) and Samsung C&T (or Samsung ) ( 16% ) to form a joint venture, Bahrain LNG W.L.L. (or the Bahrain LNG Joint Venture ), for the development of an LNG receiving and regasification terminal in Bahrain. The project is expected to include an offshore LNG receiving jetty and breakwater, an adjacent regasification platform, subsea gas pipelines from the platform to shore, an onshore gas receiving facility, and an onshore nitrogen production facility with a total LNG terminal capacity of 800 million standard cubic feet per day and will be owned and operated under a 20 -year agreement, which is expected to commence in mid-2019. In addition, the Partnership has supplied an FSU in connection with this project commencing in September 2018 through a 21 -year time-charter contract with the Bahrain LNG Joint Venture.
As at December 31, 2018 , the Partnership had advanced $79.1 million ( December 31, 2017 – $79.1 million ) to the Bahrain LNG Joint Venture. These advances bear interest at LIBOR plus 1.25% and as at December 31, 2018 , the interest receivable on these advances was $nil ( December 31, 2017 – $0.1 million ). These amounts are included in the table above.
(ii)
Yamal LNG Joint Venture
The Partnership has a 50 / 50 joint venture agreement with China LNG Shipping (Holdings) Limited (or the Yamal LNG Joint Venture ) and the joint venture had ordered six internationally-flagged icebreaker LNG carriers for a project located on the Yamal Peninsula in Northern Russia (or the Yamal LNG Project ) of which two LNG carrier newbuildings were delivered during 2018.
In December 2017, the Yamal LNG Joint Venture secured a $1.6 billion long-term debt facility to finance all six of its ARC7 LNG carrier newbuildings. As part of the completed financing, the Yamal LNG Joint Venture returned a total of $104 million of capital back to the joint venture partners in December 2017, of which the Partnership’s share was $52 million . The Partnership has guaranteed its 50% share of a secured loan facility in the Yamal LNG Joint Venture and, as a result, has recorded a guarantee liability. The carrying value of the guarantee liability as at December 31, 2018 was $0.6 million ( December 31, 2017 – $0.6 million ) and is included as part of other long-term liabilities in the Partnership’s consolidated balance sheets.
(iii)
Pan Union Joint Venture
In June 2014, the Partnership acquired from Shell its ownership interests in four LNG carrier newbuildings. As compensation for Shell’s ownership interests in these four LNG carrier newbuildings, the Partnership assumed Shell’s obligation to provide the shipbuilding supervision and crew training services for the four LNG carrier newbuildings up to their delivery date pursuant to a ship construction support agreement. The Partnership initially estimated it would incur approximately $36.9 million of costs to provide these services, of which Shell has agreed to pay a fixed amount of $20.3 million . The Partnership estimated that the fair value of the service obligation was $33.3 million and the fair value of the amount due from Shell was $16.5 million . As at December 31,

F-23

2018 , the carrying value of the service obligation of $nil ( December 31, 2017 – $8.2 million ) is included in in-process contracts and the carrying value of the receivable from Shell of $0.2 million ( December 31, 2017 – $3.5 million ) is included in accounts receivable in the Partnership’s consolidated balance sheets.
As at December 31, 2018 , the Partnership has a 30% ownership interest in two LNG carriers, the Pan Asia and the Pan Americas , and a 20% ownership interest in one LNG carrier, the Pan Europe, and one LNG carrier newbuilding (or collectively, the Pan Union Joint Venture ). The Pan Africa was delivered on January 8, 2019 and concurrently commenced its 20 -year charter contract with Shell.
On initial acquisition, the basis difference between the Partnership's investment and the carrying value of the Pan Union Joint Venture's net assets was substantially attributed to ship construction support agreements and the time-charter contracts. At December 31, 2018 , the unamortized amount of the basis difference was $11.0 million ( December 31, 2017 - $11.4 million ).
(iv)
Exmar LPG Joint Venture
The Partnership has a 50 / 50 LPG-related joint venture agreement with Exmar NV (or Exmar) (or the Exmar LPG Joint Venture ). The Partnership has guaranteed its 50% share of a secured loan facility and four capital leases in the Exmar LPG Joint Venture and, as a result, has recorded a guarantee liability. The carrying value of the guarantee liability as at December 31, 2018 was $1.3 million ( December 31, 2017 – $1.6 million ) and is included as part of other long-term liabilities in the Partnership’s consolidated balance sheets.
As at December 31, 2018 , the Partnership had advanced $52.3 million ( December 31, 2017 – $52.3 million ) to the Exmar LPG Joint Venture, which bears interest at LIBOR plus 0.50% and has no fixed repayment terms. As at December 31, 2018 , the interest receivable on these advances was $nil ( December 31, 2017 – $0.2 million ). These amounts are included in the table above.
On initial acquisition, the basis difference between the Partnership's investment and the carrying value of the Exmar LPG Joint Venture's net assets was substantially attributed to the value of the vessels and charter agreements of the Exmar LPG Joint Venture and goodwill in accordance with the finalized purchase price allocation. At December 31, 2018 , the unamortized amount of the basis difference was $24.9 million ( December 31, 2017 – $25.5 million ).
(v)
Teekay LNG-Marubeni Joint Venture
The Partnership has a joint venture agreement with Marubeni Corporation (or the Teekay LNG-Marubeni Joint Ventur e). Since control of the Teekay LNG-Marubeni Joint Venture is shared jointly between Marubeni and the Partnership, the Partnership accounts for its investment in the Teekay LNG-Marubeni Joint Venture using the equity method. In September 2018, the Teekay LNG-Marubeni Joint Venture completed the refinancing of one of its debt facilities maturing in 2019 by entering into a new $306.5 million U.S. Dollar-denominated term loan maturing in December 2023. The Partnership has guaranteed its 52% share of the secured loan facilities of the Teekay LNG-Marubeni Joint Venture and, as a result, has recorded a guarantee liability. The carrying value of the guarantee liability as at December 31, 2018 was $0.4 million ( December 31, 2017 – $0.5 million ) and is included as part of other long-term liabilities in the Partnership’s consolidated balance sheets.
(vi)
Excalibur and Excelsior Joint Ventures
The Partnership has a 50 / 50 LNG-related joint venture with Exmar (or the Excalibur Joint Venture ). On January 31, 2018, the Partnership sold its other 50 / 50 joint venture with Exmar relating to the Excelsior LNG carrier (or the Excelsior Joint Venture ) for gross proceeds of approximately $54 million . As a result of the sale, the Partnership recorded a gain of $5.6 million for the year ended December 31, 2018 , which is included in equity income in the Partnership's consolidated statements of income. The Partnership has guaranteed its ownership share of the secured loan facility of the Excalibur Joint Venture and, as a result, has recorded a guarantee liability. The carrying value of the guarantee liability as of December 31, 2018 was nominal ( December 31, 2017 – $0.2 million ) and is included as part of other long-term liabilities in the Partnership’s consolidated balance sheets.
On initial acquisition, the basis difference between the Partnership's investment and the carrying value of the Excalibur Joint Venture's net assets was substantially attributed to an increase to the carrying value of the vessel of the Excalibur Joint Venture in accordance with the finalized purchase price allocation. At December 31, 2018 , the unamortized amount of the basis difference was $13.0 million ( December 31, 2017 – $13.4 million ).
(vii)
Angola Joint Venture
The Partnership has a 33% ownership interest in a joint venture (or the Angola Joint Venture ) that owns four 160,400 -cubic meter LNG carriers (or the Angola LNG Carriers ). The other partners of the Angola Joint Venture are NYK Energy Transport (or NYK ) ( 33% ) and Mitsui & Co. Ltd. ( 34% ).
The Partnership has guaranteed its 33% share of the secured loan facilities and interest rate swaps of the Angola Joint Venture and, as a result, has recorded a guarantee liability. The carrying value of the guarantee liability as at December 31, 2018 was $0.6 million ( December 31, 2017 – $0.7 million ) and is included as part of other long-term liabilities in the Partnership’s consolidated balance sheets.
(viii)
RasGas 3 Joint Venture
The Partnership has a 40% ownership interest in Teekay Nakilat (III) Corporation (or the RasGas 3 Joint Venture ), and the remaining 60% is held by Qatar Gas Transport Company Ltd. (Nakilat).

b)
The RasGas 3 Joint Venture, the Angola Joint Venture, the Yamal LNG Joint Venture, and the Bahrain LNG Joint Venture are considered variable interest entities; however, the Partnership is not the primary beneficiary and therefore, the Partnership has not consolidated these entities. The Partnership’s exposure to loss as a result of its investment in the RasGas 3 Joint Venture, the Angola LNG Joint Venture, the Yamal LNG Joint Venture, and the Bahrain LNG Joint Venture is the amount it has invested in and advanced to these joint ventures, which are $132.2 million , $85.5 million , $205.8 million and $81.4 million , resp ectively, as at December 31, 2018 . In addition, the Partnership guarantees its portion of certain debt and swaps in the Angola Joint Venture and the Yamal LNG Joint Venture totaling $622.0 million ( December 31, 2017 – $304.1 million ). In addition, the Partnership provides an owner's guarantee in respect of the charters for the RasGas 3 Joint Venture, the Angola Joint Venture, the Yamal LNG Joint Venture and the Bahrain LNG Joint Venture.

c)
The follo wing table presents aggregated summarized financial information reflecting a 100% ownership interest in the Partnership’s equity method investments and excluding the impact from purchase price adjustments arising from the acquisition of Exmar LPG BVBA, the Excalibur Joint Venture and the Pan Union Joint Venture. The results include the Excalibur Joint Venture, the Excelsior Joint Venture up to January 2018, the RasGas 3 Joint Venture, the Angola Joint Venture, the Exmar LPG Joint Venture, the Teekay LNG-Marubeni Joint Venture, the Pan Union Joint Venture, the Yamal LNG Joint Venture, and the Bahrain LNG Joint Venture.


F-24

 
 
December 31,
2018
$
 
December 31,
2017
$
Cash and restricted cash – current
 
333,566

 
281,468

Other assets – current
 
152,506

 
97,832

Vessels and equipment, including vessels related to capital leases, right of use assets and advances on newbuilding contracts
 
2,262,666

 
3,284,441

Net investments in direct financing leases – non-current
 
3,000,927

 
1,961,299

Other assets – non-current
 
1,406,815

 
68,728

Current portion of long-term debt and obligations related to capital leases
 
547,098

 
168,715

Other liabilities – current
 
139,194

 
119,627

Long-term debt and obligations related to capital leases
 
4,307,278

 
3,386,800

Other liabilities – non-current
 
126,905

 
145,870


 
 
Year Ended
December 31,
2018
$
 
Year Ended
December 31,
2017
$
 
Year Ended
December 31,
2016
$
Voyage revenues
 
612,471

 
477,495

 
549,646

Income from vessel operations
 
289,477

 
178,763

 
268,049

Realized and unrealized gain (loss) on non-designated derivative instruments
 
8,825

 
(2,067
)
 
(12,277
)
Net income
 
142,252

 
54,418

 
167,052


8.
Intangible Assets and Goodwill
As at December 31, 2018 and 2017 , intangible assets consisted of acquired time-charter contracts with a weighted-average amortization period of 20.7 years from the date of acquisition. The carrying amount of intangible assets for the Partnership’s liquefied natural gas segment is as follows:

 
 
December 31,
2018
$
 
December 31,
2017
$
Gross carrying amount
 
179,813

 
179,813

Accumulated amortization
 
(127,591
)
 
(118,735
)
Net carrying amount
 
52,222

 
61,078


Amortization expense associated with intangible assets was $8.9 million per year for each of the years ended December 31, 2018 , 2017 and 2016 . Amortization expense associated with intangible assets is expected to be approximately $8.9 million per year in each of the next five years.

The Partnership's carrying amount of goodwill as at December 31, 2018 and 2017 is as follows:

 
 
December 31,
2018
$
 
December 31,
2017
$
Liquefied natural gas segment
 
31,921

 
31,921

Liquefied petroleum gas segment
 
2,920

 
3,710

Total
 
34,841

 
35,631


In 2018, the Partnership conducted its annual impairment review and concluded that its liquefied petroleum gas segment was impaired and recorded an impairment charge of $0.8 million for the year ended December 31, 2018 . No impairment charges were recognized in either segment prior to this. The amount of the impairment charge was determined using a discounted cash flow valuation approach. The impairment charge is included in write-down of goodwill and write-down and loss on sales of vessels in the Partnership's consolidated statements of income. The impairment charge followed a change in the Partnership’s reporting structure, as discussed in Note 4, combined with a reduction in the near-term hire rate outlook for its multi-gas vessels.



F-25


9.
Accrued Liabilities
 
 
December 31,
2018
$
 
December 31,
2017
$
Interest including interest rate swaps
 
23,083

 
19,186

Voyage and vessel expenses
 
34,889

 
12,476

Payroll and benefits
 
5,950

 
3,900

Other general expenses
 
2,542

 
3,360

Income and other tax payable
 
1,864

 
1,335

Distributions payable on preferred units
 
6,425

 
5,500

Total
 
74,753

 
45,757

10.
Long-Term Debt
 
December 31, 2018
 
December 31, 2017
 
$
 
$
U.S. Dollar-denominated Revolving Credit Facilities due from 2020 to 2022
225,000

 
254,275

U.S. Dollar-denominated Term Loans due from 2020 to 2030
1,212,504

 
935,286

Norwegian Kroner-denominated Bonds due from 2020 to 2023
352,973

 
377,856

Euro-denominated Term Loans due from 2023 to 2024
193,781

 
232,957

Other U.S. Dollar-denominated Loans
3,300

 
10,000

    Total principal
1,987,558

 
1,810,374

Unamortized discount and debt issuance costs
(17,782
)
 
(12,382
)
    Total debt
1,969,776

 
1,797,992

Less current portion
(135,901
)
 
(552,404
)
    Long-term debt
1,833,875

 
1,245,588


As at December 31, 2018 , the Partnership had two revolving credit facilities available, both of which credit facilities were long-term. The two credit facilities, as at such date, provided for borrowings of up to $400.6 million ( December 31, 2017 – $443.7 million ) , of which $175.6 million ( December 31, 2017 – $189.4 million ) was undrawn. Interest payments are based on LIBOR plus margins, which ranged from 1.40% to 2.25% . The amount available under the two revolving credit facilities will be reduced by $22.4 million in 2019, $248.4 million in 2020, $24.4 million in 2021 and $105.4 million in 2022. The revolving credit facilities may be used by the Partnership to fund general partnership purposes. One of the revolving credit facilities is unsecured, while the other revolving credit facility is collateralized by first-priority mortgages granted on two of the Partnership’s vessels, together with other related security, and include a guarantee from two of the Partnership’s subsidiaries.

As at December 31, 2018 , the Partnership had seven combined U.S. Dollar-denominated term loans and bonds outstanding which totaled $1.2 billion ( December 31, 2017 – $935.3 million ) in aggregate principal amount. Interest payments on the term loans are based on LIBOR plus a margin, which margins ranged from 0.30% to 3.25% and interest payments on the bonds are fixed at 4.41% . The seven combined term loans and bonds require quarterly interest and principal payments and six have balloon or bullet repayments due at maturity. The term loans and bonds are collateralized by first-priority mortgages on 18 of the Partnership’s vessels to which the loans relate, together with certain other related security. In addition, at December 31, 2018 , all of the outstanding term loans and bonds were guaranteed by either the Partnership or subsidiaries of Teekay Nakilat Corporation (or the Teekay Nakilat Joint Venture ), of which the Partnership has a 70% ownership interest.

The Partnership has Norwegian Kroner (or NOK ) 3.1 billion of senior unsecured bonds issued in the Norwegian bond market that mature through 2023. As at December 31, 2018 , the total amount of the bonds, which are listed on the Oslo Stock Exchange, was $353.0 million ( December 31, 2017 – $377.9 million ) . The interest payments on the bonds are based on NIBOR plus a margin, which margins ranged from 3.70% to 6.00% . The Partnership entered into cross currency swaps, to swap all interest and principal payments of the bonds into U.S. Dollars, with the interest payments fixed at rates ranging from 5.92% to 7.89% and the transfer of principal fixed at $382.5 million upon maturity in exchange for NOK 3.1 billion (see Note 13).

The Partnership has two Euro-denominated term loans outstanding, which as at December 31, 2018 , totaled 169.0 million Euros ( $193.8 million ) ( December 31, 2017 – 194.1 million Euros ( $233.0 million )) . Interest payments are based on EURIBOR plus margins, which margins ranged from 0.60% to 1.95% as at December 31, 2018 , and the loans require monthly and semi-annual interest and principal payments. The term loans have varying maturities through 2024. The term loans are collateralized by first-priority mortgages on two of the Partnership's vessels to which the loans relate, together with certain other related security and are guaranteed by the Partnership and one of its subsidiaries.


F-26

As at December 31, 2018 , the Teekay Nakilat Joint Venture, which the Partnership has a 70% ownership interest, has a $3.3 million loan payable to its 30% non-controlling interest owner. The interest is based on LIBOR plus 1.0% and is payable on demand.

The weighted-average effective interest rate for the Partnership’s long-term debt outstanding at December 31, 2018 and December 31, 2017 were 4.44% and 3.34% , respectively. These rates do not reflect the effect of related interest rate swaps that the Partnership has used to economically hedge certain of its floating-rate debt (see Note 13). At December 31, 2018 , the margins on the Partnership’s outstanding revolving credit facilities and term loans ranged from 0.30% to 3.25% .

All Euro-denominated term loans and NOK-denominated bonds are revalued at the end of each period using the then-prevailing U.S. Dollar exchange rate. Due primarily to the revaluation of the Partnership’s NOK-denominated bonds, the Partnership’s Euro-denominated term loans and restricted cash, the repayment of the Partnership's NOK-denominated bonds and the termination of the associated cross currency swaps, and the change in the valuation of the Partnership’s cross currency swaps, the Partnership incurred foreign exchange gains (losses) of $1.4 million , $(26.9) million , and $5.3 million for the years ended December 31, 2018 , 2017 and 2016 , respectively.

The aggregate annual long-term debt principal repayments required subsequent to December 31, 2018 are $136.6 million ( 2019 ), $613.0 million ( 2020 ), $404.1 million ( 2021 ), $92.1 million ( 2022 ), $213.3 million ( 2023 ) and $528.5 million ( thereafter ).

Certain loan agreements require that (a) the Partnership maintains minimum levels of tangible net worth and aggregate liquidity, (b) the Partnership maintain certain ratios of vessel values related to the relevant outstanding loan principal balance, (c) the Partnership not exceed a maximum amount of leverage, and (d) certain of the Partnership’s subsidiaries maintain restricted cash deposits. As at December 31, 2018 , the Partnership has three facilities with an aggregate outstanding loan balance of $442.2 million that require it to maintain minimum vessel-value-to-outstanding-loan-principal-balance ratios ranging from 115% to 135% , which as at December 31, 2018 ranged from 132% to 198% which exceeded the required ratios for the three facilities. The vessel values used in calculating these ratios are the appraised values provided by third parties where available or prepared by the Partnership based on second-hand sale and purchase market data. Since vessel values can be volatile, the Partnership’s estimates of market value may not be indicative of either the current or future prices that could be obtained if the Partnership sold any of the vessels. The Partnership’s ship-owning subsidiaries may not, among other things, pay dividends or distributions if the Partnership's subsidiaries are in default under their term loans or revolving credit facilities and, in addition, one of the term loans in the Teekay Nakilat Joint Venture requires it to satisfy a minimum vessel value to outstanding loan principal balance ratio to pay dividends. As at December 31, 2018 , the Partnership was in compliance with all covenants relating to the Partnership’s credit facilities and other long-term debt.
11.
Income Tax
The components of the provision for income taxes were as follows:

 
 
Year Ended
December 31,
2018
$
 
Year Ended
December 31,
2017
$
 
Year Ended
December 31,
2016
$
Current
 
(2,361
)
 
(3,557
)
 
(962
)
Deferred
 
(852
)
 
2,733

 
(11
)
Income tax expense
 
(3,213
)
 
(824
)
 
(973
)

The Partnership operates in countries that have differing tax laws and rates. Consequently, a consolidated weighted average tax rate will vary from year to year according to the source of earnings or losses by country and the change in applicable tax rates. Reconciliations of the tax charge related to the relevant year at the applicable statutory income tax rates and the actual tax charge related to the relevant year are as follows:

 
 
Year Ended
December 31,
2018
$
 
Year Ended
December 31,
2017
$
 
Year Ended
December 31,
2016
$
Net income before income tax expenses
 
30,088

 
49,735

 
158,938

Net income not subject to taxes
 
(68,675
)
 
(94,106
)
 
(138,542
)
Net (loss) income subject to taxes
 
(38,587
)
 
(44,371
)
 
20,396

At applicable statutory tax rates
 
 
 
 
 
 
Amount computed using the standard rate of corporate tax
 
6,833

 
13,874

 
(3,338
)
Adjustments to valuation allowance and uncertain tax positions
 
(14,733
)
 
324

 
11,802

Permanent and currency differences
 
3,257

 
(12,507
)
 
(9,125
)
Change in tax rates
 
1,430

 
(2,515
)
 
(312
)
Tax expense related to the current year
 
(3,213
)
 
(824
)
 
(973
)


F-27

The significant components of the Partnership’s deferred tax assets (liabilities) were as follows:

 
 
December 31,
2018
$
 
December 31,
2017
$
Derivative instruments
 
2,793

 
3,823

Taxation loss carryforwards and disallowed finance costs
 
49,298

 
35,326

Vessels and equipment
 
4,045

 
3,936

Capitalized interest
 
(1,853
)
 
(1,927
)
 
 
54,283

 
41,158

Valuation allowance
 
(52,570
)
 
(38,594
)
Net deferred tax assets included in other assets
 
1,713

 
2,564


The Partnership had tax losses in the United Kingdom (or UK ) of $15.9 million as at December 31, 2018 ( December 31, 2017 – $7.9 million ) that are available indefinitely for offset against future taxable income in the UK. The Partnership had tax losses and disallowed finance costs in Spain of 110.3 million Euros or approximately $126.3 million ( December 31, 2017 – 110.3 million Euros or approximately $132.5 million ) and 20.7 million Euros or approximately $23.6 million ( December 31, 2017 – 25.2 million Euros or approximately $30.2 million ), respectively, at December 31, 2018 of which the tax losses are available indefinitely and the disallowed finance costs are available for 18 years from the year the costs are incurred for offset against future taxable income in Spain. The Partnership also had tax losses in Luxembourg of 109.9 million Euros or approximately $125.7 million as at December 31, 2018 ( December 31, 2017 – 91.5 million Euros or approximately $109.9 million ) that are available for offset against taxable future income in Luxembourg, either indefinitely for losses arising prior to 2017, or for 17 years for losses arising subsequent to 2016.

The Partnership recognizes interest and penalties related to uncertain tax positions in income tax expense. The tax years 2008 through 2018 currently remain open to examination by the major tax jurisdictions to which the Partnership is subject.
12.
Related Party Transactions
a)
The following table and related footnotes provide information about certain of the Partnership's related party transactions for the periods indicated:

 
 
Year Ended
December 31,
2018
$
 
Year Ended
December 31,
2017
$
 
Year Ended
December 31,
2016
$
Voyage revenues (i)(vi)
 
11,018

 
36,358

 
37,336

Vessel operating expenses (ii)(vi)
 
(17,666
)
 
(23,564
)
 
(19,738
)
Time-charter hire expense  (iii)
 
(7,671
)
 
—


—

General and administrative expenses (iv)
 
(15,967
)
 
(9,434
)
 
(12,590
)
General and administrative expenses deferred and capitalized (v)
 
(822
)
 
(859
)
 
(571
)
(i)
Commencing in 2008, the Arctic Spirit and Polar Spirit LNG carriers were time-chartered to Teekay Corporation at fixed-rates for periods of 10 years . The contract periods for the Polar Spirit and for the Arctic Spirit expired in March 2018 and April 2018, respectively.
(ii)
The Partnership and certain of its operating subsidiaries have entered into service agreements with certain subsidiaries of Teekay Corporation pursuant to which the Teekay Corporation subsidiaries provide to the Partnership and its subsidiaries crew training and technical management services. In addition, as part of the Partnership's acquisition of its ownership interest in the Pan Union Joint Venture in 2014, the Partnership entered into an agreement with a subsidiary of Teekay Corporation whereby Teekay Corporation's subsidiary agreed to provide, on behalf of the Partnership, shipbuilding supervision and crew training services for four LNG carrier newbuildings in the Pan Union Joint Venture, up to their delivery dates from 2017 to 2019. All costs incurred by these Teekay Corporation subsidiaries related to these services are charged to the Partnership and recorded as part of vessel operating expenses.
(iii)
In September 2018, the Partnership entered into an agreement with its 52% -owned joint venture, the Teekay LNG-Marubeni Joint Venture, to charter in one of Teekay LNG-Marubeni Joint Venture's LNG carriers, the Magellan Spirit , for a period of two years at a fixed-rate.
(iv)
Includes administrative, advisory, business development, commercial and strategic consulting services charged by Teekay Corporation's subsidiaries and reimbursements to the Partnership's General Partner for costs incurred on the Partnership's behalf for the conduct of the Partnership's business.
(v)
Includes the Partnership's costs associated with the Bahrain LNG Joint Venture including pre-operation, engineering and financing-related expenses, of which $1.1 million was reimbursed by the Bahrain LNG Joint Venture during 2018 ( December 31, 2017 – $1.1 million ; December 31, 2016 – $0.4 million ). The net costs are recorded as part of investments in and advances to equity-accounted joint ventures in the Partnership's consolidated balance sheets.
(vi)
The Partnership entered into an operation and maintenance contract with the Bahrain LNG Joint Venture and an operating and maintenance subcontract with Teekay Marine Solutions (Bermuda) Ltd. (or TMS ), an entity wholly-owned by Teekay Tankers Ltd., which is controlled by Teekay Corporation, relating to the LNG regasification terminal in Bahrain. The Partnership, as the contractor, and TMS, as the subcontractor, agreed to provide pre-mobilization services up to August 2018, and mobilization services and other general operational and maintenance services of the facility thereafter. The subcontractor fees from TMS of $ 1.6 million during 2018 ($ nil during 2017 and 2016) are included in vessel operating expenses in the Partnership's consolidated statements

F-28

of income. Cost recoveries from the Bahrain LNG Joint Venture of $ 1.6 million during 2018 ($ nil during 2017 and 2016) are included in voyage revenues in the Partnership's consolidated statements of income.

b)
The Partnership entered into services agreements with certain subsidiaries of Teekay Corporation pursuant to which the Teekay Corporation subsidiaries provide the Partnership with shipbuilding and site supervision services related to certain LNG carrier newbuildings the Partnership has ordered. These costs are capitalized and included as part of advances on newbuilding contracts in the Partnership’s consolidated balance sheets. During the years ended 2018 , 2017 and 2016 , the Partnership incurred shipbuilding and site supervision costs with Teekay Corporation subsidiaries of $ 15.3 million , $13.2 million and $8.5 million , respectively.
c)
As at December 31, 2018 and 2017 , non-interest bearing advances to affiliates totaled $ 8.2 million and $7.3 million , respectively, and non-interest bearing advances from affiliates totaled $ 14.7 million and $12.1 million , respectively. These advances are unsecured and have no fixed repayment terms. Affiliates are entities that are under the same common control.

d)
The Partnership’s Suezmax tanker the Toledo Spirit operates pursuant to a time-charter contract that increases or decreases the otherwise fixed-hire rate established in the charter depending on the spot charter rates that the Partnership would have earned had it traded the vessel in the spot tanker market. The time-charter contract was terminated in January 2019 upon which the charterer, which is also the owner, sold the vessel to a third party. The Partnership has entered into an agreement with Teekay Corporation under which Teekay Corporation paid the Partnership any amounts payable to the charterer as a result of spot rates being below the fixed rate, and the Partnership paid Teekay Corporation any amounts payable to the Partnership as a result of spot rates being in excess of the fixed rate. The amounts receivable or payable to Teekay Corporation are settled annually (see Notes 3 and 13).
13.
Derivative Instruments and Hedging Activities
The Partnership uses derivative instruments in accordance with its overall risk management policy.
Foreign Exchange Risk
The Partnership entered into cross currency swaps concurrently with the issuance of its NOK-denominated senior unsecured bonds (see Note 10), and pursuant to these swaps, the Partnership receives the principal amount in NOK on maturity dates of the swaps in exchange for payments of a fixed U.S. Dollar amount. In addition, the cross currency swaps exchange a receipt of floating interest in NOK based on NIBOR plus a margin for a payment of U.S. Dollar fixed interest. The purpose of the cross currency swaps is to economically hedge the foreign currency exposure on the payment of interest and principal of the Partnership’s NOK-denominated bonds due in 2020, 2021 and 2023, and to economically hedge the interest rate exposure. The following table reflects information relating to the cross currency swaps as at December 31, 2018 .

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Floating Rate Receivable
 
 
 
 
 
 
Principal
Amount
NOK
 
Principal
Amount
$
 
     Reference
Rate
 
Margin
 
Fixed Rate
Payable
 
Fair Value /
Carrying
Amount of Asset
(Liability)
$
 
Weighted-
Average
Remaining
Term (Years)
1,000,000

 
134,000

 
NIBOR
 
3.70
%
 
5.92
%
 
(18,315
)
 
1.4
1,200,000

 
146,500

 
NIBOR
 
6.00
%
 
7.72
%
 
(4,727
)
 
2.8
850,000

 
102,000

 
NIBOR
 
4.60
%
 
7.89
%
 
(6,080
)
 
4.7
 
 
 
 
 
 
 
 
 
 
(29,122
)
 
 


Interest Rate Risk

The Partnership enters into interest rate swaps which exchange a receipt of floating interest for a payment of fixed interest to reduce the Partnership’s exposure to interest rate variability on certain of its outstanding floating-rate debt. As at December 31, 2018 , the Partnership was committed to the following interest rate swap agreements:

F-29

 
 
Interest
Rate
Index
 
Principal
Amount
$
 
Fair Value /
Carrying
Amount of
Assets
(Liability)
$
 
Weighted-
Average
Remaining
Term
(years)
 
Fixed
Interest
Rate (i)
LIBOR-Based Debt:
 
 
 
 
 
 
 
 
 
 
U.S. Dollar-denominated interest rate swaps
 
LIBOR
 
30,000

 
(519
)
 
0.5
 
4.9
%
U.S. Dollar-denominated interest rate swaps (ii)
 
LIBOR
 
131,250

 
(16,494
)
 
10.0
 
5.2
%
U.S. Dollar-denominated interest rate swaps (ii)
 
LIBOR
 
32,134

 
(66
)
 
2.6
 
2.8
%
U.S. Dollar-denominated interest rate swaps (iii)(iv)
 
LIBOR
 
336,316

 
(12,787
)
 
2.0
 
3.4
%
U.S. Dollar-denominated interest rate swaps (iv)
 
LIBOR
 
91,000

 
174

 
0.0
 
1.7
%
U.S. Dollar-denominated interest rate swaps (iv)
 
LIBOR
 
184,005

 
3,167

 
8.0
 
2.3
%
EURIBOR-Based Debt:
 
 
 
 
 
 
 
 
 
 
Euro-denominated interest rate swaps
 
EURIBOR
 
86,477

 
(11,092
)
 
4.7
 
3.8
%
 
 
 
 
 
 
(37,617
)
 
 
 
 
(i)
Excludes the margins the Partnership pays on its floating-rate term loans, which, at December 31, 2018 , ranged from 0.30% to 3.25% .
(ii)
Principal amount reduces semi-annually.
(iii)
These interest rate swaps are subject to mandatory early termination in 2020 and 2021, whereby the swaps will be settled based on their fair value at that time.
(iv)
Principal amount reduces quarterly.

As at December 31, 2018 , the Partnership had multiple interest rate swaps and cross currency swaps with the same counterparty that are subject to the same master agreement. Each of these master agreements provide for the net settlement of all swaps subject to that master agreement through a single payment in the event of default or termination of any one swap. The fair value of these derivative instruments is presented on a gross basis in the Partnership’s consolidated balance sheets. As at December 31, 2018 , these interest rate swaps and cross currency swaps had an aggregate fair value asset of $3.2 million (December 31, 2017 – $4.5 million ) and an aggregate fair value liability of $ 53.6 million (December 31, 2017 – $81.5 million ) . As at December 31, 2018 , the Partnership had $6.8 million ( December 31, 2017 – $22.3 million ) on deposit as security for swap liabilities under certain master agreements. The deposit is presented in restricted cash – current and long-term on the Partnership’s consolidated balance sheets.
Credit Risk
The Partnership is exposed to credit loss in the event of non-performance by the counterparties to the interest rate swap agreements. In order to minimize counterparty risk, the Partnership only enters into derivative transactions with counterparties that are rated A- or better by Standard & Poor’s or A3 or better by Moody’s at the time of the transactions. In addition, to the extent practical, interest rate swaps are entered into with different counterparties to reduce concentration risk.
Other Derivatives
In order to reduce the variability of its revenue, the Partnership has entered into an agreement with Teekay Corporation under which Teekay Corporation pays the Partnership any amounts payable to the charterer of the Toledo Spirit as a result of spot rates being below the fixed rate, and the Partnership pays Teekay Corporation any amounts payable to the Partnership by the charterer of the Toledo Spirit as a result of spot rates being in excess of the fixed rate. The fair value of the derivative asset at December 31, 2018 was $1.1 million ( December 31, 2017 – an asset of $1.6 million ).

The following table presents the location and fair value amounts of derivative instruments, segregated by type of contract, on the Partnership’s consolidated balance sheets.


F-30

 
 
Accounts receivable/Advances to affiliates $
 
Current portion of derivative assets
$
 
Derivative assets
$
 
Accrued liabilities
$
 
Current portion of derivative liabilities
$
 
Derivative liabilities
$
As at December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
188

 
795

 
2,362

 
(2,729
)
 
(6,875
)
 
(31,358
)
Cross currency swap agreements
 
—

 
—

 
—

 
(713
)
 
(4,729
)
 
(23,680
)
Toledo Spirit time-charter derivative
 
1,021

 
40

 
—

 
—

 
—

 
—

 
 
1,209

 
835

 
2,362

 
(3,442
)
 
(11,604
)
 
(55,038
)
As at December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
—

 
108

 
1,130

 
(4,101
)
 
(34,614
)
 
(35,629
)
Interest rate swaption agreements
 
—

 
—

 
—

 
—

 
(2
)
 
—

Cross currency swap agreements
 
—

 
—

 
5,042

 
(810
)
 
(44,523
)
 
(10,168
)
Toledo Spirit time-charter derivative
 
678

 
970

 
—

 
—

 
—

 
—

 
 
678

 
1,078

 
6,172

 
(4,911
)
 
(79,139
)
 
(45,797
)

Realized and unrealized gains (losses) relating to non-designated interest rate swap agreements, interest rate swaption agreements, and the Toledo Spirit time-charter derivative are recognized in earnings and reported in realized and unrealized gain (loss) on non-designated derivative instruments in the Partnership’s consolidated statements of income. The effect of the gain (loss) on these derivatives on the Partnership’s consolidated statements of income is as follows:
 
 
Year Ended December 31,
 
 
2018
$
 
2017
$
 
2016
$
 
 
Realized gains (losses)
 
Unrealized gains (losses)
 
Total
 
Realized gains (losses)
 
Unrealized gains (losses)
 
Total
 
Realized gains (losses)
 
Unrealized gains (losses)
 
Total
Interest rate swap agreements
 
(14,654
)
 
31,061

 
16,407

 
(18,825
)
 
12,393

 
(6,432
)
 
(25,940
)
 
15,627

 
(10,313
)
Interest rate swaption agreements
 
—

 
2

 
2

 
—

 
945

 
945

 
—

 
(164
)
 
(164
)
Interest rate swap and swaption agreements termination
 
(13,681
)
 
—

 
(13,681
)
 
(610
)
 
—

 
(610
)
 
—

 
—

 
—

Toledo Spirit   time-charter derivative
 
1,480

 
(930
)
 
550

 
678

 
110

 
788

 
(654
)
 
3,970

 
3,316

 
 
(26,855
)

30,133


3,278


(18,757
)

13,448


(5,309
)

(26,594
)

19,433


(7,161
)


F-31

Unrealized and realized gains (losses) relating to cross currency swap agreements are recognized in earnings and reported in foreign currency exchange gain (loss) in the Partnership’s consolidated statements of income. The effect of the gain (loss) on these derivatives on the Partnership's consolidated statements of income is as follows:

 
 
Year Ended December 31,
 
 
2018
$
 
2017
$
 
2016
$
 
 
Realized
gains
(losses)
 
Unrealized
gains
(losses)
 
Total
 
Realized
gains
(losses)
 
Unrealized
gains
(losses)
 
Total
 
Realized
gains
(losses)
 
Unrealized
gains
(losses)
 
Total
Cross currency swap agreements
 
(6,533
)
 
21,240

 
14,707

 
(9,344
)
 
49,047

 
39,703

 
(9,063
)
 
28,905

 
19,842

Cross currency swap agreements termination
 
(42,271
)
 
—

 
(42,271
)
 
(25,733
)
 
—

 
(25,733
)
 
(17,711
)
 
—

 
(17,711
)
 
 
(48,804
)
 
21,240

 
(27,564
)
 
(35,077
)
 
49,047

 
13,970

 
(26,774
)
 
28,905

 
2,131


For the years ended December 31, 2018 , 2017 and 2016 , the following tables present the effective and ineffective portion of losses on interest rate swap agreements designated and qualifying as cash flow hedges. The following tables exclude any interest rate swap agreements designated and qualifying as cash flow hedges in the Partnership’s equity-accounted joint ventures.
Year Ended December 31, 2018
Effective Portion Recognized in AOCI (i)                                                              $
 
Effective Portion Reclassified from AOCI (ii)
$
 
Ineffective Portion (iii)
$
 
2,128
 
(152)
 
740
Interest expense
2,128
 
(152)
 
740
 
Year Ended December 31, 2017
Effective Portion Recognized in AOCI (i)                                                              $
 
Effective Portion Reclassified from AOCI (ii)
$
 
Ineffective Portion (iii)
$
 
429
 
(427)
 
(740)
Interest expense
429
 
(427)
 
(740)
 
Year Ended December 31, 2016
Effective Portion Recognized in AOCI (i)                                                              $
 
Effective Portion Reclassified from AOCI (ii)
$
 
Ineffective Portion (iii)
$
 
590
 
—
 
—
Interest expense
590
 
—
 
—
 

(i)
Effective portion of designated and qualifying cash flow hedges recognized in other comprehensive (loss) income.
(ii)
Effective portion of designated and qualifying cash flow hedges recorded in accumulated other comprehensive income (or AOCI ) during the term of the hedging relationship and reclassified to earnings.
(iii)
Ineffective portion of designated and qualifying cash flow hedges.




F-32

14.
Commitments and Contingencies
a)
The Partnership’s share of commitments to fund newbuilding and other construction contract costs as at December 31, 2018 is as follows:
 
2019
$
Hyundai Samho Heavy Industries Co.   (i)
120,413

Yamal LNG Joint Venture (ii)
436,100

Pan Union Joint Venture   (iii)
29,200

Bahrain LNG Joint Venture   (iv)
66,509

 
652,222

(i)
As at December 31, 2018 , the Partnership had one remaining 100% -owned LNG carrier newbuilding on order with Hyundai Samho Heavy Industries Co. (or HHI ). The vessel delivered on January 31, 2019. As at December 31, 2018 , costs incurred under this newbuilding contract totaled $ 86.9 million . In January 2019, the Partnership secured $ 159 million of financing through a sale-leaseback agreement for this remaining HHI LNG carrier newbuilding.
(ii)
The Partnership, through the Yamal LNG Joint Venture, has a 50% ownership interest in four 172,000 -cubic meter ARC7 LNG carrier newbuildings that have an estimated total fully built-up cost of approximately $1.4 billion . As at December 31, 2018 , the Partnership’s proportionate costs incurred under these newbuilding contracts totaled $255.8 million . The Yamal LNG Joint Venture has secured debt financing of $1.1 billion for the four LNG carrier newbuildings, of which $395 million was undrawn at December 31, 2018 , related to the Partnership's proportionate share of the commitments included in the table above.
(iii)
Through the Pan Union Joint Venture, the Partnership has a 20% ownership interest in one LNG carrier newbuilding which delivered on January 8, 2019 (see Note 20a). The Pan Union Joint Venture has secured financing of $24 million related to the Partnership's proportionate share of the commitments included in the table above and the Partnership received $0.2 million of reimbursement directly from Shell in 2019 (see Note 7a iii).
(iv)
The Partnership has a 30% ownership interest in the Bahrain LNG Joint Venture for the development of an LNG receiving and regasification terminal in Bahrain. The project will include an FSU, which will be modified from one of the Partnership’s existing MEGI LNG carrier newbuildings, an offshore gas receiving facility, and an onshore nitrogen production facility. The terminal will have a capacity of 800 million standard cubic feet per day and will be owned and operated under a 20 -year agreement commencing mid-2019. The receiving and regasification terminal is expected to have a fully-built up cost of approximately $ 903 million . The Bahrain LNG Joint Venture has secured undrawn debt financing of $195 million , of which $ 58 million relates to the Partnership's proportionate share of the commitments included in the table above.

b)
Following the termination of the capital lease arrangements for the three LNG carriers in the Teekay Nakilat Joint Venture in 2014, the lessor made a determination that additional rentals were due under the leases following a challenge by the UK taxing authority. As a result, in 2018 the Teekay Nakilat Joint Venture recognized an additional liability of $53.0 million , which was included as part of other (expense) income in the Partnership's consolidated statements of income, and paid this liability by releasing a $7.0 million cash deposit it had made with the lessor and making a $56.0 million cash payment for the balance, which was based on the GBP/USD foreign currency exchange rates at the time the payments were made.

c)
The Teekay Tangguh Joint Venture is currently undergoing a tax audit related to its tax returns filed for the 2010 and subsequent fiscal years . The UK taxing authority has challenged the deductibility of certain transactions not directly related to the long funding lease and the Teekay Tangguh Joint Venture has recorded a provision of $1.6 million (of which the Partnership’s 69% share is $1.1 million ) in December 2017 which is included in income tax expense in the Partnership’s consolidated statements of income for the year ended December 31, 2017 .    

d)
In May 2016, the Teekay LNG-Marubeni Joint Venture reached a settlement agreement with a charterer relating to a disputed charter contract termination for one of its LNG carriers that occurred in 2015. The charterer paid $39.0 million to the Teekay LNG-Marubeni Joint Venture in June 2016 for lost revenues, of which the Partnership’s share of $20.3 million was recorded in equity income for the year ended December 31, 2016 .

e)
Management is required to assess whether the Partnership will have sufficient liquidity to continue as a going concern for the one-year period following the issuance of its financial statements. The Partnership completed a number of financings and re-financings over the past 12 months, including the Partnership's refinancing and up-sizing of its  $190 million  revolving credit facility with a new  $225 million  revolving credit facility in early-November 2018 and the Partnership securing $159 million financing on its one remaining LNG carrier newbuilding in our consolidated fleet in January 2019. Based on the Partnership’s liquidity at the date these consolidated financial statements were issued and the liquidity it expects to generate from operations over the following year, the Partnership estimates that it will have sufficient liquidity to continue as a going concern for at least the one-year period following the issuance of these consolidated financial statements.

15.
Supplemental Cash Flow Information
a)
The following is a tabular reconciliation of the Partnership's cash, cash equivalents and restricted cash balances for the periods presented in the Partnership's consolidated statements of cash flows:


F-33

 
 
December 31, 2018
$
 
December 31, 2017
$
 
December 31, 2016
$
 
December 31, 2015
$
Cash and cash equivalents
 
149,014

 
244,241

 
126,146

 
102,481

Restricted cash - current
 
38,329

 
22,326

 
10,145

 
6,600

Restricted cash - long-term
 
35,521

 
72,868

 
106,882

 
104,919

Total
 
222,864

 
339,435

 
243,173

 
214,000


The Partnership maintains restricted cash deposits relating to certain term loans, collateral for cross currency swaps, project tenders and amounts received from charterers to be used only for dry-docking expenditures and emergency repairs.

b)
The changes in operating assets and liabilities for years ended December 31, 2018 , 2017 and 2016 are as follows:

 
 
Year Ended
December 31,
2018
$
 
Year Ended
December 31,
2017
$
 
Year Ended
December 31,
2016
$
Accounts receivable
 
3,542

 
1,620

 
5,494

Prepaid expenses and other current assets
 
(3,843
)
 
(2,815
)
 
745

Accounts payable
 
274

 
(2,053
)
 
2,791

Accrued liabilities and other long-term liabilities
 
13,958

 
2,449

 
(1,572
)
Unearned revenue and long-term unearned revenue
 
4,234

 
(1,456
)
 
(3,218
)
Advances to and from affiliates
 
2,183

 
(913
)
 
(9,699
)
Other operating assets and liabilities
 
(1,130
)
 
772

 
(4,402
)
Total
 
19,218

 
(2,396
)
 
(9,861
)

c)
Cash interest paid (including realized losses on interest rate swaps) on long-term debt, advances from affiliates and obligations related to capital leases, net of amounts capitalized, during the years ended December 31, 2018 , 2017 and 2016 totaled $167.8 million , $122.7 million and $100.9 million , respectively.
d)
During the years ended December 31, 2018 , 2017 and 2016 , cash paid for corporate income taxes was $6.0 million , $2.9 million and $4.9 million , respectively.
e)
During the year ended December 31, 2017 , the Partnership acquired a 100% ownership interest in Skaugen Gulf Petchem Carriers B.S.C.(c) (or the Skaugen LPG Joint Venture ), which owned the LPG carrier Norgas Sonoma , from I.M. Skaugen SE (or Skaugen ) ( 35% ), The Oil & Gas Holding Company B.S.C.(c) ( 35% ) and Suffun Bahrain W.L.L. ( 30% ) for $13.2 million . The Partnership applied $4.6 million of the outstanding hire owed by Skaugen to the Partnership as a portion of the purchase price to acquire the Skaugen LPG Joint Venture, which was treated as a non-cash transaction in the Partnership’s consolidated statements of cash flows.
16.
Total Capital and Net Income Per Common Unit
As at December 31, 2018 , a total of 68.2% of the Partnership's common units outstanding were held by the public. The remaining common units, as well as the 2% general partner interest, were held by subsidiaries of Teekay Corporation. All of the Partnership's outstanding Series A Cumulative Redeemable Perpetual Preferred Units (or the Series A Preferred Units ) and Series B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (or the Series B Preferred Units ) are held by the public.
Limited Partners’ Rights
Significant rights of the Partnership’s limited partners include the following:

•
Right of common unitholders to receive distribution of Available Cash (as defined in the partnership agreement and which takes into account cash reserves for, among other things, future capital expenditures and future credit needs of the Partnership) within approximately 45 days after the end of each quarter.
•
No limited partner shall have any management power over the Partnership’s business and affairs; the General Partner is responsible for the conduct, directions and management of the Partnership’s activities.
•
The General Partner may be removed if such removal is approved by common unitholders holding at least 66-2/3% of the outstanding units voting as a single class, including units held by our General Partner and its affiliates.
Incentive Distribution Rights

F-34

The General Partner is entitled to incentive distributions if the amount the Partnership distributes to common unitholders with respect to any quarter exceeds specified target levels shown below:

Quarterly Distribution Target Amount (per unit)
 
Unitholders
 
General Partner
Minimum quarterly distribution of $0.4125
 
98
%
 
2
%
Up to $0.4625
 
98
%
 
2
%
Above $0.4625 up to $0.5375
 
85
%
 
15
%
Above $0.5375 up to $0.6500
 
75
%
 
25
%
Above $0.6500
 
50
%
 
50
%

During 2018 , 2017 , and 2016 , the quarterly cash distributions were below $0.4625 per common unit and, consequently, the assumed distribution of net income was based on the limited partners' and General Partner’s ownership percentage for the purposes of the net income per common unit calculation.

In the event of a liquidation, all property and cash in excess of that required to discharge all liabilities and liquidation amounts on the Series A Preferred Units and Series B Preferred Units will be distributed to the common unitholders and the General Partner in proportion to their capital account balances, as adjusted to reflect any gain or loss upon the sale or other disposition of the Partnership’s assets in liquidation in accordance with the partnership agreement.
Net Income Per Common Unit
Limited partners' interest in net income per common unit is determined by dividing net income, after deducting the amount of net income attributable to the non-controlling interests, the General Partner’s interest and the distributions on the Series A and Series B Preferred Units by the weighted-average number of common units outstanding during the period. The distributions payable on the Series A and Series B Preferred Units for the year ended December 31, 2018 were $25.7 million ( December 31, 2017 – $14.0 million , December 31, 2016 – $2.7 million ).
 
 
Year Ended
December 31,
2018
$
 
Year Ended
December 31,
2017
$
 
Year Ended
December 31,
2016
$
Limited partners' interest in net income for basic net income per common unit
 
2,615

 
19,586

 
134,977

Weighted average number of common units
 
79,672,435

 
79,617,778

 
79,568,352

Dilutive effect of unit-based compensation
 
169,893

 
173,263

 
103,506

Common units and common unit equivalents
 
79,842,328

 
79,791,041

 
79,671,858

Limited partner's interest in net income per common unit:
 
 
 
 
 
 
   Basic
 
0.03

 
0.25

 
1.70

   Diluted
 
0.03

 
0.25

 
1.69


The General Partner’s and common unitholders’ interests in net income are calculated as if all net income was distributed according to the terms of the Partnership’s partnership agreement, regardless of whether those earnings would or could be distributed. The partnership agreement does not provide for the distribution of net income; rather, it provides for the distribution of available cash, which is a contractually defined term that generally means all cash on hand at the end of each quarter after establishment of cash reserves determined by the Partnership’s Board of Directors to provide for the proper conduct of the Partnership’s business, including reserves for maintenance and replacement capital expenditure and anticipated credit needs. In addition, the General Partner is entitled to incentive distributions if the amount the Partnership distributes to common unitholders with respect to any quarter exceeds specified target levels. Unlike available cash, net income is affected by non-cash items, such as depreciation and amortization, unrealized gains or losses on non-designated derivative instruments and foreign currency translation gains (losses).

Pursuant to the Partnership agreement, allocations to partners are made on a quarterly basis.
Equity Offerings
The following table summarizes the issuances of common and preferred units over the three years ended December 31, 2018 :


F-35

Date
 
Units
Issued
 
Type of Units
 
Offering
Price per Unit
 
Gross Proceeds (i)
$
 
Net Proceeds
$
 
Teekay
Corporation’s
Ownership
After the
Offering (ii)
 
Use of Proceeds
October 2016 Public Offering 2016 (iii)
 
5,000,000

 
Preferred
 
$
25.00

 
125,000

 
120,707

 
33.02
%
 
General partnership purposes, including debt repayments and funding newbuilding installments
October 2017 Public Offering  (iv)
 
6,800,000

 
Preferred
 
$
25.00

 
170,000

 
164,411

 
33.02
%
 
General partnership purposes, including debt repayments and funding newbuilding installments
(i)
Including the General Partner’s proportionate capital contribution.
(ii)
Including Teekay Corporation’s indirect general partner interest relating to common unit offerings.
(iii)
On October 5, 2016, the Partnership issued Series A Preferred Units having a distribution rate of 9.0% per annum of the stated liquidation preference of $25.00 per unit. At any time on or after October 5, 2021, the Partnership may redeem the Series A Preferred Units, in whole or in part, at a redemption price of $25.00 per unit plus all accumulated and unpaid distributions to the date of redemption, whether or not declared.
(iv)
On October 23, 2017, the Partnership issued Series B Preferred Units having a distribution rate of 8.5% per annum of the stated liquidation preference of $25.00 per unit up to October 15, 2027, at which point the rate moves to a floating rate equal to three-month LIBOR plus a margin of 6.241% . At any time on or after October 15, 2027, the Partnership may redeem the Series B Preferred Units, in whole or in part, at a redemption price of $25.00 per unit plus all accumulated and unpaid distributions thereon to the date of redemption, whether or not declared.
Common Unit Repurchases
In December 2018, the Partnership announced that its Board of Directors had authorized a common unit repurchase program for the repurchase of up to $100 million of the Partnership's common units. As at December 31, 2018, the Partnership had repurchased approximately 0.3 million units for $ 3.7 million (see Note 20d).
17.
Unit-Based Compensation
In March 2018 , a total of 17,498 common units, with an aggregate value of $0.3 million , were granted to the non-management directors of the General Partner as part of their annual compensation for 2018 . These common units were fully vested upon grant. During 2017 and 2016 , the Partnership awarded 17,345 and 32,723 common units, respectively, as compensation to non-management directors. The awards were fully vested in March 2017 and March 2016 , respectively. The compensation to the non-management directors is included in general and administrative expenses on the Partnership’s consolidated statements of income.

During March 2018 , 2017 and 2016 , the Partnership granted 62,283 , 60,809 and 132,582 restricted units, respectively, with grant date fair values of $1.2 million $1.0 million and $1.5 million , respectively, to certain of the Partnership’s employees and to certain employees of Teekay Corporation’s subsidiaries who provide services to the Partnership, based on the Partnership’s closing common unit price on the grant date. Each restricted unit is equal in value to one of the Partnership's common units plus reinvested distributions from the grant date to the vesting date. The restricted units vest equally over three years from the grant date. Any portion of a restricted unit award that is not vested on the date of a recipient’s termination of service is canceled, unless their termination arises as a result of the recipient’s retirement, and in this case, the restricted unit award will continue to vest in accordance with the vesting schedule. Upon vesting, the value of the restricted unit awards is paid to each recipient in the form of common units, net of withholding tax. During the years ended December 31, 2018 , 2017 and 2016 , the Partnership recorded an expense of $1.3 million , $1.0 million , and $1.3 million , respectively, related to the restricted units and common units.
18.
Restructuring Charges
During 2018, as a result of the sale of the Teide Spirit (see Note 19e), the Partnership incurred seafarer severance payments for the year ended December 31, 2018 of $1.8 million and presented as restructuring charges in the Partnership's consolidated statements of income. As at December 31, 2018, the remaining balance of unpaid restructuring charges of $0.5 million is included in accrued liabilities in the Partnership's consolidated balance sheets.
19.
Write-Down and Loss on Sales of Vessels
a)
During February and March 2016, Centrofin Management Inc. (or Centrofin ), the charterer for both the Bermuda Spirit and Hamilton Spirit Suezmax tankers, exercised its option under the charter contracts to purchase both vessels. As a result of Centrofin’s acquisition of the vessels, the Partnership recorded a $27.4 million loss on the sale of the vessels and associated charter contracts in the year ended December 31, 2016 in the Partnership's consolidated statements of income. The Bermuda Spirit was sold on April 15, 2016 and the

F-36

Hamilton Spirit was sold on May 17, 2016. The Partnership used the total proceeds of $94.3 million from the sales primarily to repay existing term loans associated with these vessels.

b)
In November 2016, the Partnership reached an agreement to sell the Asian Spirit Suezmax tanker for net proceeds of $20.6 million and as a result, recorded an $11.5 million impairment charge on the write-down of the vessel for the year ended December 31, 2016 in the Partnership's consolidated statements of income. The vessel delivered to the new owner on March 21, 2017. The Partnership used the net proceeds from the sale primarily to repay its existing term loan associated with the vessel.

c)
In June 2017, the charterer for the European Spirit Suezmax tanker gave formal notice to the Partnership that it would not exercise its one -year extension option under the charter contract and the charterer redelivered the vessel to the Partnership in August 2017. Upon receiving this notification, the Partnership commenced marketing the vessel for sale. As a result, the Partnership wrote-down the vessel to its estimated resale value, based on second-hand market comparable values and recorded a $12.6 million write-down of the vessel for the year ended December 31, 2017 in the Partnership's consolidated statements of income. The vessel was presented as held for sale in the Partnership's consolidated balance sheets as of December 31, 2017. The Partnership recorded a further write-down on this vessel of $4.0 million for the year ended December 31, 2018 in the Partnership's consolidated statements of income. On December 6, 2018 the European Spirit Suezmax tanker was sold for net proceeds of $15.7 million . The Partnership used the net proceeds from the sale primarily to repay its existing term loan associated with the vessel.

d)
In August 2017, the charterer for the African Spirit Suezmax tanker gave formal notice to the Partnership that it will not exercise its one -year extension option under the charter contract and the charterer redelivered the vessel to the Partnership in November 2017. As a result, the Partnership wrote-down the vessel to its estimated resale value, based on second-hand market comparable values, and recorded a $12.5 million write-down of the vessel for the year ended December 31, 2017 in the Partnership's consolidated statements of income. The vessel was presented as held for sale in the Partnership's consolidated balance sheets as of December 31, 2017. The Partnership recorded a further write-down on this vessel of $3.9 million for the year ended December 31, 2018 in the Partnership's consolidated statements of income. On October 9, 2018 the African Spirit Suezmax tanker was sold for net proceeds of $12.8 million . The Partnership used the net proceeds from the sale primarily to repay its existing term loan associated with the vessel.

e)
Under the Partnership' s charter contracts for the Teide Spirit and Toledo Spirit Suezmax tankers, the charterer, who is also the owner of the vessels, has the option to cancel the charter contracts 13 years following commencement of the respective charter contracts. In August 2017, the charterer of the Teide Spirit gave formal notification to the Partnership of its intention to terminate its charter contract subject to certain conditions being met and third-party approvals being received. In February 2018, the charterer, sold the Teide Spirit to a third party. On May 20, 2018, the charterer of the Toledo Spirit gave formal notification to the Partnership of its intention to terminate its charter contract subject to certain conditions being met and the receipt of certain third-party approvals. On November 20, 2018, the owner and charterer of the Toledo Spirit , reached an agreement to sell the vessel and delivered the vessel to the buyer in January 2019 (see Note 20b). The Partnership wrote-down the vessels to their estimated fair values based on their expected future discounted cash flows and recorded an aggregated write-down of $25.5 million for the year ended December 31, 2017 in the Partnership's consolidated statements of income.

f)
In March 2018, the carrying value of the Alexander Spirit conventional tanker was written down to its estimated fair value, using an appraised value, as a result of changes in the Partnership's expectations of the vessel's future opportunities once its current charter contract ends in 2019. The impairment charge of $13.0 million is included in write-down of goodwill and write-down and loss on sales of vessels for the year ended December 31, 2018 in the Partnership's consolidated statements of income.

g)
In June 2018, the carrying values for four of the Partnership's seven wholly-owned multi-gas carriers (the Napa Spirit , Pan Spirit , Camilla Spirit and Cathinka Spirit ), were written down to their estimated fair values, taking into consideration vessel appraised values, as a result of the Partnership's evaluation of alternative strategies for these assets, the current charter rate environment and the outlook for charter rates for these vessels at that time. The total impairment charge of $33.0 million is included in write-down of goodwill and write-down and loss on sales of vessels for the year ended December 31, 2018 in the Partnership's consolidated statements of income.
20.
Subsequent Events
a)
On January 8, 2019, the Pan Union Joint Venture took delivery of its fourth LNG carrier newbuilding, the Pan Africa , in which the Partnership has a 20% ownership interest. The vessel concurrently commenced its 20 -year charter contract with Shell.
b)
On January 23, 2019, the Toledo Spirit Suezmax tanker was delivered to the owner of the vessel. Upon delivery, the charterer, who is also the owner of the vessel, terminated its time-charter contract with the Partnership and sold the vessel to a third-party.
c)
On January 31, 2019, the Yamal Spirit LNG carrier newbuilding was delivered and concurrently commenced its 15 -year charter time-contract with Yamal Trade Pte. Ltd . Upon delivery of the vessel, the Partnership sold and leased back the vessel under a sale-leaseback financing transaction, which the Partnership secured on January 18, 2019 prior to the delivery of the Yamal Spirit .
d)
During January 2019, the Partnership repurchased 0.8 million of its common units for $9.3 million .
e)
On February 25, 2019, the Partnership entered into a commercial management agreement (or CMA ) with a third-party commercial manager (or the Manager ) whereby the Manager agreed to commercially manage and employ the Partnership's seven multi-gas vessels, with such transition to occur over a period between February 2019 and April 2019. The Partnership has the ability to withdraw its vessels from the Manager at any time subject to the requirements provided in the CMA.

F-37
Execution Version US$1,632,000,000 Secured Loan Agreement Dated 2 D .2.. ~bv 2017 (1) DSME Hull No. 2434 L.L.C. DSME Hull No. 2433 L.L.C. DSME Hull No. 2431 L.L.C. DSME Hull No. 2430 L.L.C. DSME Hull No. 2425 L.L.C. DSME Hull No. 2423 L.L.C. (as Borrowers) (2) The Financial Institutions listed in Schedule 1 (as Original Lenders) (3) China Development Bank (as Mandated Lead Arranger) (4) China Development Bank (as Agent) (5) China Development Bank (as Swap Provider) (6) China Development Bank (as Security Agent) Stephenson Harwood LLP 1 Finsbury C1rcus. London EC2M 7 SH STEPHENSON T +44 20 7329 4422 F +44 20 7329 7100 DX 64 Chancery Lane •Nww shlegal com HARWOOD

 
Contents Page Section 1 Interpretation .........................................................................................2 1 Definitions and Interpretation ...................................................................2 Section 2 The Loan ............................................................................................. 35 2 The Loan ............................................................................................. 35 3 Purpose ............................................................................................... 35 4 Conditions of Utilisation ......................................................................... 35 Section 3 Utilisation ............................................................................................ 40 5 Advance .............................................................................................. 40 Section 4 Repayment, Prepayment and Cancellation ................................................ 41 6 Repayment ••.•..•..••..•.••.••..•.•..•••.••.••.••...•..•..••..•..•.••..•..•...•..•.•..••.•..•.•.•.•. 41 7 Illegality, Prepayment and Cancellation .................................................... 41 Section 5 Costs of Utilisation ................................................................................ 48 8 Interest ............................................................................................... 48 9 Interest Periods .................................................................................... 48 10 Changes to the Calculation of Interest...................................................... 49 11 Fees .................................................................................................... 50 Section 6 Additional Payment Obligations ............................................................... 51 12 Tax Gross Up and Indemnities ................................................................ 51 13 Increased Costs .................................................................................... 58 14 Other Indemnities ................................................................................. 60 15 Mitigation by the Lenders ....................................................................... 62 16 Costs and Expenses .............................................................................. 62 Section 7 Security, Accounts and Application of Moneys ........................................... 65 17 Security Documents, Accounts and Application of Moneys ........................... 65 Section 8 Representations, Undertakings and Events of Default ................................. 73 18 Representations .................................................................................... 73 19 Information Undertakings ...................................................................... 81 LONLIVE\30137956.24

 
20 Financial Covenants ••..•..•....•...•.••.•...•..•.••..•.........•...•.•..•..•..•.....•...•..••.••. 86 21 General Undertakings .••..•..•.•...•.••.•...•..•.•...•.•..•....••..•.•..•.•••.••••••••••••••••••• 93 22 Events of Default ••..••.••..•..•.•..••.••.•..•...•..•................•.••.••..•....•....•.•..•... 101 Section 9 Changes to Parties ..•..•...•..•.•...•.••.••.••..•..•....•..•..•..•..•.••.•.•.•..•.•...•..•..•... 112 23 Changes to the Lenders ..•....•..••.••.•..••..•.......•..•..•..•..•..•...•.•..•••••••••••••••. 112 24 Changes to the Security Parties ............................................................ 117 Section 10 The Finance Parties ............................................................................. 118 25 Role of the Agent, the Security Agent and the Arranger ............................ 118 26 Conduct of Business by the Finance Parties .•.••••••••.••.••••.....••.•..•......•..••..• 129 27 Sharing among the Finance Parties .••..••.•.••.•••••.•••.•..••.•..•...•.•..•......•..••..• 129 Section 11 Administration ••••.•••.•..•...•........•.••.•...•.....•...••..•..•..•.••.•••..•....•.•....•..•.•.• 132 28 Payment Mechanics ..•......•..•.....•..•.••..•......•••.••.•..•..•.••..•...•....•.........•...• 132 29 Set-Off •.........•.••.•...••.....•..•.•••••..•..•..••..•..•...•.....•..••.••.•...•..•.•.•••.•••.•...• 136 30 Notices •..•..••..•..•..••.••..•.....•..•...•.•..••••••.•..•....•..•.•...•..•.••.••..•....•••..•..••.• 136 31 Calculations and Certificates ................................................................. 138 32 Partial Invalidity .••.••..•...•....•..•..••••••••..•..•..•..........•..•.••..••.••••.••••••.••.•... 139 33 Remedies and Waivers •...•.•••••..•••..•...•..•.•.....•..•..•...•.•..•...•.••••.....•...•..••. 139 34 Amendments and Waivers ..•.•...•..•.••.••..•..•...•......•...•.••.•...•..•.•......•..•...•• 139 35 Confidentiality ..•......••••••...•..•..••.•.••..••..•..•...••..•..•..••.•..•.•••••.•..•...•..•..••. 142 36 Disclosure of Lender Details by Agent •.••.•...•....•..•.•.•.•.••.•...•....•.........••... 146 37 Counterparts ..•..•..••.••••.•••..•..•..••.••.•...••.•..••...•..•.•.•.••••.••..•..•.•...•..•..•...• 147 38 Joint and Several Liability ..•••..••..•.••..•..•.•....•...•..•.••..•..•.••...•.•.•...•...••••..• 147 Section 12 Governing Law and Enforcement .•..•..••.•..•.•.•......•..••••..•••.•..•.•.........•...•.• 149 39 Governing Law •.•••..•..•...•....•.•••.•..••.••..•..•..•..........•..•.••.•...•.•..•.•.•..••••.•. 149 40 Enforcement •..••.•...•..••.•........••.••....••.••..........•..•..•..•.••.•••.•....•...•..•..•... 149 Schedule 1 The Original Lenders •.•••..•....•..••.•..•..••.•......•......•..••.•..•...•.•....•...•..••.•••. 150 Schedule 2 Conditions Precedent and Subsequent ..•.•...•...•...•...•.•.••••.•.•..•.•.....•..••..••. 151 Part I Initial Conditions Precedent ..•..•...•..•..•..•..••.•..•.•...•...••.••..••••.••••..•..••........••..•..•. 151 Part II Conditions Subsequent to initial Drawing ...•.••.••............•..•.•••.•..•..••••.••.•......•.•..• 156 Part III Conditions Precedent to Instalment Drawings ................................................... 157 Part IV Conditions Precedent to Drawing for Pre-delivery Expenses •...•.•••••.••.••.•...•..•...••.. 158 LONUVE\30137956.24

 
Part V Conditions Precedent to pre-position the Delivery Instalment ............................... 159 Part VI Delivery Conditions Precedent •..••..•..•.••..•.•.••.•............••.•..•.••.••.•..•••••.•••••••.••..•. 161 Part VII Delivery Conditions Subsequent •..•..•.••..•.•.••.•......•.....•..•..•.••.••.•..••..•.....•••••••.•• 163 Schedule 3 Drawdown Request ..•.•...•..•..•..•..•..••••••.•••.•.••••••.••••..•.••.•••.•..•.....•..••...•. 164 Schedule 4 Repayment Schedule •.•...•..•.....•..•..••..•..•..•....•.....•..•.•..•••••.•••••••••...••....• 165 Schedule 5 Form of Transfer Certificate •..•..•..•...•..•..•...•...•..•..•..•.•..•..••.••.•.•••••••.••..•• 171 Schedule 6 Form of Assignment Agreement ............................................................ 174 Schedule 7 List of Assigned Documents •..•..•..••.•••.••.••.••.••••••••••••••..•...•..•....•...•..•...•• 178 lONUVE\30137956.Z4

 
Loan Agreement Dated 8 D.ILOUY\bSU" 2017 Between: (1) DSME Hull No. 2434 L.L.C. ("Borrower A"), DSME Hull No. 2433 L.L.C. ("Borrower B"), DSME Hull No. 2431 L.L.C. ("Borrower C"), DSME Hull No. 2430 L.L.C. ("Borrower D"), DSME Hull No. 2425 L.L.C. ("Borrower E"), DSME Hull No. 2423 L.L.C. ("Borrower F") and, each a company incorporated under the law of The Republic of the Marshall Islands, and each with registered office at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands (together the "Borrowers" and each a "Borrower"), jointly and severally; and (2) The Financial Institutions listed in Schedule 1 (The Original Lenders), each acting through its Facility Office (together the "Original Lenders" and each an "Original Lender"); and (3) China Development Bank, acting as mandated lead arranger through its office at No. 1093 Shennan Zhong Road, Futian District, Shenzhen, China (in that capacity, the 11 Arranger"); and (4) China Development Bank, acting as facility agent through its office at No. 1093 Shennan Zhong Road, Futian District, Shenzhen, China (in that capacity, the "Agent"); (5) China D.evelopment Bank, acting as swap provider through its office at No.1093 Shennan Zhong Road, Futian District, Shenzhen, China (in that capacity, the "Swap Provider"); and (6) China Development Bank, acting as security agent through its office at No. 1093 Shennan Zhong Road, Futian District, Shenzhen, China (in that capacity, the "Security Agent"). Preliminary (A) Each Borrower has agreed to purchase the relevant Vessel from the Builder on the terms of the relevant Building Contract and intends to register that Vessel on delivery under the relevant flag specified below in the definition of "Vessels". (B) Each of the Original Lenders has agreed to advance to the Borrowers on a joint and several basis its Commitment (aggregating, with all the other Commitments, up to US$1,632,000,000) to assist the Borrowers to finance or refinance part of the aggregate of the Total Project Costs of the Vessels. It is agreed as follows: LONLlVE\30137956.24 Page 1

 
Section 1 Interpretation 1 Definitions and Interpretation 1.1 Definitions In this Agreement: "Acceptable Bank" means in the case of a non-PRC bank, a bank or financial institution which bears a long-term credit rating of at least BBB+ by Standard & Poor's or at least Baal by Moody's (or an equivalent rating by another international reputable credit rating agency) or in the case of PRC bank, a bank or financial institution which bears a long-term credit rating of at least BB by Standard & Poor's or at least Ba2 by Moody's (or an equivalent rating by another international reputable credit rating agency). "Account Holder" means Bank of China (Hong Kong) Limited acting through its branch at 14/F, Bank of China Tower, 1 Garden Road, Central Hong Kong or any other bank or financial institution which at any time, with the Security Agent's prior written consent, holds the Accounts. "Account Security Deeds" means, collectively, the account security deeds referred to in Clause 17.1.7 and "Account Security Deed" means any one of them.· "Accounts" means, in relation to each Borrower, the Proceeds Account (dollar), the Proceeds Account (euro), the Retention Account, the Debt Service Reserve Account, the Operating Reserve Account, the Dividend Lock-Up Account, the Distribution Account and the Dry-docking Reserve Account. "Administration" has the meaning given to it in paragraph 1.1.3 of the ISM Code. "Affiliate" means, in relation to any person, a Subsidiary of that person or a Holding Company of that person or any other Subsidiary of that Holding Company. "Alternative Yamal Sponsor Guarantee" means any deed of guarantee granted or to be granted by (a) an Alternative Yamal Sponsor Guarantor in favour of (b) the relevant Borrower (as owner). "Alternative Yamal Sponsor Guarantor" means any entity (other than JSC Novatek, CNPC or EA) which may become an additional or replacement guarantor of a Yamal Sponsor Guarantor for the purposes of and in accordance with clause 67.3 of the Charter (but always subject to Clause 21.26 (Proposed Alternative Yama/ Sponsor Guarantor)). "Annex VI" means Annex VI (Regulations for the Prevention of Air Pollution from Ships) to the International Convention for the Prevention of Pollution from Ships 1973 (as modified in 1978 and 1997). "Approved Flag" means the flag of the Commonwealth of the Bahamas or such other flag approved by the Lenders, the relevant Borrower and the Charterer, such approval not to be unreasonably withheld. "Approved Manager" in relation to each Vessel, means (i) Teekay Shipping Limited, (ii) a member of the Teekay Group, or (iii) any other management company acceptable to the Agent and appointed by the Borrowers. LONUVE\30137956. 24 Page 2

 
"Approved Shipbroker" means each of Clarksons Platou, Poten & Partners, MJLF & Associates, Braemar ACM Shipbroking, Fearnleys, Arrow Sale & Purchase (UK), Simpson, Spence & Young and any other reputable, independent and first class firm of ship brokers. "Assignable Charter" means: (a) the Charter; or (b) a Yamal Bareboat Charter; or (c) any other charterparty or contract of employment in respect of a Vessel entered into between a Borrower (as owner) and any charterer. "Assigned Documents" means together, the documents referred in Schedule 7 (List of Assigned Documents) hereto and each as amended, supplemented, novated, restated, modified or replaced from time to time, and "Assigned Document" means any one (1) of them. "Assignment Agreement" means an agreement substantially in the form set out in Schedule 6 (Form of Assignment Agreement) or any other form agreed between the relevant assignor and assignee . .. Authorisation~~ means: (a) an authorisation, permit, consent, approval, resolution, licence, exemption, filing, notarisation, lodgement or registration; or (b) in relation to anything which will be fully or partly prohibited or restricted by law if a Governmental Agency intervenes or acts in any way within a specified period after lodgement, filing, registration or notification, the expiry of that period without intervention or action. "Availability Period" means, in relation to each Vessel Loan, the period from and including the date of this Agreement to and including, the earliest of: (a) the Delivery Date of the Vessel relevant to such Vessel Loan; (b) the Long Stop Date applicable to the Vessel relevant to such Vessel Loan; (c) three years from the date of this Agreement; and (d) the date on which the Commitments for such Vessel Loan are fully drawn or the Available Commitment is cancelled, or in each case such later date as the Lenders may agree. "Available Commitment" means a Lender's Commitment minus: (a) the amount of its participation in any outstanding Vessel Loans; and (b) in relation to any proposed Drawing, the amount of its participation in any Vessel Loans that are due to be made on or before the proposed Drawdown Date. lONUVE\30137956.24 Page 3

 
"Balloon" means, in relation to a Vessel Loan, an amount equal to thirty per cent (30%) of such Vessel Loan. "Borrowers Group" means, collectively, the Borrowers, the Parent, Teekay Operating, the Vessel Sponsor Guarantors and each of their respective Subsidiaries from time to time. "Borrower Pledge Agreements" means, the pledge or pledges of the shares or membership interests (as the case may be) of the Borrowers referred to in Clause 17.1.3 (Security Documents). "Break Costs" means the amount (if any) by which: (a) the interest which a Lender should have received for the period from the date of receipt of all or any part of its participation in the Loan or an Unpaid Sum to the last day of the current Interest Period in respect of the Loan or Unpaid Sum, had the principal amount or Unpaid Sum received been paid on the last day of that Interest Period; exceeds: (b) the amount which that Lender would be able to obtain by placing an amount equal to the principal amount or Unpaid Sum received by it on deposit with a leading bank in the Relevant Interbank Market for a period starting on the Business Day following receipt or recovery and ending on the last day of the current Interest Period. "Builder" means collectively, DSME and DY Tankers: "Builder's Bank" means a first-class bank in the Republic of Korea with a credit rating of not less than A- from Standard & Poor's and/or the equivalent rating from Moody's, or other equivalent financial institution and otherwise acceptable to the Agent. "Builder's PDA" means the protocol of delivery and acceptance in respect of a Vessel to be executed by the Builder, the relevant Borrower and countersigned by the Agent (evidencing the unconditional physical delivery of such Vessel by the Builder to such Borrower pursuant to the relevant Building Contract). "Building Contracts" means, collectively: (a) the building contract dated 8 July 2014 entered into between Borrower A (as buyer) and the Builder (as builder), on the terms and subject to the conditions of which the Builder has agreed to construct Vessel A for, and deliver Vessel A to Borrower A; (b) the building contract dated 8 July 2014 entered into between Borrower B (as buyer) and the Builder (as builder), on the terms and subject to the conditions of which the Builder has agreed to construct Vessel B for, and deliver Vessel B to Borrower B; (c) the building contract dated 8 July 2014 entered into between Borrower C (as buyer) and the Builder (as builder), on the terms and subject to the LONUVE\30137956.24 Page 4

 
conditions of which the Builder has agreed to construct Vessel C for, and deliver Vessel C to Borrower C; (d) the building contract dated 8 July 2014 entered into between Borrower D (as buyer) and the Builder (as builder), on the terms and subject to the conditions of which the Builder has agreed to construct Vessel D for, and deliver Vessel D to Borrower D; (e) the building contract dated 8 July 2014 as amended by an amendment no. 1 dated 25 April 2016 entered into between Borrower E (as buyer) and the Builder (as builder), on the terms and subject to the conditions of which the Builder has agreed to construct Vessel E for, and deliver Vessel E to Borrower E; and (f) the building contract dated 8 July 2014 entered into between Borrower F (as buyer) and the Builder (as builder), on the terms and subject to the conditions of which the Builder has agreed to construct Vessel F for, and deliver Vessel F to Borrower F, each as amended, supplemented and/or varied from time to time to the extent permitted under the Finance Documents, and "Building Contract" means any one of them. "Business Day" means a day (other than a Saturday or Sunday) on which banks are open for general business in Beijing, London, Hong Kong, New York and Moscow, and in respect of the date for any payment to be made to the Builder, Korea and also, in respect of a Delivery Date, the Bahamas. "Business Ethics Laws" means any laws, regulations and/or other legally binding requirements or determinations in relation to bribery, corruption, fraud, money­ laundering, terrorism, collusion bid-rigging or anti-trust, human rights violations (including forced labour and human trafficking) which are applicable to either party or to any jurisdiction where activities are performed and which shall include: (i) the United Kingdom Bribery Act 2010 and (ii) the United States Foreign Corrupt Practices Act 1977. "Charged Property" means all of the assets of the Security Parties which from time to time are, or are expressed to be, the subject of the Security Documents. "Charter Assignments" means the forms of assignment referred to in Clause 17.1.6 (Security Documents). "Charterer" means Yamal Trade Pte. Ltd., a company incorporated under the laws of the Republic of Singapore whose registered office is at 12 Marina Boulevard, #35-05 Marina Bay Financial Centre, Singapore, 018982. "Charters" means, collectively: (a) the time charter dated 8 July 2014 entered into between Borrower A (as owner) and the Charterer (as charterer) on the terms and subject to the conditions of which Borrower A will time charter Vessel A to the Charterer; lONUVE\30137956.24 Page 5

 
(b) the time charter dated 8 July 2014 entered into between Borrower B (as owner) and the Charterer (as charterer) on the terms and subject to the conditions of which Borrower B will time charter Vessel B to the Charterer; (c) the time charter dated 8 July 2014 entered into between Borrower C (as owner) and the Charterer (as charterer) on the terms and subject to the conditions of which Borrower C will time charter Vessel C to the Charterer; (d) the time charter dated 8 July 2014 entered into between Borrower D (as owner) and the Charterer (as charterer) on the terms and subject to the conditions of which Borrower D will time charter Vessel D to the Charterer; (e) the time charter dated 8 July 2014 entered into between Borrower E (as owner) and the Charterer (as charterer) on the terms and subject to the conditions of which Borrower E will time charter Vessel E to the Charterer; and (f) the time charter dated 8 July 2014 entered into between Borrower F (as owner) and the Charterer (as charterer) on the terms and subject to the conditions of which Borrower F will time charter Vessel F to the Charterer, each with the initial charter period up to 31 December 2045 (and subject to two extension periods of up to five years each at the option of the Charterer), as amended on 22 September 2016 and as may be further amended, restated, supplemented and/or varied from time to time to the extent permitted under the Finance Documents, and "Charter" means any one of them. "CLNG" means China LNG Shipping (Holdings) Limited, a company incorporated under the laws of Hong Kong whose registered office is at Unit 1904, 19th Floor, West Tower, Shun Tak Centre, Nos. 168-200 Connaught Road Central, Hong Kong. "CLNG Group" means CLNG and each of its Subsidiaries from time to time. "Code" means the US Internal Revenue Code of 1986. 11 Commitmentn means: (a) in relation to an Original Lender, the amount set opposite its name under the heading "Commitment" in Schedule 1 (The Original Lenders) and the amount of any other Commitment transferred to it under this Agreement; and (b) in relation to any other Lender, the amount of any Commitment transferred to it under this Agreement, to the extent not cancelled, reduced or transferred by it under this Agreement. "Commitment Fee" means the commitment fee to be paid by the Borrowers to the Agent under Clause 11.1 (Commitment Fee). "Compliance Certificate" means a certificate delivered pursuant to Clause 19.2 (Compliance Certificate) and signed by an authorised signatory of the Borrower or relevant Vessel Sponsor Guarantor (as applicable) substantially in the form set out in Schedule 8 (Form of Compliance Certificate). LONUVE\30137956.24 Page 6

 
"Confidential Information" means all information relating to any Security Party, any other member of the Teekay Group, the Finance Documents or the Loan of which a Finance Party becomes aware in its capacity as, or for the purpose of becoming, a Finance Party which is received by a Finance Party in relation to, or for the purpose of becoming a Finance Party under, the Finance Documents or the Loan from either: (a) any Security Party, any other member of the Teekay Group or any of its advisers; or (b) another Finance Party, if the information was obtained by that Finance Party directly or indirectly from any Security Party, any other member of the Teekay Group or any of its advisers, in whatever form, and includes information given orally and any document, electronic file or any other way of representing or recording information which contains or is derived or copied from such information but excludes information that: (i) is or becomes public information other than as a direct or indirect result of any breach by that Finance Party of Clause 35 (Confidentiality); or (ii) is identified in writing at the time of delivery as non-confidential by any Security Party, any other member of the Teekay Group or any of its advisers; or (iii) is known by that Finance Party before the date the information is disclosed to it in accordance with (a) or (b) or is lawfully obtained by that Finance Party after that date, from a source which is, as far as that .finance Party is aware, unconnected with any Security Party or any other member of the Teekay Group and which, in either case, as far as that Finance Party is aware, has not been obtained in breach of, and is not otherwise subject to, any obligation of confidentiality. "Confidentiality Undertaking" means a confidentiality undertaking substantially in a recommended form of the Loan Market Association at the relevant time. "Confirmation" means a Confirmation exchanged or deemed to be exchanged between the Swap Provider and the Borrowers as contemplated by the Master Agreement. "Contract Price" means, in relation to a Vessel, the total price of the Vessel payable by the relevant Borrower to the Builder under the relevant Building Contract. "Credit Support Document" means any document described as such in the Master Agreement and any other document referred to in any such document which has the effect of creating security in favour of any of the Finance Parties. "Credit Support Provider" means any person (other than a Borrower) described as such in the Master Agreement. "CTA" means the Corporation Tax Act 2009. "Debt Service Reserve" means, in respect of a Vessel Loan as at any relevant date, an amount equal to the aggregate of the amount of: LONUVE\30137956.24 Page 7

 
(a) the Repayment Instalment in respect of such Vessel Loan due on the next Repayment Date (which shall be deemed to be such relevant date if that day is a Repayment Date); and (b) interest in respect of such Vessel Loan due on the next Interest Payment Date (which shall be deemed to be such relevant date if that day is an Interest Payment Date). "Debt Service Reserve Account" means, in respect of a Borrower, a bank account to be opened in the name of such Borrower with the Account Holder and designated "[Name of Borrower] - Debt Service Reserve Account". "Deeds of Covenants" means the deeds of covenants referred to in Clause 17.1.4 (Security Documents). "Default" means an Event of Default or any event or circumstance which would (with the expiry of a grace period, the giving of notice, the making of any determination under the Finance Documents or any combination of any of the foregoing) be an Event of Default. "Delegate" means any delegate, agent, attorney or co-trustee appointed by the Security Agent. "Delivery Date" means the date of actual delivery and acceptance of a Vessel to a Borrower by the Builder under a Building Contract. "Delivery Instalment" means the fifth and final instalment of the Contract Price which the relevant Borrower is obliged to pay to the Builder pursuant to clause 2.3(e) (Final Instalment) of the relevant Building Contract. "Direct Agreement Parties" means the Charterer, the Builder and each Yamal Sponsor Guarantor. "Direct Agreements" means the Quiet Enjoyment Agreements, the Replacement Step-in Agreements and the Replacement Novation Side Letters. "Disruption Event" means either or both of: (a) a material disruption to those payment or communications systems or to those financial markets which are, in each case, required to operate in order for payments to be made in connection with the Loan (or otherwise in order for the transactions contemplated by the Finance Documents to be carried out) which disruption is not caused by, and is beyond the control of, any of the Parties; or (b) the occurrence of any other event which results in a disruption (of a technical or systems-related nature) to the treasury or payments operations of a Party preventing that, or any other Party: (i) from performing its payment obligations under the Finance Documents; or (ii) from communicating with other Parties in accordance with the terms of the Finance Documents, lONUVE\30137956.24 Page B

 
and which (in either such case) is not caused by, and is beyond the control of, the Party whose operations are disrupted. "Distribution Account" means, in respect of a Borrower, a bank account to be opened in the name of such Borrower with the Account Holder and designated "[Name of Borrower] - Distribution Account". "Dividend Lock-Up Account" means, in respect of a Borrower, a bank account to be opened in the name of such Borrower with the Account Holder and designated "[Name of Borrower] - Dividend Lock-Up Account". "Dividend Restriction Event" means, (i) the occurrence of an Event of Default that is continuing, (ii) non-compliance with the provisions of Clause 17.19 (Additional Security) or (iii) non-compliance with the provisions of Clause 20.2.1(a) (Debt Service Cover Ratios). "DOC" means, in relation to the ISM Company, a valid Document of Compliance issued for the ISM Company by the Administration under paragraph 13.2 of the ISM Code. "Drawdown Date" means the date on which the relevant Drawing is advanced under Clause 5 (Advance). "Drawdown Request" means a notice substantially in the form set out in Schedule 3 (Drawdown Request). "Drawing" means any part of a Ve?sel Loan advanced or to be advanced pursuant to a Drawdown Request and "Drawings" means more than one of them. "Dry-docking Reserve Account" means, in respect of a Borrower, a bank account to be opened in the name of such Borrower with the Account Holder and designated "[Name of Borrower] - Dry-docking Reserve Account". "DSME" means Daewoo Shipbuilding and Marine Engineering Co. Ltd., a corporation organised and existing under the Jaws of the Republic of Korea, whose principle office is at 125, Namdaemun-ro, Jung-gu, Seoul, 100-180, The Republic of Korea. "DY Tankers" means DY Tankers Limited, a corporation organised and existing under the laws of The Commonwealth of the Bahamas, whose registered office is at Bayside Executive Park, Building No. 3, West Bay Street & Blake Road, P.O. Box N- 4875, Nassau, The Commonwealth of the Bahamas. "EA" means Elf Aquitaine, a company incorporated under the laws of France. "Earnings" means all hires, freights, pool income and other sums payable to or for the account of a Borrower in respect of a Vessel including (without limitation) all remuneration for salvage and towage services, demurrage and detention moneys, contributions in general average, compensation in respect of any requisition for hire, and damages and other payments (whether awarded by any court or arbitral tribunal or by agreement or otherwise) for breach, termination or variation of any contract for the construction, operation, employment or use of a Vessel. LONUVE\30137956.24 Page 9

 
"Encumbrance" means a mortgage, charge, assignment, pledge, lien or other security interest securing any obligation of any person or any other agreement or arrangement having a similar effect. "Environmental Approval" means any present or future permit, licence, approval, ruling, variance, exemption or other Authorisation required under Environmental Laws. "Environmental Claim" means any and all enforcement, clean-up, removal, administrative, governmental, regulatory or judicial actions, orders, demands or investigations instituted or completed pursuant to any Environmental Laws or Environmental Approvals together with any claims made by any third person relating to damage, contribution, loss or injury resulting from any Environmental Incident. "Environmental Incident" means: (a) any release, emission, spill or discharge into a Vessel or into or upon the air, sea, land or soils (including the seabed) or surface water of Environmentally Sensitive Material within or from a Vessel; or (b) any incident in which Environmentally Sensitive Material is released, emitted, spilled or discharged into or upon the air, sea, land or soils (including the seabed) or surface water from a vessel other than a Vessel and which involves a collision between a Vessel and such other vessel or some other incident of navigation or operation, in either case, in connection with which a Vessel is actually or potentially liable to be arrested, attached, detained or injuncted and/or a Vessel and/or any Security Party and/or any operator or manager of a Vessel is at fault or allegedly at fault or otherwise liable to any legal or administrative action; or (c) any other incident in which Environmentally Sensitive Material is released, emitted, spilled or discharged into or upon the air, sea, land or soils (including the seabed) or surface water otherwise than from a Vessel and in connection with which a Vessel is actually or potentially liable to be arrested and/or where any Security Party and/or any operator or manager of a Vessel is at fault or allegedly at fault or otherwise liable to any legal or administrative action, other than in accordance with an Environmental Approval. "Environmental Law" means any applicable law and regulation in any applicable jurisdiction in which any Security Party conducts business which relates to the pollution or protection of the environment or harm to or the protection of human health or the health of animals or plants. "Environmentally Sensitive Material" means (i) oil and oil products and (ii) any other waste, pollutant, contaminant or other substance (including any liquid, solid, gas, ion, living organism or noise) that may be harmful to human health or other life or the environment or a nuisance to any person or that may make the enjoyment, ownership or other territorial control of any affected land, property or waters more costly for such person to a material degree. LONUVE\30137956.24 Page 10

 
"Event of Default" means any event or circumstance specified as such in Clause 22 (Events of Default). "Excluded Transferee" means a pooled investment vehicle or similar entity that is commonly but not exclusively referred to in the financial marketplace as a "hedge fund" and having the following characteristics: (i) it generally seeks consistent levels of returns regardless of market conditions, (ii) it generally uses complex strategies (which may include but not be limited to short-selling, use of leverage and arbitrage and derivatives transactions) in order to minimise market correlations with the goal of generating high returns (either in an absolute sense or over a specified market benchmark) and (iii) it generally is open only to financially sophisticated investors. Such vehicle or entity will be construed so as to include "vulture funds" and any pass-through or structured finance vehicles in whatever legal form which are used by a such a vehicle or entity as part of structuring an investment. "Facility Office" means the office or offices notified by a Lender to the Agent in writing on or before the date it becomes a Lender (or, following that date, by not less than five Business Days' written notice) as the office or offices through which it will perform its obligations under this Agreement. "Facility Period" means the period beginning on the date of this Agreement and ending on the date when the whole of the Indebtedness has been paid in full and the Security Parties have ceased to be under any further actual or contingent liability to the Finance Parties under or in connection with the Finance Documents. 11 FATCA 11 means: (a) sections 1471 to 1474 of the Code or any associated regulations; (b) any treaty, law or regulation of any other jurisdiction, or relating to an intergovernmental agreement between the US and any other jurisdiction, which (in either case) facilitates the implementation of any law or regulation referred to in (a); or (c) any agreement pursuant to the implementation of any treaty, law or regulation referred to in (a) or (b) with the US Internal Revenue Service, the US government or any governmental or taxation authority in any other jurisdiction. "FATCA Application Date" means: (a) in relation to a "withholdable payment" described in section 1473(1)(A)(i) of the Code (which relates to payments of interest and certain other payments from sources within the US), 1 July 2014; (b) in relation to a "withholdable payment" described in section 1473(1)(A)(ii) of the Code (which relates to "gross proceeds" from the disposition of property of a type that can produce interest from sources within the US), 1 January 2019; or (c) in relation to a "passthru payment" described in section 1471(d)(7) of the Code not falling within (a) or (b), 1 January 2019, LONUVE\30137956.24 Page 11

 
or, in each case, such other date from which such payment may become subject to a deduction or withholding required by FATCA as a result of any change in FATCA after the date of this Agreement. "FATCA Deduction" means a deduction or withholding from a payment under a Finance Document required by FATCA. "FATCA Exempt Party" means a Party that is entitled to receive payments free from any FATCA Deduction. "FATCA FFI" means a foreign financial institution as defined in section 147l(d)(4) of the Code which, if any Finance Party is not a FATCA Exempt Party, could be required to make a FATCA Deduction. "Fee Letter" means any letter or letters dated on or about the date of this Agreement between the Arranger and the Borrowers (or the Agent and the Borrowers or the Security Agent and the Borrowers) setting out any of the fees referred to in Clause 11 (Fees). "Finance Documents" means this Agreement, the Security Documents, the Master Agreement, the Fee Letter, the Direct Agreements and any other document designated as such by the Agent and the Borrowers and "Finance Document" means any one of them. "Finance Parties" means the Arranger, the Agent, the Security Agent, the Swap Provider and the Lenders and "Finance Party" means any one of them. "Financial Indebtedness" means any indebtedness for or in respect of: (a) moneys borrowed; (b) any amount raised by acceptance under any acceptance credit facility or dematerialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which would, in accordance with GAAP, be treated as a balance sheet liability; (e) receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis); (f) any amount raised under any other transaction (including any forward sale or hire purchase agreement) of a type not referred to in any other paragraph of this definition having the commercial effect of a borrowing; (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price (and, when calculating the value of any derivative transaction, only the marked to market value (or, if any actual amount is due as a result of the termination or close-out of that derivative transaction, that amount) shall be taken into account); LONUVE\30137956.24 Page 12

 
(h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution; and (i) the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs (a) to (h) above. "GAAP11 means: (a) in relation to the Borrowers and TGP, generally accepted accounting principles in the United States of America; and (b) in relation to CLNG, generally accepted accounting principles in Hong Kong. "General Assignments" means all the forms of assignment referred to in Clause 17.1.5 (Security Documents). "Governmental Agency" means any government or any governmental agency, semi-governmental or judicial entity or authority (including, without limitation, any stock exchange or any self-regulatory organisation established under statute). "Guarantee" means the guarantee and indemnity of the Vessel Sponsor Guarantors referred to in Clause 17.1.2 (Security Documents). "Holding Company" means, in relation to a person, any other person in respect of which it is a Subsidiary. "IAPPC" means a valid international air pollution prevention certificate for a Vessel issued under Annex VI. "IFRS" means international accounting standards within the meaning of the lAS Legislation 1606/2002 to the extent applicable to the relevant financial statements. "Impaired Agent" means the Agent at any time when: (a) it has failed to make (or has notified a Party that it will not make) a payment required to be made by it under the Finance Documents by the due date for payment; (b) the Agent otherwise rescinds or repudiates a Finance Document; (c) an Insolvency Event has occurred and is continuing with respect to the Agent; unless, in the case of (a): (i) its failure to pay is caused by: (A) administrative or technical error; or (B) a Disruption Event; and payment is made within three Business Days of its due date; or LONLIVE\30137956.24 Page 13

 
(ii) the Agent is disputing in good faith whether it is contractually obliged to make the payment in question. "Indebtedness" means the aggregate from time to time of: the amount of the Loan outstanding; all accrued and unpaid interest on the Loan; and all other sums of any nature (together with all accrued and unpaid interest on any of those sums) payable to any of the Finance Parties under all or any of the Finance Documents. "Indirect Tax" means any goods and services taxes, consumption tax, valued added tax or any tax of a similar nature, including without limitation any PRC VAT. "Insolvency Event" in relation to an entity means that the entity: (a) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (b) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (c) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (d) institutes or has instituted against it, by a regulator, supervisor or any similar official with primary insolvency, rehabilitative or regulatory jurisdiction over it in the jurisdiction of its incorporation or organisation or the jurisdiction of its head or home office, a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law ·affecting creditors' rights, or a petition is presented for its winding-up or liquidation by it or such regulator, supervisor or similar official; (e) has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors' rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition is instituted or presented by a person or entity not described in (d) and: (i) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation; or (ii) is not dismissed, discharged, stayed or restrained in each case within thirty (30) days of the institution or presentation thereof; (f) has exercised in respect of it one or more of the stabilisation powers pursuant to Part 1 of the Banking Act 2009 and/or has instituted against it a bank insolvency proceeding pursuant to Part 2 of the Banking Act 2009 or a bank administration proceeding pursuant to Part 3 of the Banking Act 2009; (g) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); lONLlVE\30137956.24 Page 14

 
(h) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets (other than, for so long as it is required by law or regulation not to be publicly disclosed, any such appointment which is to be made, or is made, by a person or entity described in (d)); (i) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within thirty (30) days thereafter; (j) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in (a) to (i); or (k) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts. "Instalment Drawings" means the drawings in relation to the second, third and fourth instalment payments under each Building Contract. "Insurances" means all policies and contracts of insurance (including all entries in protection and indemnity or war risks associations) which are from time to time taken out or entered into in respect of or in connection with a Vessel or her increased value or her Earnings and (where the context permits) all benefits under such contracts and policies, including all claims of any nature and returns of premium. "Interest Payment Date" means each date for the payment of interest in accordance with Clause 8.2 (Payment of interest). "Interest Period" means each period determined in accordance with Clause 9 (Interest Periods) and, in relation to an Unpaid Sum, each period determined in accordance with Clause 8.3 (Default interest). "Interpolated Screen Rate" means, in relation to LIBOR for any Vessel Loan, the rate which results from interpolating on a linear basis between: (a) the applicable Screen Rate for the longest period (for which that Screen Rate is available) which is less than the Interest Period of that Vessel Loan; and (b) the applicable Screen Rate for the shortest period (for which that Screen Rate is available) which exceeds the Interest Period of that Vessel Loan, each as of 11.00 a.m. on the Quotation Day for dollars. "ISM Code" means the International Management Code for the Safe Operation of Ships and for Pollution Prevention. LONLlVE\30137956.24 Page 15

 
"ISM Company" means, at any given time, the company responsible for a Vessel's compliance with the ISM Code under paragraph 1.1.2 of the ISM Code. "ISPS Code" means the International Ship and Port Facility Security Code. "ISSC" means a valid international ship security certificate for a Vessel issued under the ISPS Code. "ITA" means the Income Tax Act 2007. "Joint Venture" means any joint venture entity, whether a company, unincorporated firm, undertaking, association, joint venture or partnership or any other entity. "JV Partner" means any entity which is: (a) a member of the TGP Group (in each case "TGP JV Partner"); or (b) CLNG or a Subsidiary of CLNG (in each case, a "CLNG JV Partner"). "Legal Opinion" means any legal opinion delivered to the Agent under Clause 4.1 (Initial conditions precedent) or Clause 4.4 (Conditions subsequent). 11 Lender 11 means: (a) any Original Lender; and (b) any bank, financial institution, trust, fund or other entity which has become a·Party as a Lender in accordance with Clause 23 (Changes to the Lenders), which in each case has not ceased to be a Lender in accordance with the terms of this Agreement. "LIBOR" means, in relation to any Vessel Loan: (a) the applicable Screen Rate; or (b) (if no Screen Rate is available for the relevant Interest Period) the Interpolated Screen Rate for that Vessel Loan; or (c) (if (i) no Screen Rate is available for the currency of that Vessel Loan or (ii) no Screen Rate is available for the relevant Interest Period and it is not possible to calculate the Interpolated Screen Rate for that Vessel Loan)) the Reference Bank Rate, as of 11.00 a.m. on the Quotation Day for dollars and for a period equal in length to the relevant Interest Period and, if that rate is less than zero, LIBOR shall be deemed to be zero. "Limitation Acts" means the Limitation Act 1980 and the Foreign Limitation Periods Act 1984. "Loan" means the aggregate amount of the Vessel Loans advanced or to be advanced by the Lenders to the Borrowers under Clause 2 (The Loan) or, where the LONLIVE\30137956.24 Page 16

 
-------------------··---- context permits, the principal amount of the Vessel Loans advanced and for the time being outstanding. "Long Stop Date" means, in relation to a Vessel, the date falling on 240 days from the Scheduled Delivery Date applicable to such Vessel. "Majority Lenders" means a Lender or Lenders whose Commitments aggregate more than 662/,% of the Total Commitments (or, if the Total Commitments have been reduced to zero, aggregated more than 662/,% of the Total Commitments immediately prior to the reduction). "Management Agreements" means, collectively: (a) the ship management agreement dated 7 July 2014 entered into between Borrower A (as owner) and the Approved Manager (as manager) in respect of Vessel A; (b) the ship management agreement dated 7 July 2014 entered into between Borrower B (as owner) and the Approved Manager (as manager) in respect of Vessel B; (c) the ship management agreement dated 7 July 2014 entered into between Borrower C (as owner) and the Approved Manager (as manager) in respect of Vessel C; (d) the ship management agreement dated 7 July 2014 entered into between Borrower D (as owner) and the Approved Manager {as manager) in respect of Vessel D; (e) the ship management agreement dated 7 July 2014 entered into between Borrower E (as owner) and the Approved Manager (as manager) in respect of Vessel E; and (f) the ship management agreement dated 7 July 2014 entered into between Borrower F (as owner) and the Approved Manager (as manager) in respect of Vessel F, each as amended, supplemented and/or varied from time to time to the extent permitted under the Finance Documents, and "Management Agreement" means any one of them. "Managers' Undertaking" means, in relation to a Vessel, the written undertaking of the Approved Manager whereby, throughout the Facility Period unless otherwise agreed by the Finance Parties: (a) they will remain the manager of such Vessel; (b) they will not, without the prior written consent of the Agent, subcontract or delegate the management of such Vessel to any third party; and (c) the interests of the Approved Manager in the Insurances relating to such Vessel (if the Approval Manager is named assureds or co-assureds thereunder) will be assigned to the Security Agent with first priority; and LONUVE\30137956.24 Page 17

 
(d) (following the occurrence of an Event of Default which is continuing) all claims of the Approved Manager against the Borrower owning such Vessel shall be subordinated to the claims of the Finance Parties under the Finance Documents. "Mandatory Prepayment Event" means, in relation to a Vessel, the event where the Charterer exercises its step-in rights in accordance with the Replacement Step-In Agreement relating to such Vessel. "Margin" means three point one per cent (3.1%) per annum. "Market Value" means the value of a Vessel conclusively determined by the average of valuations of that Vessel addressed to the Agent certifying a value for that Vessel provided by an Approved Shipbroker appointed on behalf of the Agent and an Approved Shipbroker appointed by the relevant Borrower on the basis of a sale for prompt delivery for cash at arm's length on normal commercial terms as between a willing seller and a willing buyer, subject to the Agent's consent (which shall not be withheld if the Approved Shipbrokers appointed both certify there is not a sufficiently developed market for the Vessel to provide a charter-free valuation), including the cash flows associated with the relevant Charter. "Master Agreement" means any ISDA Master Agreement (or any other form of master agreement relating to interest or currency exchange transactions) entered into between the Swap Provider and the Borrowers (or any one of them) during the Facility Period, including each Schedule to any Master Agreement and each Confirmation exchanged under any Master Agreement. "Master Agreement Proceeds" means any and all sums due and payable to the Borrowers or any of them under the Master Agreement following an Early Termination Date (subject always to all rights of netting and set-off contained in the Master Agreement) and all rights to require and enforce the payment of those sums. "Master Agreement Proceeds Charge" means the deed of charge referred to in Clause 17.1.8 (Security Documents). "Material Adverse Effect" means in the reasonable opinion of the Majority Lenders a material adverse effect on: (a) the business, operations, property, condition (financial or otherwise) or prospects of any Security Party; or (b) the ability of any Security Party to perform its obligations under any Finance Document; or (c) the validity, legality or enforceability of, or the effectiveness or ranking of any Encumbrance granted or purporting to be granted pursuant to any of, the Finance Documents or the rights or remedies of any Finance Party under any of the Finance Documents. "Maximum Loan Amount" means US$275,000,000 for Vessel A, US$274,000,000 for Vessel B, US$275,000,000 for Vessel C, US$274,000,000 for Vessel D, US$269,000,000 for Vessel E and US$265,000,000 for Vessel F. LONUVE\30137956.24 Page 18

 
"Month" means a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month, except that: (a) subject to paragraph (c) below, if the numerically corresponding day is not a Business Day, that period shall end on the next Business Day in that calendar month in which that period is to end if there is one, or if there is not, on the immediately preceding Business Day; (b) if there is no numerically corresponding day in the calendar month in which that period is to end, that period shall end on the last Business Day in that calendar month; and (c) if an Interest Period begins on the last Business Day of a calendar month, that Interest Period shall end on the last Business Day in the calendar month in which that Interest Period is to end. The above rules will apply only to the last Month of any period. "Mortgages" means the first priority statutory mortgages referred to in Clause 17.1.4 (Security Documents) together with the Deeds of Covenants and "Mortgage" means any one of them. "New Lender" has the meaning given to that term in Clause 23.1 (Assignments and transfers by the Lenders). "Non-Consenting Lender" has the meaning given to that term in Clause 34.3.4 (Replacement of Lender). _ "Operating Expenses" means expenses properly and reasonably incurred by a Borrower in connection with the operation, employment, maintenance, repair and insurance of the relevant Vessel, such expenses to include, without limitation, all amounts payable by the relevant Borrower to the Approved Manager pursuant to the relevant Management Agreement and any corporate or administrative expenses incurred by such Borrower in its ordinary course of business. "Operating Expenses Reserve" means, in relation to a Borrower as at any relevant date, an amount equal to three Months' of such Borrower's Operating Expenses (excluding scheduled dry-docking expenses payable by the Charterer) in accordance with its Vessel Operating Budget. "Operating Reserve Account" means, in respect of a Borrower, a bank account to be opened in the name of such Borrower with the Account Holder and designated "[Name of Borrower] - Operating Reserve Account". "Original Financial Statements" means (a) the audited consolidated financial statements of the Parent for the financial year ended 31 December 2016, (b) the unaudited financial statements for the financial year ended 31 December 2016 of each Borrower and (c) the audited financial statements for the financial year ended 31 December 2016 of each Security Party (other than the Parent, the Borrowers, Teekay Operating and the Approved Manager) which was in existence for all or part of that financial year. LONUVE\30137956.24 Page 19

 
"Original Jurisdiction" means, in relation to a Security Party, the jurisdiction under whose laws that Security Party is formed or incorporated as at the date of this Agreement. "Parent" means TC LNG Shipping L.L.C., a limited liability company formed under the laws of The Republic of the Marshall Islands whose registered address is at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, The Republic of the Marshall Islands MH96960. "Parent Pledge Agreement" means the pledge of the shares or membership interests (as the case may be) of the Parent referred to in Clause 17.1.9 (Security Documents). "Party" means a party to this Agreement. "Payment Notice" means, in relation to the Delivery Instalment of a Vessel, a notice of the amount payable by the relevant Borrower under the relevant Building Contract to be issued by the Builder to such Borrower at least ten Business Days prior to the anticipated payment date . .. Permitted Encumbrance" means: (a) any Encumbrance created or to be created in accordance with the Security Documents; (b) any liens securing obligations incurred in the ordinary course of trading and/or operating a Vessel and not more than thirty (30) days overdue and not exceeding an aggregate amount of $10,000,000 per Vessel; (c) any Encumbrance which has the prior written approval of the Agent; (d) any Encumbrance arising by operation of law or otherwise in the ordinary course of the operation, repair or maintenance of any Vessel where the relevant Borrower is contesting the claim giving rise to such lien in good faith by appropriate steps and for the payment of which adequate reserves have been made in case such Borrower finally has to pay such claim so long as any such proceedings shall not, and may reasonably be considered unlikely to lead to the arrest, sale, forfeiture or loss of any Vessel, or any interest in such Vessel; or (e) any Encumbrances arising by operation of law in respect of Taxes which are not overdue for payment or Taxes which are overdue for payment but which are being contested in good faith by appropriate steps and in respect of which appropriate reserves have been made so long as any such proceedings or the continued existence of such Encumbrance shall not and may reasonably be considered unlikely to lead to the arrest, sale, forfeiture or loss of any Vessel, or any interest in such Vessel. 11 Permitted Transaction II means: (a) any disposal required, Financial Indebtedness incurred, guarantee, indemnity or Encumbrance or Quasi-Security given, or other transaction arising, under the Finance Documents; or LONUVE\30137956.24 Page 20

 
(b) transactions (other than (i) any sale, lease, license, transfer or other disposal, (ii) the granting of any guarantee or (iii) the granting or creation of any Encumbrance (other than a Permitted Encumbrance) or the incurring or permitting to subsist of Financial Indebtedness) conducted in the ordinary course of trading on arm's length terms. "PRC" means the People's Republic of China for the purpose of this Agreement excluding Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan. "PRC Surcharges" means: (a) any national and local surcharges (including without limitation any urban construction tax, education surcharge or local education surcharge) chargeable in respect of any Indirect Tax pursuant to the applicable PRC laws and regulations in effect as at the date of this Agreement; and (b) any other surcharges of similar nature, imposed in the PRC whether in substitution for, or in addition to, the surcharges referred to in paragraph (a) above, in each case, applicable to the transactions contemplated under the Finance Documents. "PRC VAT" means: (a) any tax imposed in compliance with the Circular (Cai Shui [2016] No. 36) on the Full Implementation of the Business Tax to Value Added Tax Reform Pilot issued by the Ministry Finance and the State Tax Bureau of the PRC ( « Mi&llB • §!l*fl!~.~;i.FoJ~'f~ffiilJE7fE.'!ll!fl!i&UE!l'!!M]JI. ttP.:ft;JJHij;!l} ( Mfl![2016]36 ~) ; and (b) any other tax of similar nature, imposed in the PRC whether in substitution for, or in addition to, the tax referred to in paragraph (a) above, in each case, applicable to the transactions contemplated under the Finance Documents. "Pre-Approved Classification Society" means each of Russian Maritime Register of Shipping and Bureau Veritas or such other classification society acceptable to the Majority Lenders such consent not to be unreasonably withheld if that classification society is a member of the International Association of Classification Societies. "Pre-Delivery Assignments" means the deeds of assignment of the Building Contracts, the Refund Guarantees and the Supervision Agreements referred to in Clause 17.1.1 (Security Documents). "Pre-Delivery Expenses" means, in relation to a Vessel, the aggregate of the following costs (the amounts of which are to be confirmed by the Borrower with each Drawdown Request): (a) the supervision costs incurred by the relevant Borrower in supervising such Vessel's construction under the relevant Building Contract; LONUVE\30137956.24 Page 21

 
(b) the cost of purchasing depot spares in an aggregate amount of no more than $5,500,000; (c) the amounts of commitment fees, agency fees and arrangement fees payable by the Borrower up to and including the Delivery Date of such Vessel together with the amount of interest incurred by the relevant Borrower under this Agreement during the Availability Period; and (d) any other costs approved by the Agent; for which: (i) in the case of (a) above, the items listed as Schedule 2, Part IV, paragraph 1 have been provided to and accepted by the Agent; (ii) in the case of (b) above (other than in respect of amounts payable to the Lender}, the items listed as Schedule 2, Part IV, paragraph 2 have been provided to and accepted by the Agent; (iii) in the case of (d) above, the items listed as Schedule 2, Part IV, paragraph 3 have been provided to and accepted by the Agent, and, in respect of (b) above, any difference between the budgeted cost drawn under the relevant Vessel Loan and the actual cost paid shall be refunded by the Borrowers making a prepayment of the relevant Vessel Loan in the relevant amount at the same time as the actual cost is paid. "Pre-position Date" means, in relation to the Delivery Instalment ·payable under the relevant Building Contract and the relevant Payment Notice, the date specified in such Payment Notice as the date on which the Lenders shall pre-position the relevant amount into the Builder's Bank. "Proceeds Account" means, in respect of a Borrower, the Proceeds Account (dollar) or the Proceeds Account (euro). "Proceeds Account (dollar)" means, in respect of a Borrower, a dollar bank account to be opened in the name of such Borrower with the Account Holder and designated "[Name of Borrower] - Proceeds Account (dollar)". "Proceeds Account (euro)" means, in respect of a Borrower, a euro bank account to be opened in the name of such Borrower with the Account Holder and designated "[Name of Borrower]- Proceeds Account (euro)". "Purchase Option Side Letter" has the meaning given to such term in Schedule 7 (List of Assigned Documents). "Quasi-Security" has the meaning given to that term in Clause 21.9 (Negative pledge). "Quiet Enjoyment Agreement" means each agreement of that name to be entered into between the Security Agent, the Charterer and each Borrower in respect of each Vessel. LONLIVE\30137956.24 Page 22

 
"Quotation Day" means, in relation to any period for which an interest rate is to be determined, two Business Days (in London) before the first day of that period, unless market practice differs in the Relevant Interbank Market, in which case the Quotation Day will be determined by the Agent in accordance with market practice in the Relevant Interbank Market (and if quotations would normally be given by leading banks in the Relevant Interbank Market on more than one day, the Quotation Day will be the last of those days). "Rating Agency" means any of Moody's Investors Service Limited, Standard & Poors Rating Services, DBRS, Inc. and Fitch Ratings Ltd. "Receiver" means a receiver or receiver and manager or administrative receiver of the whole or any part of the Charged Property. "Reference Bank Rate" means, in relation to LIBOR, the arithmetic mean of the rates (rounded upwards to four decimal places) as supplied to the Agent at its request by the Reference Banks: (a) if: (i) the Reference Bank is a contributor to the applicable Screen Rate; and (ii) it consists of a single figure, the rate (applied to the relevant Reference Bank and the relevant currency and period) which contributors to the applicable Screen Rate are asked to submit to the relevant administrator; or (b) in any other case, the rate at which the relevant Reference Bank could fund itself in the relevant currency for the relevant period with reference to the unsecured wholesale funding market. "Reference Banks" means, in relation to LJBOR, the principal London offices of HSBC Bank pic and Citibank or such other banks as may be appointed by the Agent in consultation with the Borrowers. "Refund Guarantees" means, collectively: (a) the refund guarantee numbered M0931407LG00178 dated 11 July 2014 issued by the Refund Guarantor in favour of Borrower A pursuant to the Building Contract relating to Vessel A; (b) the refund guarantee numbered M0931407LG00160 dated 11 July 2014 issued by the Refund Guarantor in favour of Borrower B pursuant to the Building Contract relating to Vessel B; (c) the refund guarantee numbered M0931407LG00153 dated 11 July 2014 issued by the Refund Guarantor in favour of Borrower C pursuant to the Building Contract relating to Vessel C; (d) the refund guarantee numbered M0931407LG00121 dated 11 July 2014 issued by the Refund Guarantor in favour of Borrower D pursuant to the Building Contract relating to Vessel D; LONUVE\30137956.24 Page 23

 
(e) the refund guarantee numbered M0931407LG00114 dated 11 July 2014 issued by the Refund Guarantor in favour of Borrower E pursuant to the Building Contract relating to Vessel E; and (f) the refund guarantee numbered M0931407LG00107 dated 11 July 2014 issued by the Refund Guarantor in favour of Borrower F pursuant to the Building Contract relating to Vessel F, and "Refund Guarantee" means any one of them. "Refund Guarantor" means The Export-Import Bank of Korea, a financial institution incorporated under the laws of the Republic of Korea, acting through its office at 38, Eunhaeng-Ro (16-1, Yeouido-Dong), Yeongdeungpo-Gu, Seoul 150-996, The Republic of Korea, or any other first class bank or financial institution having a foreign currency credit rating for its long-term unsecured and non credit-enhanced debt originations of A- or higher by Standard & Poor's Ranking Services or A3 or higher by Moody's Investors Services Limited or a comparable rating from an internationally recognised credit rating agency, as shall be approved by the Lenders that has issued or will issue the Refund Guarantee. "Related Fund" in relation to a fund (the "first fund"), means a fund which is managed or advised by the same investment manager or investment adviser as the first fund or, if it is managed by a different investment manager or investment adviser, a fund whose investment manager or investment adviser is an Affiliate of the investment manager or investment adviser of the first fund. "Relevant Documents" means the· Finance Documents, the Building Contracts, the Refund Guarantees, the Charters, the Supervision Agreements, the Management Agreements and any other Assigned Documents. "Relevant Interbank Market" means the London interbank market. "Relevant Jurisdiction" means, in relation to a Security Party: (a) its Original Jurisdiction; (b) any jurisdiction where any asset subject to or intended to be subject to a Security Document to be executed by it is situated; (c) any jurisdiction where it conducts its business; and (d) the jurisdiction whose laws govern the perfection of any of the Security Documents entered into by it. "Repayment Date" means the date for payment of any Repayment Instalment in accordance with Clause 6 (Repayment) as more particularly set out in Schedule 4 (Repayment Schedu!e). "Repayment Instalment" means any instalment of a Vessel Loan to be repaid by the Borrowers under Clause 6 (Repayment). "Repeating Representations" means each of the representations set out in Clause 18 (Representations) other than those representations and warranties in Clause 18.1.5 (Validity and admissibility in evidence), Clause 18.1.8 (No filing or stamp lONUVE\30137956.24 Page 24

 
taxes), Clause 18.1.9 (Deduction of tax), Clause 18.1.10(a) (No material default) and Clause 18.1.25 (US Tax Obligor). "Replacement Novation Side Letters" means in respect of each Vessel, each letter of that name to be entered into between the Security Agent, the Yamal Sponsor Guarantors, the Builder and each Borrower. "Replacement Step-In Agreement" means the replacement step-in agreement in respect of each Vessel made between the Builder (as builder), (b) the relevant Borrower (as buyer) (c) the Charterer (as charterer) and (d) the Security Agent. "Representative" means any delegate, agent, manager, administrator, nominee, attorney, trustee or custodian. "Requisition Compensation" means all compensation or other money which may from time to time be payable to a Borrower and/or the Charterer as a result of a Vessel being requisitioned for title or in any other way compulsorily acquired (other than by way of requisition for hire). "Restricted Party" means a person or entity that is (a) listed on, or 50% or more owned or controlled by a person listed on, or acting on behalf of a person listed on, any Sanctions List; (b) a national of, located in, incorporated under the laws of, or 50% or more owned or (directly or indirectly) controlled by, or acting on behalf of, a person located in or organised under the laws of Sanctioned Country; or (c) otherwise a target of Sanctions ("target of Sanctions" signifying a person with whom a US person or other national of Sanctions Authority would be prohibited or restricted by applicable Sanctions from engaging in trade, business or other activities). "Retention Account" means, in respect of a Borrower, a bank account to be opened in the name of such Borrower with the Account Holder and designated "[Name of Borrower] - Retention Account". "Sanctioned Country" means a country or territory that is, or whose government is, the subject of country-wide or territory-wide Sanctions. "Sanctions" means the economic sanction laws, regulations, embargoes or restrictive measures administered, enacted or enforced by: (a) the People's Republic of China; (b) the United States government; (c) the United Nations; (d) the European Union or its Member States; (e) the United Kingdom; or (f) the respective governmental institutions and agencies of any of the foregoing, including, without limitation, the Office of Foreign Assets Control of the US Department of Treasury ("OFAC"), the United States Department of State and Her Majesty's Treasury ("HMT") (together, the "Sanctions Authorities"). "Sanctions List" means the "Specially Designated Nationals and Blocked Persons" list maintained by the OFAC, the Consolidated List of Financial Sanctions Targets maintained by HMT, or any similar list maintained by, or public announcement of Sanctions designation made by, any of the Sanctions Authorities. "Scheduled Delivery Date" means, in relation to a Vessel, the date on which such Vessel is scheduled for delivery pursuant to the relevant Building Contract, being: (a) in respect of Vessel A, 28 February 2020; lONUVE\30137956.24 Page 25

 
(b) in respect of Vessel B, 29 January 2020; (c) in respect of Vessel C, 29 November 2019; (d) in respect of Vessel D, 29 October 2019; (e) in respect of Vessel E, 29 November 2018; and (f) in respect of Vessel F, 29 January 2018. "Screen Rate" means the London interbank offered rate administered by ICE Benchmark Administration Limited (or any other person which takes over the administration of that rate) for the relevant currency and period displayed on pages LIBOR01 or LIBOR02 of the Thomson Reuters screen (or any replacement Thomson Reuters page which displays that rate or on the appropriate page of such other information service which publishes that rate from time to time in place of Thomson Reuters. If such page or the service ceases to be available, the Agent may specify another page or service displaying the relevant rate after consultation with the Borrowers. "Secured Parties" means each Finance Party from time to time party to this Agreement and any Receiver or Delegate. "Security Documents" means the Pre-Delivery Assignments, each Guarantee, the Borrower Pledge Agreements, the Mortgages, the Charter Assignments, the General Assignments, the Account Security Deeds, the Managers' Undertakings, the Master Agreement Proceeds Charge, the Parent Pledge Agreement and any other Credit Su.pport Documents or (where the context permits) any one or more of them, and any other agreement or document which may at any time be executed by any person as security for the payment of all or any part of the Indebtedness and "Security Document" means any one of them. "Security Parties" means each Borrower, the Parent, Teekay Operating, each Vessel Sponsor Guarantor, the Approved Managers and any other person who may at any time during the Facility Period be liable for, or provide security for, all or any part of the Indebtedness (other than (a) the Charterer, (b) the Builder, (c) the Yamal Sponsor Guarantors and (d) YLNG), and "Security Party" means any one of them. "Security Perfection Requirements" means, in respect of the Security Documents: (a) registration of the Mortgage at the Bahamas Maritime Authority; (b) execution of all notices and consents as required under the relevant Security Document; and (c) any other Authorisations of the Security Documents as may be required in any legal opinion accepted under Clause 4 (Conditions of Utilisation). "Ship Registry" means the ship registry of the Approved Flag. "SMC" means a valid safety management certificate issued for a Vessel by or on behalf of the Administration under paragraph 13.7 of the ISM Code. LONLlVE\30137956.24 Page 26

 
"Subsidiary" means a subsidiary undertaking within the meaning of section 1162 of the Companies Act 2006. "Supervision Agreements" means, collectively: (a) the supervision agreement in respect of Vessel A dated 7 July 2014 entered into between Borrower A (as buyer), the Builder (as builder) and Teekay Shipping Limited (as supervisor); (b) the supervision agreement in respect of Vessel B dated 7 July 2014 entered into between Borrower B (as buyer), the Builder (as builder) and Teekay Shipping Limited (as supervisor); (c) the supervision agreement in respect of Vessel C dated 7 July 2014 entered into between Borrower C (as buyer), the Builder (as builder) and Teekay Shipping Limited (as supervisor); (d) the supervision agreement in respect of Vessel D dated 7 July 2014 entered into between Borrower D (as buyer), the Builder (as builder) and Teekay Shipping Limited (as supervisor); (e) the supervision agreement in respect of Vessel E dated 7 July 2014 entered into between Borrower E (as buyer), the Builder (as builder) and Teekay Shipping Limited (as supervisor); and (f) the supervision agreement in respect of Vessel F dated 7 July 2014 entered into between Borrower F (as buyer), the [luilder (as builder) and Teekay Shipping Limited (as supervisor), each as amended, supplemented and/or varied from time to time to the extent permitted under the Finance Documents, and "Supervision Agreement" means any one of them. "Tax" means any tax, levy, impost, duty or other charge or withholding of a similar nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same). "Teekay Group" means Teekay Parent, TGP and each of their respective Subsidiaries from time to time. "Teekay Operating" means Teekay LNG Operating L.L.C., a limited liability company incorporated according to the law of The Republic of the Marshall Islands whose registered address is at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, The Republic of the Marshall Islands MH96960. "Teekay Parent" means Teekay Corporation, a corporation incorporated according to the law of The Republic of the Marshall Islands whose registered address is at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, The Republic of the Marshall Islands MH96960. "Termination Date" means, in respect of a Vessel Loan, subject to any prepayment or cancellation of such Vessel Loan as may be permitted under Clause 7 (Illegality, Prepayment and Cancellation), the date falling on the earlier of: LONUVE\30137956.24 Page 27

 
(a) 144 Months from the Delivery Date of the Vessel to which such Vessel Loan relates; and (b) 180 Months from the date of this Agreement, or such later date as the Lenders may agree. "TGP" means Teekay LNG Partners L.P., a limited partnership formed under the laws of The Republic of the Marshall Islands whose registered address is at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, The Republic of the Marshall Islands MH96960. "TGP Group" means TGP and each of its Subsidiaries from time to time. "Total Commitments" means the aggregate of the Commitments. "Total Loss" means: (a) an actual, constructive, arranged, agreed or compromised total loss of a Vessel; or (b) the requisition for title or compulsory acquisition of a Vessel by any government or other competent authority (other than by way of requisition for hire); or (c) the capture, seizure, arrest, detention, hijacking, theft, condemnation as prize, confiscation or forfeiture of a Vessel (not falling within (b)), unless that Vessel is released and returned to the possession of the relevant Borrower or the Charterer within thirty (30) days after the capture, seizure, arrest, detention, hijacking, theft, condemnation as prize, confiscation or forfeiture in question. "Total Project Cost" means, in relation to a Vessel, the aggregate of (a) the Contract Price, and (b) the Pre-Delivery Expenses, each in respect of such Vessel. "Transaction Party" means each of the Security Parties and the parties to the Relevant Documents (other than any Finance Party and the Account Holder). "Transfer Certificate" means a certificate substantially in the form set out in Schedule 5 (Form of Transfer Certificate) or any other form agreed between the Agent and the Borrowers. "Transfer Date" means, in relation to an assignment or a transfer, the later of: (a) the proposed Transfer Date specified in the relevant Assignment Agreement or Transfer Certificate; and (b) the date on which the Agent executes the relevant Assignment Agreement or Transfer Certificate. "Trust Propertyn means: (a) all benefits derived by the Security Agent from Clause 17 (Security and Application of Moneys); and LONUVE\30137956.24 Page 28

 
(b) all benefits arising under (including, without limitation, all proceeds of the ~nforcement of) each of the Security Documents, with the exception of any benefits arising solely for the benefit of the Security Agent. "Unpaid Sum" means any sum due and payable but unpaid by any Security Party under the Finance Documents. "US" means the United States of America. "US Tax Obligor" means: (a) a Security Party which is resident for tax purposes in the US; or (b) a Security Party some or all of whose payments under the Finance Documents are from sources within the US for US federal income tax purposes. "Vessel A" means the Arc 7 172,410 m3 ice breaking LNG carrier and everything now or in the future belonging to her on board and ashore, currently under construction by the Builder with the Builder's hull number 2434 on the terms of the relevant Building Contract and, on delivery to Borrower A, intended to be registered under the flag of the Commonwealth of the Bahamas. "Vessel B" means the Arc 7 172,410 m3 ice breaking LNG carrier and everything now or in the future belonging to her on board and ashore, currently under construction by the Builder with the Builder's hull number 2433 on the terms of the relevant Building Contract and, on delivery to Borrower B, intended to be registered under the flag of the Commonwealth of the Bahamas. "Vessel C" means the Arc 7 172,410 m3 ice breaking LNG carrier and everything now or in the future belonging to her on board and ashore, currently under construction by the Builder with the Builder's hull number 2431 on the terms of the relevant Building Contract and, on delivery to Borrower C, intended to be registered under the flag of the Commonwealth of the Bahamas. "Vessel D" means the Arc 7 172,410 m3 ice breaking LNG carrier and everything now or in the future belonging to her on board and ashore, currently under construction by the Builder with the Builder's hull number 2430 on the terms of the relevant Building Contract and, on delivery to Borrower D, intended to be registered under the flag of the Commonwealth of the Bahamas. "Vessel E" means the Arc 7 172,410 m3 ice breaking LNG carrier and everything now or in the future belonging to her on board and ashore, currently under construction by the Builder with the Builder's hull number 2425 on the terms of the relevant Building Contract and, on delivery to Borrower E, intended to be registered under the flag of the Commonwealth of the Bahamas. "Vessel F" means the Arc 7 172,410 m3 ice breaking LNG carrier and everything now or in the future belonging to her on board and ashore, currently under construction by the Builder with the Builder's hull number 2423 on the terms of the relevant Building Contract and, on delivery to Borrower F, intended to be registered under the flag of the Commonwealth of the Bahamas. LONLIVE\30137956.24 Page 29

 
"Vessel Loan" means: (a) in respect of Vessel A, an amount up to the lesser of US$275,000,000 and 80% of the Total Project Cost of Vessel A advanced or to be advanced to the Borrowers by the Lenders in respect of Vessel A; (b) in respect of Vessel B, an amount up to the lesser of US$274,000,000 and 80% of the Total Project Cost of Vessel B advanced or to be advanced to the Borrowers by the Lenders in respect of Vessel B; (c) in respect of Vessel C, an amount up to the lesser of US$275,000,000 and 80% of the Total Project Cost of Vessel C advanced or to be advanced to the Borrowers by the Lenders in respect of Vessel c; (d) in respect of Vessel D, an amount up to the lesser of US$274,000,000 and 80% of the Total Project Cost of Vessel D advanced or to be advanced to the Borrowers by the Lenders in respect of Vessel D; (e) in respect of Vessel E, an amount up to the lesser of US$269,000,000 and 80% of the Total Project Cost of Vessel E advanced or to be advanced to the Borrowers by the Lenders in respect of Vessel E; and (f) in respect of Vessel F, an amount up to the lesser of US$265,000,000 and 80% of the Total Project Cost of Vessel F advanced or to be advanced to the Borrowers by the Lenders in respect of Vessel F, or, in each case, where the context permits, the aggregate principal amount so advanced and for the time being outstanding and "Vessel Loans" means more than one of them. "Vessel Operating Budget" means, in relation to a Borrower, an annual budget of anticipated Operating Expenses of such Borrower for the ensuing year. "Vessel Sponsor Guarantee" means the several guarantee and indemnity of each Vessel Sponsor Guarantor referred to in Clause 17.1.2 (Security Documents). "Vessel Sponsor Guarantors" means, together, (a) TGP, and (b) CLNG and "Vessel Sponsor Guarantor" means either of them. "Vessels" means, collectively, Vessel A, Vessel B, Vessel C, Vessel D, Vessel E and Vessel F and "Vessel" means any one of them. "Yamal Bareboat Charter" has the meaning given to that term in Clause 21.10.2 (Charter Arrangements). "Yamal Sponsor Guarantee" means, in relation to a Vessel, any one (1) of: the deed of guarantee dated 8 July 2014 and granted by (i) JSC Novatek, a joint stock company incorporated under the laws of the Russian Federation with registered number 33556474 whose registered office is at 22a, Pobedy Street, Tarko-Sale, Purovsky Area, Yamalo-Nenets Autonomous Region, 629850, Russian Federation ("JSC Novatek"), in favour of (ii) the Borrower owning such Vessel; LONUVE\30137956.24 Page 30

 
the deed of guarantee dated 8 July 2014 and granted by (i) CNPC International Limited, a limited liability company incorporated and registered in the Cayman Islands with it registration number 80856, and whose registered office is at Offices of Mourant Ozannes Corporate Service (Cayman) Limited at 94 Solaris Avenue, Camana Bay, P.O. Box 1348, Grand Cayman KY1-1108, Cayman Islands ("CNPC"), in favour of (ii) the Borrower owning such Vessel; (c) the deed of guarantee dated 8 July 2014 and granted by (i) originally Total E&P Holdings SA, a company incorporated in France with registered number 652 004 565 RCS NANTERRE whose registered office is at 2, Place Jean Millier, La Defense 6, 92400 Courbevoie, France, which later merged into EA, in favour of (ii) the Borrower owning such Vessel; and (d) any Alternative Yamal Sponsor Guarantee, pursuant to which the aggregate maximum amount of liability of the guarantors shall be one hundred and sixty million dollars ($160,000,000) and "Yamal Sponsor Guarantees" means any two (2) or more of them. ""Yamal Sponsor Guarantor"" means each of: (a) JSC Novatek; (b) CNPC; (c) EA; and (d) any Alternative Yamal Sponsor Guarantor, and "Yamal Sponsor Guarantors" means any two (2) or more of them. "YLNG" means JSC Yamal LNG, a joint stock company incorporated under the laws of the Russian Federation whose registered address is at 25A, Khudi-Seroko Street, village Yar-Sale, Yamal Region, Yamalo-Nenets Autonomous District, Russia, 629700. "YLNG Guarantees" has the meaning given to such term in Schedule 7 (List of Assigned Documents). 1.2 Construction Unless a contrary indication appears, any reference in this Agreement to: 1.2.1 any "Lender", any "Borrower", any "Vessel Sponsor Guarantor", the 11 "Arranger", the "Agent", the "Swap Provider", any nsecured Party , the "Security Agent", any "Finance Party" or any "Party" shall be construed so as to include its successors in title, permitted assignees and permitted transferees; 1.2.2 "assets" includes present and future properties, revenues and rights of every description; 1.2.3 a "Finance Document", a .. Security Document", a "Relevant Document" or any other document is a reference to that Finance LONUVE\30137956.24 Page 31

 
Document, Security Document, Relevant Document or other document as amended, novated, supplemented, extended or restated from time to time; 1.2.4 a "group of Lenders" includes all the Lenders; 1.2.5 "indebtedness" includes any obligation (whether incurred as principal or as surety) for the payment or repayment of money, whether present or future, actual or contingent; 1.2.6 a "person" includes any individual, firm, company, corporation, government, state or agency of a state or any association, trust, joint venture, consortium or partnership or other entity (whether or not having separate legal personality); 1.2.7 a "regulation" includes any regulation, rule, official directive, request or guideline (whether or not having the force of law) of any governmental, intergovernmental or supranational body, agency, department or of any regulatory, self-regulatory or other authority or organisation; 1.2.8 a provision of law is a reference to that provision as amended or re-enacted from time to time; and 1.2.9 a time of day (unless otherwise specified) is a reference to Beijing time. 1.3 Headings Section, Clause and Schedule headings are for ease of reference only. 1.4 Defined terms Unless a contrary indication appears, a term used in any other Finance Document or in any notice given under or in connection with any Finance Document has the same meaning in that Finance Document or notice as in this Agreement. 1.5 Default A Default (other than an Event of Default) is "continuing" if it has not been remedied or waived and an Event of Default is "continuing" if it has not been waived. 1.6 Charters The provisions of clause 11.7 of each Quiet Enjoyment Agreement shall be incorporated herein with respect to any references in this Agreement to a clause of a Charter. 1.7 Currency symbols and definitions 11 US$", nuson and "dollarsn denote the lawful currency of the United States of America. 1.8 Third party rights A person who is not a Party has no right under the Contracts (Rights of Third Parties) Act 1999 (the "Third Parties Act") to enforce or to enjoy the benefit of any term of this Agreement. 1.9 Offer letter This Agreement supersedes the terms and conditions contained in any correspondence relating to the subject matter of this Agreement exchanged between any Finance Party and the Borrowers or their representatives before the date of this Agreement. 1.10 Contractual recognition of bail-in LONUVE\30137956.24 Page 32

 
1.10.1 In this Clause 1.10: "Bail-In Action" means the exercise of any Write-down and Conversion Powers. "Bail-In Legislation" means: (a) in relation to an EEA Member Country which has implemented, or which at any time implements, Article 55 of Directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms, the relevant implementing law or regulation as described in the EU Bail-In Legislation Schedule from time to time; and (b) in relation to any other state, any analogous law or regulation from time to time which requires contractual recognition of any Write­ down and Conversion Powers contained in that law or regulation. "EEA Member Country" means any member state of the European Union, Iceland, Liechtenstein and Norway. "EU Member State" means any member state of the European Union. "EU Bail-In Legislation Schedule" means the document described as such and published by the Loan Market Association (or any successor person) from time to time. "Resolution Authority" means any body which has authority to exercise any Write-down and Conversion Powers . .. Write-down and Conversion Powers" means: (a) in relation to any Bail-In Legislation described in the EU Bail-In Legislation Schedule from time to time, the powers described as such in relation to that Bail-In Legislation in the EU Bail-In Legislation Schedule; and (b) in relation to any other applicable Bail-In Legislation: (i) any powers under that Bail-In Legislation to cancel, transfer or dilute shares issued by a person that is a bank or investment firm or other financial institution or affiliate of a bank, investment firm or other financial institution, to cancel, reduce, modify or change the form of a liability of such a person or any contract or instrument under which that liability arises, to convert all or part of that liability into shares, securities or obligations of that person or any other person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that Bail-In Legislation that are related to or ancillary to any of those powers; and LONLlVE\30137956.24 Page 33

 
(ii) any similar or analogous powers under that Bail-In Legislation. 1.10.2 Notwithstanding any other term of any Finance Document or any other agreement, arrangement or understanding between the Parties, each Party acknowledges and accepts that any liability of any Party to any other Party under or in connection with the Finance Documents may be subject to Bail­ In Action by the relevant Resolution Authority and acknowledges and accepts to be bound by the effect of: (a) any Bail-In Action in relation to any such liability, including (without limitation): (i) a reduction, in full or in part, in the principal amount, or outstanding amount due (including any accrued but unpaid interest) in respect of any such liability; (ii) a conversion of all, or part of, any such liability into shares or other instruments of ownership that may be issued to, or conferred on, it; and (iii) a cancellation of any such liability; and (b) a variation of any term of any Finance Document to the extent necessary to give effect to any Bail-In Action in relation to any such liability. LONUVE\30137956.24 Page 34

 
Section 2 The Loan 2 The Loan 2.1 Amount Subject to the terms of this Agreement, the Lenders agree to make available to the Borrowers on a joint and several basis a term loan comprising all the Vessel Loans and not exceeding in aggregate the Maximum Loan Amount. 2.2 Finance Parties' rights and obligations 2.2.1 The obligations of each Finance Party under the Finance Documents are several. Failure by a Finance Party to perform its obligations under the Finance Documents does not affect the obligations of any other Party under the Finance Documents. No Finance Party is responsible for the obligations of any other Finance Party under the Finance Documents. 2.2.2 The rights of each Finance Party under or in connection with the Finance Documents are separate and independent rights and any debt arising under the Finance Documents to a Finance Party from a Security Party is a separate and independent debt in respect of which a Finance Party shall be entitled to enforce its rights in accordance with Clause 2.2.3. The rights of each Finance Party include any debt owing to that Finance Party under the Finance Documents and, for the avoidance of doubt, any part of the Loan or any other amount owed by a Security Party which relates to a Finance Party's participation in the Loan or its role under a Finance Document (including any such amount payable to the Agent on its behalf) is a debt owing to that Finance Party by that Security Party. 2.2.3 A Finance Party may, except as specifically provided in the Finance Documents, separately enforce its rights under or in connection with the Finance Documents. 3 Purpose 3.1 Purpose The Borrowers shall apply the Loan for the purposes referred to in Preliminary (B) and each Drawing under a Vessel Loan shall be applied only in respect of the relevant Vessel. 3.2 Monitoring No Finance Party is bound to monitor or verify the application of any amount borrowed under this Agreement. 4 Conditions of Utilisation 4.1 Initial conditions precedent 4.1.1 The Lenders will only be obliged to comply with Clause 5.3 (Lenders' participation) in relation to the advance of the first Drawing in respect of each Vessel Loan if, on or before the relevant Drawdown Date, the Agent has received all of the documents and other evidence listed in Part I of Schedule 2 (Initial Conditions Precedent) in form and substance satisfactory to the Agent, save that references in Section 2 of that Part I to "the Vessel" or to any person or document relating to a Vessel shall be deemed to relate LONUVE\30137956.24 Page 35

 
solely to the Vessel specified in the relevant Drawdown Request or to any person or document relating to that Vessel respectively. 4.1.2 Other than to the extent that the Majority Lenders notify the Agent in writing to the contrary before the Agent gives the notification described in Clause 4.1.1, the Lenders authorise (but do not require) the Agent to give that notification. The Agent shall not be liable for any damages, costs or losses whatsoever as a result of giving any such notification. 4.2 Further conditions precedent The Lenders will only be obliged to advance or pre-position or release a Drawing if on the date of the relevant Drawdown Request, the proposed Drawdown Date and (if applicable) the relevant Delivery Date: 4.2.1 no Default is continuing or would result from the advance of that Drawing; 4.2.2 the Repeating Representations are true and correct; 4.2.3 none of the circumstances described in Clause 7.2 (Change of control) has occurred; and 4.2.4 no event described in Clauses 7.1 (Illegality), 7.7 (Charterer's Material Adverse Effect), 7.8 (Sanctions Event under a Charter) and 7.9 (Off-hire under a Charter) has occurred in respect of the Vessel to which the Drawdown Request relates; and 4.2.5 no Mandatory Prepayment Event has occurred in respect of the Vessel to which the Drawdown Request relates. 4.3 Drawing Limit The Lenders will only be obliged to advance a Drawing if: 4.3.1 that Drawing will not increase the Loan to a sum in excess of the Maximum Loan Amount; 4.3.2 that Drawing will not cause the amount of the relevant Vessel Loan to be exceeded; 4.3.3 the proposed Drawdown Date of that part of an Instalment Drawing or the Drawing in respect of the Delivery Instalment coincides with the due date for payment or for pre-positioning in the case of the Delivery Instalment by the relevant Borrower of the relevant instalment of the Contract Price of the relevant Vessel under the relevant Building Contract and that Drawing will be applied in or prepositioned for payment of that instalment, but: (a) the proposed Drawdown Date for the first Drawing may be any Business Day during the Availability Period; and (b) the proposed Drawdown Date for any part of a Drawing relating to Pre-Delivery Expenses shall be any Business Day which coincides with the Drawdown Date of an Instalment Drawing or the Drawing in respect of the Delivery Instalment provided that two Drawings relating to Pre-Delivery Expenses shall be permitted in a minimum amount of US$5,000,000 each between launch and delivery of a LONUVE\30137956.24 Page 36

 
Vessel on a Business Day which does not coincide with the Drawdown Date of an Instalment Drawing or the Drawing in respect of the Delivery Instalment on condition that such additional Drawings are also in compliance with Clause 4.3.4(c); and 4.3.4 that Drawing will be applied in or towards payment: (a) in respect of the first Drawing relating to Vessel E and to Vessel F, to the relevant Borrower for the purpose of reimbursing such Borrower of any amounts paid by that Borrower as at the date of the Drawdown Request relating to such Drawing which in aggregate exceed 20% of the Total Project Costs for that Vessel and each such payment may be applied as a dividend payment without restriction and in addition to any dividend paid pursuant to Clause 17.12.4(a); (b) in respect of all Instalment Drawings and the Delivery Instalment relating to each Vessel, to the Builder in an amount such that the Drawings under that Vessel Loan do not in aggregate exceed 80% of the Total Project Costs for that Vessel; and (c) of the Pre-Delivery Expenses relating to each Vessel in an amount such that the Drawings under that Vessel Loan do not in aggregate exceed 80% of the Total Project Costs for that Vessel, with the proceeds of the relevant Drawing to be applied (i) in payment of Pre-delivery Expenses or (ii) in reimbursement of Pre-Delivery Expenses paid or incurred and free to be paid as a dividend payment without restriction and in addition to any dividend paid pursuant to Clause 17.12.4(a). 4.4 Initial Conditions subsequent The Borrowers undertake to deliver or to cause to be delivered to the Agent within five Business Days after the first Drawdown Date in respect of each Vessel Loan the additional documents and other evidence listed in Part II of Schedule 2 (Conditions Subsequent to initial Drawing), save that references in that Part II to "the Vessel" or to any person or document relating to a Vessel shall be deemed to relate solely to the Vessel specified in the relevant Drawdown Request or to any person or document relating to that Vessel respectively. 4.5 Conditions precedent to Instalment Drawings The Borrowers are not entitled to have any Instalment Drawing advanced unless the Agent has received the additional documents and other evidence listed in Part Ill of Schedule 2 (Conditions precedent to Instalment Drawing), save that references in that Part Ill to "the Vessel" or to any person or document relating to a Vessel shall be deemed to relate solely to the Vessel specified in the relevant Drawdown Request or to any person or document relating to that Vessel respectively. 4.6 Conditions precedent to Drawing for Pre-delivery Expenses The Borrowers are not entitled to have any Drawing in respect of Pre-delivery Expenses advanced unless the Agent has received the additional documents and other evidence listed in Part IV of Schedule 2 (Conditions precedent to Drawing for Pre-delivery Expenses), save that references in that Part IV to "the Vessel" or to any person or document relating to a Vessel shall be deemed to relate solely to the Vessel specified in the LONLIVE\30137956.24 Page 37

 
relevant Drawdown Request or to any person or document relating to that Vessel respectively. 4. 7 Conditions precedent to pre-position the Delivery Instalment The Borrowers are not entitled to request the Lenders to pre-position the Delivery Instalment unless the Agent has received the additional documents and other evidence listed in Part V of Schedule 2 (Conditions Precedent to pre-position the Delivery Instalment), or evidence satisfactory to the Agent that it shall, on the Pre-position Date, receive such documents or evidence, save that references in that Part V to "the Vessel" or to any person or document relating to a Vessel shall be deemed to relate solely to the Vessel specified in the relevant Drawdown Request or to any person or document relating to that Vessel respectively. 4.8 Delivery conditions precedent The Borrowers are not entitled to have any Drawing released to the Builder on a Delivery Date unless the Agent has received the additional documents and other evidence listed in Part VI of Schedule 2 (Delivery conditions precedent), save that references in that Part VI to "the Vessel" or to any person or document relating to a Vessel shall be deemed to relate solely to the Vessel being delivered on that Delivery Date. Whether or not a Drawing is released to the Builder on a Delivery Date, the Borrowers undertake to deliver or to cause to be delivered to the Agent on each Delivery Date the additional documents and other evidence listed in Part VI of Schedule 2 (Delivery conditions precedent), save that references in that Part VI to "the Vessel" or to any person or document relating to a Vessel shall be deemed to relate solely to the Vessel being delivered on that Delivery Date. 4.9 Delivery conditions subsequent Whether or not a Drawing is released to the Builder on a Delivery Date, the Borrowers undertake to deliver or to cause to be delivered to the Agent on, or as soon as practicable after, each Delivery Date the additional documents and other evidence listed in Part VII of Schedule 2 (Delivery conditions subsequent) other than in the case of paragraph 1, items (b) and (c) (Evidence of Borrower's title) of Part VII of Schedule 2 which shall be delivered to the Agent within two Business Days after the relevant Delivery Date, save that references in that Part VII to "the Vessel" or to any person or document relating to a Vessel shall be deemed to relate solely to the Vessel delivered on that Delivery Date. 4.10 No waiver If the Lenders in their sole discretion agree to advance a Drawing to the Borrowers before all of the documents and evidence required by Clause 4.1 (Initial conditions precedent), Clause 4.5 (Conditions precedent to Instalment Drawings), Clause 4.7 (Condition precedents to pre-position the Delivery Instalment) and/or Clause 4.8 (Delivery conditions precedent) have been delivered to or to the order of the Agent, the Borrowers undertake to deliver all outstanding documents and evidence to or to the order of the Agent no later than ten (10) days after the relevant Drawdown Date or such other date specified by the Agent (acting on the instructions of the Majority Lenders). The advance of a Drawing under this Clause 4.10 shall not be taken as a waiver of the Lenders' right to require production of all the documents and evidence required by Clause 4.1 (Initial conditions precedent), Clause 4.5 (Conditions precedent to Instalment Drawings), Clause 4. 7 (Condition precedents to pre-position the Delivery Instalment) and Clause 4.8 (Delivery conditions precedent). LONUVE\30137956.24 Page 38

 
4.11 Form and content All documents and evidence delivered to the Agent under this Clause shall: 4.11.1 be in form and substance reasonably acceptable to the Agent; and 4.11.2 if required by the Agent, be certified, notarised, legalised or attested in a manner reasonably acceptable to the Agent. LONUVE\30137956.24 Page 39

 
Section 3 Utilisation 5 Advance 5.1 Delivery of a Drawdown Request The Borrowers may request a Drawing to be advanced by delivery to the Agent of a duly completed Drawdown Request not fewer than ten Business Days before the proposed Drawdown Date. 5.2 Completion of a Drawdown Request A Drawdown Request may be amended or withdrawn after delivery to the Agent but is irrevocable and cannot be amended five Business Days before the proposed Drawdown Date and will not be regarded as having been duly completed unless: 5.2.1 it is signed by an authorised signatory of each Borrower; 5.2.2 the proposed Drawdown Date is a Business Day within the Availability Period; and 5.2.3 the proposed Interest Period complies with Clause 9 (Interest Periods). 5.3 Lenders' participation 5.3.1 Subject to Clauses 2 (The Loan), 3 (Purpose) and 4 (Conditions of Utilisation), each Lender shall make its participation in any Drawing available by the relevant Drawdown Date through its Facility Office. 5.3.2 The amount of each Lender's participation in any Drawing will be equal to the proportion borne by its Commitment to the Total Commitments. 5.4 Cancellation of Commitment The Total Commitments shall be cancelled at the end of the Availability Period to the extent that they are unutilised at that time. LONLlVE\30137956.24 Page 40

 
Section 4 Repayment, Prepayment and Cancellation 6 Repayment 6.1 Repayment of each Vessel Loan 6.1.1 The Borrowers agree to repay each Vessel Loan to the Agent for the account of the Lenders by consecutive half-yearly Repayment Instalments together with a balloon instalment (a "Balloon Instalment"). One such Repayment Instalment shall be made on each of the Repayment Dates and the Balloon Instalment shall be made on the Termination Date relating to that Vessel Loan, each in the amounts specified in Schedule 4 (Repayment Schedule), the first instalment falling due on the earlier to occur of 20 June or 20 December following the final Drawdown Date in respect of that Vessel Loan. For the avoidance of doubt, each Vessel Loan shall be repaid in full by the Termination Date in relation to that Vessel Loan. 6.1.2 The Borrowers shall procure that the instalments payable to the Agent pursuant to this Clause 6.1 are received by the Agent no later than one (1) Business Days prior to the date on which such instalment falls due. 6.1.3 If an Repayment Instalment falls due on a day which is not a Business Day, that Repayment Instalment will instead fall due on the next Business Day in that Month (if there is one) or the preceding Business Day (if there is not). 6.2 Reduction of Balloon Instalments If the aggregate amount advanced to the Borrowers in respect of a Vessel Loan is less than the Maximum Loan Amount, the amount of the Balloon Instalment and the Repayment Instalments in respect of that Vessel Loan shall be reduced pro rata to the amount actually advanced. 6.3 Reborrowing The Borrowers may not reborrow any part of a Vessel Loan which is repaid or prepaid. 7 Illegality, Prepayment and Cancellation 7.1 Illegality If in any applicable jurisdiction it becomes unlawful for a Lender to perform any of its obligations as contemplated by this Agreement or to fund or maintain its participation in the Loan or it becomes unlawful for any Affiliate of a Lender for that Lender to do so: 7.1.1 that Lender shall promptly notify the Agent upon becoming aware of that event; 7.1.2 upon the Agent notifying the Borrowers, the Commitment of that Lender will be immediately cancelled; and 7.1.3 the Borrowers shall repay that Lender's participation in each Vessel Loan on the last day of its current Interest Period or, if earlier, the date specified by that Lender in the notice delivered to the Agent and notified by the Agent to the Borrowers (being no earlier than the last day of any applicable grace period permitted by law). LONLlVE\30137956.24 Page 41

 
7. 2 Change of control 7.2.1 The Borrowers shall procure that throughout the Facility Period: (a) in relation to TGP: (i) (where all management powers over the business and affairs of TGP are vested exclusively in its general partner), (A) Teekay GP LLC remains the general partner of TGP; and (B) Teekay Parent remains the owner, directly or indirectly, of a minimum of fifty per cent (50%) of the voting rights in Teekay GP LLC; or (ii) (where all management powers over the business and affairs of TGP become vested exclusively in a board of directors of TGP), Teekay Parent remains the holder, directly or indirectly, of (A) a minimum of fifty per cent (50%) of the voting rights to elect the members of that board of directors or (B) of the voting rights to elect a minimum of fifty per cent (50%) of that board of directors; (b) in relation to each Borrower and the Parent, there is no change in the legal or beneficial ownership of any such company from that advised to the Agent at the date of this Agreement without the Agent's prior written consent; (c) in relation to Tee kay Operating, its shareholders at the date of this Agreement retain full legal and beneficial ownership of such company or corporation directly or indirectly; and (d) in relation to CLNG, its shareholders at the date of this Agreement retain full legal and beneficial ownership of such company or corporation. 7.2.2 If there is any change of control in breach of Clause 7.2.1: (a) the Borrowers shall promptly notify the Agent upon becoming aware of that event; (b) a Lender shall not be obliged to fund a Loan; and (c) if a Lender so requires and notifies the Agent within five days of the Borrower notifying the Agent of the event, the Agent shall, by not less than five days' notice to the Borrowers, cancel the Commitment of that Lender and declare the participations of that Lender in all outstanding Loans, together with accrued interest, and all other amounts accrued under the Finance Documents immediately due and payable, whereupon the Commitment of that LONLIVE\30137956.24 Page 42

 
Lender will be cancelled and all such outstanding amounts will become immediately due and payable. 7.3 Voluntary prepayment of a Vessel Loan The Borrowers may prepay the whole or any part of a Vessel Loan (but, if in part, being an amount that reduces that Vessel Loan by a minimum amount of five million dollars and in an integral multiple of one million dollars) at any time following the end of the Availability Period for that Vessel Loan subject as follows: 7.3.1 they give the Agent not less than 30 Business Days' (or such shorter period as the Majority Lenders may agree) prior notice; 7 .3.2 if the prepayment is made prior to the third anniversary of this Agreement, they pay to the Agent for the account of the Lenders, in addition to the amount prepaid, a fee of an amount equal to one per cent (1%) of the amount prepaid, which fee shall be paid on the date of the prepayment; and 7.3.3 any prepayment under this Clause 7.3 shall be applied in prepayment of the relevant Balloon Instalment and remaining Repayment Instalments in respect of that Vessel Loan in inverse order of maturity. 7.4 Right of cancellation and prepayment in relation to a single Lender 7.4.1 If: (a) any sum payable to any Lender by the Borrowers is required to be increased under Clause 12.2.2 (Tax gross-up); (b) any Lender claims indemnification from the Borrowers under Clause 12.3 (Tax indemnity) or Clause 13.1 (Increased costs); or (c) at any time on or after the date which is three Months before the earliest FATCA Application Date for any payment by a Party to a Lender (other than a PRC Lender) (or to the Agent for the account of that Lender (other than a PRC Lender)), that Lender is not, or has ceased to be, a FATCA Exempt Party and, as a consequence, a Party will be required to make a FATCA Deduction from a payment to that Lender (or to the Agent for the account of that Lender) on or after that FATCA Application Date, the Borrowers may, whilst the circumstance giving rise to the requirement for that increase or indemnification or FATCA Deduction continues, give the Agent 15 Business Days' notice of cancellation onhe Commitment(s) of that Lender and their intention to procure the repayment of that Lender's participation in the Loan. 7.4.2 On receipt of a notice referred to in Clause 7.4.1 in relation to a Lender, the Commitment(s) of that Lender shall immediately be reduced to zero. 7.4.3 On the last day of the Interest Period in respect of each Vessel Loan which ends after the Borrowers have given notice under Clause 7.4.1 in relation to a Lender (or, if earlier, the date specified by the Borrowers in that notice), the Borrowers shall repay that Lender's participation in that Vessel Loan LONUVE\30137956.24 Page 43

 
together with all interest and other amounts accrued under the Finance Documents. 7.5 Mandatory prepayment on Total Loss If a Vessel becomes a Total Loss, the Borrowers shall: 7.5.1 make a prepayment to the relevant Debt Service Reserve Account of an amount equal to the Debt Service Reserve for that Vessel Loan (which shall be maintained on the relevant Debt Service Reserve Account in addition to the existing Debt Service Reserve) so that, for the avoidance of doubt, following such prepayment, the amount maintained in the relevant Debt Service Account is equal to (i) the net amount of interest payable in respect of the Vessel Loan relating to that Borrower's Vessel on the next two Interest Payment Dates in respect of the Vessel Loan relating to that Borrower's Vessel plus (ii) the Repayment Instalments of the Vessel Loan relating to that Borrower's Vessel due to be repaid under this Agreement on the next two Repayment Dates in respect of the Vessel Loan relating to that Borrower's Vessel; and 7.5.2 on the earlier of the date falling 180 days after the date on which such event becomes or is declared or deemed to be a Total Loss and the date on which the proceeds of any such Total Loss are realised, prepay the whole of the Vessel Loan in respect of that Vessel then outstanding, at which time all amounts held on the relevant Debt Service Reserve Account shall be released to the relevant Borrower. 7.6 Mandatory prepayment on sale of a Vessel If: 7.6.1 the Charterer exercises the purchase option in respect of a Vessel pursuant to any provision of the Charter in relation to such Vessel (other than in accordance with clause 47.1(a) of such Charter); or 7 .6.2 any Yamal Sponsor Guarantor (or a nominee of such Yamal Sponsor Guarantor) exercises its right to acquire a Vessel in accordance with the Purchase Option Side Letter in respect of that Vessel, the Borrowers shall, in each case, simultaneously with the sale of such Vessel to the Charterer or a Yamal Sponsor Guarantor (as the case may be), prepay the whole of the Vessel Loan in respect of that Vessel then outstanding. In the event that the proceeds from such sale exceed the amount of the Vessel Loan then outstanding, the Borrowers shall, if (i) there is an Event of Default continuing or a continuing breach of Clause 17.19 (Additional Security) or (ii) the Agent has not (in its discretion) approved the retention by the Borrowers of such excess proceeds, pay the surplus proceeds to the Agent for application pro rata against the relevant Balloon Instalments and the remaining Repayment Instalments for each Vessel Loan. lONUVE\30137956.24 Page 44

 
7. 7 Charterer's Material Adverse Effect If an event or circumstance occurs which has or is reasonably likely to have a material adverse effect on the financial condition or business of the Charterer and YLNG and the Charterer's ability to perform and comply with its obligations under a Charter then: 7.7.1 the Borrowers shall promptly notify the Agent upon becoming aware of that event; 7.7.2 the Borrower's insurers shall confirm to the Agent that the Security Agent is named as loss payee under the loss of hire insurances and that claims are payable and will be paid to the Debt Service Reserve Account; and 7.7.3 each Borrower shall make payment to the relevant Debt Service Reserve Account of an amount equal to the Debt Service Reserve and which shall be maintained in the Debt Service Reserve Account in addition to the existing Debt Service Reserve for so long as the Agent, in its reasonable opinion, believes the event or circumstance notified to it is continuing. 7.8 Sanctions Event under a Charter If a Sanctions Event (as such term is' defined in clause 70 of each Charter) occurs, then: 7 .8.1 the Borrowers shall promptly notify the Agent upon becoming aware of that event; 7.8.2 the Security Agent shall participate in the charter restructuring process set out in clause 70 of each Charter, unless to do so would mean it is in breach of any applicable law; 7.8.3 if the relevant Charter is then suspended pursuant to clause 70.9 of the Charter, the relevant Borrower shall procure that the payment due from the Charterer in the amount of US$160,000,000 (the "Suspension Payment") is paid to the relevant Debt Service Reserve Account for application either (at the discretion of the Agent): (i) on receipt thereof, in one application against all amounts (in chronological order of maturity and up to the amount of the Suspension Payment) which shall become due in respect of the relevant Vessel Loan during the following five years of the Facility Period (which application shall proportionately discharge the Borrowers' principal repayment and interest payment obligations in respect of that Vessel Loan for that period), with any balance being retained in the Debt Service Reserve Account; or (ii) semi-annually over the following five years of the Facility Period, as such amounts become due in respect of the relevant Vessel Loan; 7.8.4 if the relevant Charter has been suspended for a continuous period of five years: (a) a Lender shall not be obliged to fund a Loan; and (b) if a Lender so requires and notifies the Agent within five days of the Borrowers notifying the Agent of the event or circumstance, the Agent shall, by not less than five days' notice to the Borrowers, cancel the Commitment of that Lender and declare the LONUVE\30137956.24 Page 45

 
participations of that Lender in in all outstanding Loans, together with accrued interest, and all other amounts accrued under the Finance Documents immediately due and payable, whereupon the Commitment of that Lender will be cancelled and all such outstanding amounts will become immediately due and payable. 7.9 Off-hire under a Charter 7.9.1 If a Vessel is off-hire under its Charter the relevant Borrower shall promptly notify the Agent of that event and, if it continues, shall, 10 Business Days before the date upon which the Charterer's right to terminate the Charter for off-hire shall arise, make payment to the relevant Debt Service Reserve Account of an amount equal to the Debt Service Reserve (which shall be maintained on the Debt Service Reserve Account in addition to the existing Debt Service Reserve) so that, for the avoidance of doubt, following such payment, the amount maintained in the relevant Debt Service Account is equal to (i) the net amount of interest payable in respect of the Vessel Loan relating to that Borrower's Vessel on the next two Interest Payment Dates in respect of the Vessel Loan relating to that Borrower's Vessel plus (ii) the Repayment Instalments of the Vessel Loan relating to that Borrower's Vessel due to be repaid under this Agreement on the next two Repayment Dates in respect of the Vessel Loan relating to that Borrower's Vessel. 7.9.2 If, on or after the date upon which the Charterer's right to terminate the Charter arises, the Charterer: (a) terminates the Charter in accordance with its rights: the provisions of Clause 22.1.14 (Repudiation, rescission or breach of agreements) shall apply; or (b) does not terminate the Charter but continues to have the right to terminate the Charter for off-hire: the additional Debt Service Reserve shall be maintained on the relevant Debt Service Reserve Account, and after a period of 270 days following the date upon which the Charterer's right to terminate the Charter arose the Borrowers shall prepay the whole of the Vessel Loan in respect of that Vessel then outstanding, at which time all amounts held on the relevant Debt Service Reserve Account shall be released to the relevant Borrower. 7.10 Mandatory Prepayment Event The Borrowers shall, on the date of the occurrence of a Mandatory Prepayment Event, prepay the whole of the Vessel Loan in respect of the Vessel to which such Mandatory Prepayment Event relates then outstanding. 7.11 Restrictions 7.11.1 Any notice of prepayment or cancellation given under this Clause 7 shall be irrevocable and, unless a contrary indication appears in this Agreement, shall specify the date or dates upon which the relevant prepayment or cancellation is to be made and the amount of that prepayment or cancellation. LONUVE\30137956.24 Page 46

 
7.11.2 Any prepayment under this Agreement shall be made together with accrued interest on the amount prepaid and, subject to any Break Costs and subject to Clause 7.3.2 (Voluntary prepayment of a Vessel Loan), without premium or penalty. 7.11.3 The Borrowers shall not repay, prepay or cancel all or any part of a Vessel Loan except at the times and in the manner expressly provided for in this Agreement. 7.11.4 No amount of the Total Commitments cancelled under this Agreement may be subsequently reinstated. 7.11.5 If the Agent receives a notice under this Clause 7 it shall promptly forward a copy of that notice to the Borrowers or the affected Lender, as appropriate. LONUVE\30137956.24 Page 47

 
Section 5 Costs of Utilisation 8 Interest 8.1 Calculation of interest The rate of interest on each Vessel Loan for each Interest Period is the percentage rate per annum which is the aggregate of the applicable: 8.1.1 Margin; and 8.1.2 LIBOR. 8.2 Payment of interest 8.2.1 The Borrowers shall pay accrued interest on each Vessel Loan on the last day of each Interest Period (and, if the Interest Period is longer than six Months, on the dates falling at six monthly intervals after the first day of the Interest Period). 8.2.2 The Borrowers shall procure that interest payments payable pursuant to this Clause 8.2 are transferred to the Agent no later than two (2) Business Days prior to the date on which such payment falls due. 8.3 Default interest If the Borrowers fail to pay any amount payable by them under a Finance Document on its due date, interest shall accrue on the overdue amount from the due date up to the date of actual payment (both before and after judgment) at a rate which is two per cent per annum higher than the rate which would have been payable if the overdue amount had, during the period of non-payment, constituted a Vessel Loan in the currency of the overdue amount for successive Interest Periods, each of a duration selected by the Agent (acting reasonably). Any interest accruing under this Clause 8.3 shall be immediately payable by the Borrowers on demand by the Agent. Default interest (if unpaid) arising on an overdue amount will be compounded with the overdue amount at the end of each Interest Period applicable to that overdue amount but will remain immediately due and payable. 8.4 Notification of rates of interest The Agent shall promptly notify the Borrowers of the determination of a rate of interest under this Agreement. 9 Interest Periods 9.1 Duration of Interest Periods 9.1.1 Subject to Clauses 9.2 (Second and subsequent Drawings), 9.3 (Interest Periods to meet Repayment Dates) and 9.4 (Non-Business Days), each Interest Period for a Vessel Loan shall have a duration of six Months or any other period agreed in writing between the Borrowers and the Agent (acting on the instructions of all the Lenders). 9.1.2 No Interest Period shall extend beyond the Termination Date. 9.1.3 Each Interest Period shall start on the Drawdown Date in respect of the first Drawing in respect of the Vessel Loan or (if the first Drawing is already made) on the last day of the preceding Interest Period and end on the date LONUVE\30137956.24 Page 48

 
which numerically corresponds to the Drawdown Date in respect of the first Drawing or the last day of the preceding Interest Period in the relevant Month except that, if there is no numerically corresponding date in that Month, the Interest Period shall end on the last Business Day in that Month. 9.2 Second and subsequent Drawings If the second or any subsequent Drawing of a Vessel Loan is made otherwise than on the first day of an Interest Period for the balance of that Vessel Loan, there shall be a separate initial Interest Period for that Drawing commencing on its Drawdown Date and expiring on the final date of the then current Interest Period for the balance of that Vessel Loan. 9.3 Interest Periods to meet Repayment Dates If an Interest Period will expire after the next Repayment Date in respect of the relevant Vessel Loan, there shall be a separate Interest Period for a part of that Vessel Loan equal to the Repayment Instalment due on that next Repayment Date and that separate Interest Period shall expire on that next Repayment Date. 9.4 Non-Business Days If an Interest Period would otherwise end on a day which is not a Business Day, that Interest Period will instead end on the next Business Day in that Month (if there is one) or the preceding Business Day (if there is not). 10 Changes to the Calculation of Interest 10.1 Absence of quotations Subject to Clause 10.2 (Market disruption), if LIBOR is to be determined by reference to the Reference Banks but a Reference Bank does not supply a quotation by 11.00 am (London time) on the Quotation Day, the applicable LIBUR shall be determined on the basis of the quotations of the remaining Reference Banks. 10.2 Market disruption If a Market Disruption Event occurs for any Interest Period, then the rate of interest on each Lender's share of the relevant Vessel Loan for that Interest Period shall be the percentage rate per annum which is the sum of: 10.2.1 the Margin; and 10.2.2 the rate notified to the Agent by that Lender as soon as practicable, and in any event by close of business on the date falling three Business Days after the Quotation Day (or, if earlier, on the date falling five Business Days prior to the date on which interest is due to be paid in respect of that Interest Period), to be that which expresses as a percentage rate per annum the cost to that Lender of funding its participation in the relevant Vessel Loan from whatever source it may reasonably select. In this Agreement "Market Disruption Event" means: (a) at or about noon on the Quotation Day for the relevant Interest Period LIBOR is to be determined by reference to the Reference Banks and none or only one of the Reference Banks supplies a rate to the Agent to determine LIBOR for dollars and the relevant Interest Period; or (b) before close of business in London on the Quotation Day for the relevant Interest Period, the Agent receives notifications from a LONLIVE\30137956.24 Page 49

 
Lender or Lenders (whose participations in the relevant Vessel Loan exceed 60 per cent of that Vessel Loan) that the cost to it of funding its participation in that Vessel Loan from the Relevant Interbank Market or, if cheaper, from whatever source it may reasonably select would be in excess of L!BOR. 10.3 Alternative basis of interest or funding 10.3.1 If a Market Disruption Event occurs and the Agent or the Borrowers so require, the Agent and the Borrowers shall enter into negotiations (for a period of not more than thirty days) with a view to agreeing a substitute basis for determining the rate of interest. 10.3.2 Any alternative basis agreed pursuant to Clause 10.3.1 shall, with the prior consent of all the Lenders and the Borrowers, be binding on all Parties. 10.3.3 If an alternative basis is not agreed pursuant to Clause 10.3.1, the Borrowers will immediately prepay the relevant Commitment together with Break Costs and the remaining Repayment Instalments in respect of the relevant Vessel Loan shall be reduced pro rata. 10.4 Break Costs 10.4.1 The Borrowers shall, promptly following written demand from the Agent on behalf of a Finance Party, pay to the Agent (for the account of that Finance Party) its Break Costs attributable to all or any part of a Vessel Loan or Unpaid Sum being paid by the Borrowers on a day other than the last day of an Interest Period for that Vessel Loan or Unpaid Sum. 10.4.2 Each Lender shall, as soon as reasonably practicable after a demand by the Agent, provide a certificate confirming the amount of its Break Costs for any Interest Period in which they accrue. 11 Fees 11.1 Commitment Fee 11.1.1 The Borrowers shall pay to the Agent (for the account of the Lenders in proportion to their Commitments) a fee computed at the rate of zero point five per cent (0.5%) per annum on the undrawn and uncancelled amount of the Loan for the Availability Period. 11.1.2 The accrued commitment fee is payable on the last day of each successive period of three Months which ends during the Availability Period, on the last day of the Availability Period, on the Drawdown Date in respect of the final Drawing and (on the cancelled amount of the relevant Lender's Commitment) at the time the cancellation is effective. 11.2 Arrangement fee The Borrowers shall pay to the Arranger an arrangement fee in the amount and at the times agreed in the Fee Letter. 11.3 Agency fee The Borrowers shall pay to the Agent (for its own account) an agency fee in the amount and at the times agreed in the Fee Letter. LONLIVE\30137956.24 Page SO

 
Section 6 Additional Payment Obligations 12 Tax Gross Up and Indemnities 12.1 Definitions In this Agreement: "FATCA Payment" means either: (a) the increase in a payment made by a Borrower to a Finance Party that is not originally a party to this Agreement under Clause 12.8 (FATCA deduction and gross-up by Borrower) or Clause 12.9.2 (FATCA Deduction by Finance Party); or (b) a payment under Clause 12.9.4 (FATCA Deduction by Finance Party). "PRC Lender" means the Original Lenders, and any Lender that: (a) is resident in or organised under the laws of the PRC; or (b) is acting through its Facility Office located in the PRC. "Protected Party" means a Finance Party which is or will be subject to any liability or required to make any payment for or on account of Tax in relation to a sum received or receivable (or any sum deemed for the purposes of Tax to be received or receivable) under a Finance Document. "Tax Credit" means a credit against, relief or remission for, or repayment of any Tax. "Tax Deduction" means a deduction or withholding for or on account of Tax from a payment under a Finance Document, other than a FATCA Deduction. "Tax Payment" means either the increase in a payment made by a Security Party to a Finance Party under Clause 12.2 (Tax gross-up) or a payment under Clause 12.3 (Tax indemnity) or a FATCA Payment. Unless a contrary indication appears, in this Clause 12 a reference to "determines" or "determined" means a determination made in the absolute discretion of the person making the determination. 12.2 Tax gross-up Each Borrower shall (and shall procure that each other Security Party shall) make all payments to be made by it without any Tax Deduction, unless a Tax Deduction is required by law, subject as follows: 12.2.1 a Borrower shall promptly upon becoming aware that it or any other Security Party must make a Tax Deduction (or that there is any change in the rate or the basis of a Tax Deduction) notify the Agent accordingly. Similarly, a Lender shall notify the Agent on becoming so aware in respect of a payment payable to that Lender. If the Agent receives such notification from a Lender it shall notify the Borrowers and any such other Security Party; 12.2.2 if a Tax Deduction is required by law to be made by a Borrower or any other Security Party, the amount of the payment due from that Borrower or that LONLlVE\30137956.24 Page 51

 
other Security Party shall be increased to an amount which (after making any Tax Deduction) leaves an amount equal to the payment which would have been due if no Tax Deduction had been required; 12.2.3 if a Borrower or any other Security Party is required to make a Tax Deduction, that Borrower shall (and shall procure that such other Security Party shall) make that Tax Deduction and any payment required in connection with that Tax Deduction within the time allowed and in the minimum amount required by law; 12.2.4 within thirty (30) days, or by the statutory deadline specified in the relevant tax legislation (if later), of making either a Tax Deduction or any payment required in connection with that Tax Deduction, the Borrower making that Tax Deduction shall (and shall procure that such other Security Party shall) deliver to the Agent for the Finance Party entitled to the payment a statement under section 975 of the ITA or other evidence reasonably satisfactory to that Finance Party that the Tax Deduction has been made or (as applicable) any appropriate payment paid to the relevant taxing authority; 12.2.5 The Finance Parties and the Security Parties shall cooperate in completing any procedural formalities necessary for a Security Party to make a payment to a Lender without a Tax Deduction. 12.3 Tax indemnity 12.3.1 Each Borrower shall (within three Business Days of demand by the Agent) pay to a Protected Party an amount equal to the loss, liability or cost which that Protected Party determines will be or has been (directly or indirectly) suffered for or on account of Tax by that Protected Party in respect of a Finance Document. 12.3.2 Clause 12.3.1 shall not apply: (a) with respect to any Tax assessed on a Finance Party: (i) under the law of the jurisdiction in which that Finance Party is incorporated or, if different, the jurisdiction (or jurisdictions) in which that Finance Party is treated as resident for tax purposes; or (ii) under the law of the jurisdiction in which that Finance Party's Facility Office is located in respect of amounts received or receivable in that jurisdiction, if that Tax is imposed on or calculated by reference to the net income received or receivable (but not any sum deemed to be received or receivable) by that Finance Party; or (b) to the extent a loss, liability or cost: (i) is compensated for by an increased payment under Clause 12.2 (Tax gross-up); or LONLIVE\30137956.24 Page 52

 
(ii) relates to a FATCA Deduction required to be made by a Party. 12.3.3 A Protected Party making, or intending to make a claim under Clause 12.3.1 shall promptly notify the Agent of the event which will give, or has given, rise to the claim, following which the Agent shall notify the Borrowers. 12.3.4 A Protected Party shall, on receiving a payment from a Borrower under this Clause 12.3, notify the Agent. 12.4 Tax Credit If a Borrower or any other Security Party makes a Tax Payment and the relevant Finance Party determines that: 12.4.1 a Tax Credit is attributable to an increased payment of which that Tax Payment forms part, to that Tax Payment or to a Tax Deduction in consequence of which that Tax Payment was required; and 12.4.2 that Finance Party has obtained and utilised that Tax Credit, that Finance Party shall pay an amount to that Borrower or to that other Security Party which that Finance Party determines will leave it (after that payment) in the same after-Tax position as it would have been in had the Tax Payment not been made by that Borrower or that other Security Party. 12.5 Stamp taxes The Borrowers shall pay and, within three Business Days of demand, indemnify each Finance Party against any cost, loss or liability that Finance Party incurs in relation to all stamp duty, registration and other similar Taxes payable in. respect of any Finance Document, except for: 12.5.1 any stamp duty, registration or other similar Taxes which are payable in respect of an assignment, transfer or other alienation of any kind by a Finance Party of any rights or obligations under a Finance Document; and 12.5.2 any stamp duty, registration or other similar Taxes which are payable by a Finance Party in PRC in respect of the negotiation, preparation, printing, execution, syndication and perfection of this Agreement and any other Finance Documents. 12.6 Indirect Tax 12.6.1 Subject only to clause 12.6.3 below, (a) all amounts set out or expressed in a Finance Document to be payable by any Party to a Finance Party shall be deemed to be exclusive of any Indirect Tax and any PRC Surcharges; (b) if any Indirect Tax is chargeable on any supply made by any Finance Party to any Party in connection with a Finance Document, that Party shall pay to the Finance Party (in addition to and at the same time as paying the consideration) an amount equal to the amount of the Indirect Tax; and (c) if any PRC Surcharges are chargeable in respect of any Indirect Tax referred to in paragraph (b) above, the relevant Party shall pay to LONLIVE\30137956.24 Page 53

 
the Finance Party (in addition to and at the same time as paying such Indirect Tax) an amount equal to the amount of such PRC Surcharges. For the purposes of this Clause 12.6.1, consideration for a supply may include, without limitation, an obligation to pay fees or interest in consideration for such supply. 12.6.2 Where a Finance Document requires any Party to reimburse a Finance Party for any costs or expenses, that Party shall also at the same time pay and indemnify the Finance Party against all Indirect Tax incurred by that Finance Party in respect of the costs or expenses and any PRC Surcharges in respect of such Indirect Tax, in each case to the extent that the Finance Party reasonably determines that it is not entitled to credit or repayment in respect of the Indirect Tax or PRC Surcharges. 12.6.3 If any provision of the Finance Documents is specifically expressed to be subject to this Clause 12.6.3 and: (a) requires or deems a payment under a Finance Document to be made to a Finance Party exclusive of Indirect Tax or PRC Surcharges; (b) requires a person to indemnify or reimburse a Finance Party for Indirect Tax chargeable on any supply made by any Finance Party in connection with a Finance Document; or (c) requires a person to indemnify or reimburse a Finance Party for PRC Surcharges chargeable in respect of any Indirect Tax chargeable on any supply made by any Finance Party in connection with a Finance Document, such provision shall not apply to any PRC VAT which is or would be chargeable by such Finance Party in respect of: (i) any interest payable under Clause 8.2 (Payment of interest) of this Agreement; or (ii) any fees payable under Clause 11 (Fees) of this Agreement, or any PRC Surcharges in respect of such PRC VAT, to the extent that (i) the aggregate blended rate of PRC VAT and PRC Surcharges chargeable by reference to any amount referred to in paragraphs (i) and (ii) above at such time (taking into account any PRC VAT chargeable on the applicable supply and any PRC Surcharges in respect of such PRC VAT) is the same as or lower than (ii) the aggregate blended rate of PRC VAT and PRC Surcharges chargeable by reference to such amount pursuant to the laws and regulations referred to in the definitions of PRC Surcharges and PRC VAT in their forms in effect as at the date of this Agreement. 12.7 FATCA information 12.7.1 Subject to Clause 12.7.3, each Party shall, within ten Business Days of a reasonable request by another Party: LONUVE\30137956.24 Page 54

 
(a) confirm to that other Party whether it is: (i) a FATCA Exempt Party; or (ii) not a FATCA Exempt Party; (b) supply to that other Party such forms, documentation and other information relating to its status under FATCA as that other Party reasonably requests for the purposes of that other Party's compliance with FATCA; and (c) supply to that other Party such forms, documentation and other information relating to its status as that other Party reasonably requests for the purposes of that other Party's compliance with any other law, regulation, or exchange of information regime. 12.7.2 If a Party confirms to another Party pursuant to Clause 12.7.1(a)(i) that it is a FATCA Exempt Party and it subsequently becomes aware that it is not or has ceased to be a FATCA Exempt Party, that Party shall notify that other Party reasonably promptly. 12.7.3 Clause 12.7.1 shall not oblige any Party to do anything, which would or might in its reasonable opinion constitute a breach of: (a) any Jaw or regulation; (b) any fiduciary duty; or (c) any duty of confidentiality. 12.7.4 If a Party fails to confirm whether or not it is a FATCA Exempt Party or to supply forms, documentation or other information requested in accordance with Clause 12.7.1(a) or 12.7.1(b) (including, for the avoidance of doubt, where Clause 12.7.3 applies), then such Party shall be treated for the purposes of the Finance Documents (and payments under them) as if it is not a FATCA Exempt Party until such time as the Party in question provides the requested confirmation, forms, documentation or other information. 12.7.5 If a Borrower is a US Tax Obligor or the Agent reasonably believes that its obligations under FATCA or any other applicable law or regulation require it, each Lender shall, within ten Business Days of: (a) where a Borrower is a US Tax Obligor and the relevant Lender is an Original Lender, the date of this Agreement; (b) where a Borrower is a US Tax Obligor on a date on which any other. Lender becomes a Party as a Lender, that date; or (c) where a Borrower is not a US Tax Obligor, the date of a request from the Agent, supply to the Agent: LONUVE\30137956.24 Page 55

 
(i) a withholding certificate on Form W-8 or Form W-9 or any other relevant form; or (ii) any withholding statement or other document, authorisation or waiver as the Agent may require to certify or establish the status of such Lender under FATCA or that other law or regulation. 12.7.6 The Agent shall provide any withholding certificate, withholding statement, document, authorisation or waiver it receives from a Lender pursuant to Clause 12.7 .5 to the Borrowers. 12.7.7 If any withholding certificate, withholding statement, document, authorisation or waiver provided to the Agent by a Lender pursuant to Clause 12.7.5 is or becomes materially inaccurate or incomplete, that Lender shall promptly update it and provide such updated withholding certificate, withholding statement, document, authorisation or waiver to the Agent unless it is unlawful for the Lender to do so (in which case the Lender shall promptly notify the Agent). The Agent shall provide any such updated withholding certificate, withholding statement, document, authorisation or waiver to the Borrowers. 12.7.8 The Agent may rely on any withholding certificate, withholding statement, document, authorisation or waiver it receives from a Lender pursuant to Clause 12.7.5 or 12.7.7 without further verification. The Agent shall not be liable for any action taken by it under or in connection with Clause 12.7.5, 12.7.6 or 12.7.7. 12.7.9 If a Lender fails to supply any withholding certificate, withholding statement, document, authorisation, waiver or information in accordance with Clause 12.7 .5 above, or any withholding certificate, withholding statement, document, authorisation, waiver or information provided by a Lender to the Agent is or becomes materially inaccurate or incomplete, then such Lender shall indemnify the Agent, within three Business Days of demand, against any cost, loss, Tax or liability (including, without limitation, for negligence or any other category of liability whatsoever) incurred by the Agent (including any related interest and penalties) in acting as Agent under the Finance Documents as a result of such failure. 12.8 FATCA Deduction and gross-up by the Borrower 12.8.1 If a Borrower is required to make a FATCA Deduction, such Borrower shall make that FATCA Deduction and any payment required in connection with that FATCA Deduction within the time allowed and in the minimum amount required by FATCA. 12.8.2 If a FATCA Deduction is required to be made by a Borrower (other than a FATCA Deduction in respect of a payment to a Lender that is not a PRC Lender), the amount of the payment due from that Borrower shall be increased to an amount which (after making any FATCA Deduction) leaves an amount equal to the payment which would have been due if no FATCA LONUVE\30137956.24 Page 56

 
Deduction had been required. No additional payment shall be required in respect of a FATCA Deduction relating to a Lender that is not a PRC Lender. 12.8.3 Each Borrower shall promptly upon becoming aware that a Borrower must make a FATCA Deduction (or that there is any change in the rate or the basis of a FATCA Deduction) notify the Agent accordingly. Similarly, a Finance Party shall notify the Agent on becoming so aware in respect of a payment payable to that Finance Party. If the Agent receives such notification from a Finance Party it shall notify the Borrower. 12.8.4 Within 30 days of making either a FATCA Deduction or any payment required in connection with that FATCA Deduction, each Borrower shall deliver to the Agent for the Finance Party entitled to the payment evidence reasonably satisfactory to that Finance Party that the FATCA Deduction has been made or (as applicable) any appropriate payment has been paid to the relevant governmental or taxation authority. 12.9 FATCA Deduction by a Finance Party 12.9.1 Each Finance Party may make any FATCA Deduction it is required by FATCA to make, and any payment required in connection with that FATCA Deduction, and no Finance Party shall be required to increase any payment in respect of which it makes such a FATCA Deduction or otherwise compensate the recipient of the payment for that FATCA Deduction. A Finance Party which becomes aware that it must make a FATCA Deduction in respect of a paym_ent to another Party (or that there is any change in the rate or the basis of such FATCA Deduction) shall notify that Party and the Agent. 12.9.2 If the Agent is required to make a FATCA Deduction in respect of a payment to a Finance Party (other than a Lender that is not a PRC Lender) under Clause 28.2 (Distributions by the Agent) which relates to a payment by a Borrower, the amount of the payment due from that Borrower shall be increased to an amount which (after the Agent has made such FATCA Deduction), leaves the Agent with an amount equal to the payment which would have been made by the Agent if no FATCA Deduction had been required. 12.9.3 The Agent shall promptly upon becoming aware that it must make a FATCA Deduction in respect of a payment to a Finance Party under Clause 28.2 (Distributions by the Agent) which relates to a payment by a Borrower (or that there is any change in the rate or the basis of such a FATCA Deduction) notify that Borrower and the relevant Finance Party. 12.9.4 Each Borrower shall (within three Business Days of demand by the Agent) pay to a Finance Party (other than a Lender that is not a PRC Lender) an amount equal to the loss, liability or cost which that Finance Party determines will be or has been (directly or indirectly) suffered by that Finance Party as a result of another Finance Party making a FATCA Deduction in respect of a payment due to it under a Finance Document. This paragraph shall not apply to the extent a loss, liability or cost is compensated for by an increased payment under Clause 12.9.2 above. LONUVE\30137956.24 Page 57

 
12.9.5 A Finance Party making, or intending to make, a claim under Clause 12.9.4 above shall promptly notify the Agent of the FATCA Deduction which will give, or has given, rise to the claim, following which the Agent shall notify the Borrower. 12.9.6 A Finance Party must, on rece1vmg a payment from the Borrowers under this Clause, notify the Agent. 13 Increased Costs 13.1 Increased costs Subject to Clause 13.3 (Exceptions) the Borrowers shall, within three Business Days of a demand by the Agent, pay to the Agent for the account of a Finance Party the amount of any Increased Costs incurred by that Finance Party or any of its Affiliates as a result of (i) the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation or (ii) compliance with any law or regulation made after the date of this Agreement or (iii) the implementation or application of or compliance with Basel III, CRR or CRD IV or any other law or regulation which implements Basel III, CRR or CRD IV (whether such implementation, application or compliance is by a government, regulator, that Finance Party or any of that Finance Party's Affiliates). In this Agreement: (a) "Basel III" means: (i) the agreements on capital requirements, a leverage ratio and liquidity standards contained in "Basel III: A global regulatory framework for more resilient banks and banking systems", "Basel III: International framework for liquidity risk measurement, standards and monitoring" and "Guidance for national authorities operating the countercyclical capital buffer" published by the Basel Committee on Banking Supervision in December 2010, each as amended, supplemented or restated; (ii) the rules for global systemically important banks contained in "Global systemically important banks: assessment methodology and the additional loss absorbency requirement - Rules text" published by the Basel Committee on Banking Supervision in November 2011, as amended, supplemented or restated; and (iii) any further guidance or standards published by the Basel Committee on Banking Supervision relating to "Basel III". (b) "CRD IV" means Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC, as amended, supplemented or restated. (c) "CRR" means Regulation EU No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit LONLIVE\30137956.24 Page SB

 
institutions and investment firms and amending Regulation EU No 648/2012, as amended, supplemented or restated. (d) "Increased Costs" means: (i) a reduction in the rate of return from the Loan or on a Finance Party's (or its Affiliate's) overall capital; (ii) an additional or increased cost; or (iii) a reduction of any amount due and payable under any Finance Document, which is incurred or suffered by a Finance Party or any of its Affiliates to the extent that it is attributable to that Finance Party having entered into any Finance Document or funding or performing its obligations under any Finance Document. 13.2 Increased cost claims 13.2.1 A Finance Party intending to make a claim pursuant to Clause 13.1 (Increased costs) shall notify the Agent of the event giving rise to the claim, following which the Agent shall promptly notify the Borrowers. 13.2.2 Each Finance Party shall, as soon as practicable after a demand by the Agent, provide a certificate confirming the amount of its Increased Costs. 13.3 Exceptions Clause 13.1 (Increased costs) does not apply to the extent any Increased Cost is: 13.3.1 attributable to a Tax Deduction required by law to be made by a Borrower; 13.3.2 attributable to a FATCA Deduction required to be made by a Party; 13.3.3 compensated for by Clause 12.3 (Tax indemnity) (or would have been compensated for under Clause 12.3 but was not so compensated solely because any of the exclusions in Clause 12.3 applied); 13.3.4 attributable to the wilful breach by the relevant Finance Party or its Affiliates of any law or regulation; or 13.3.5 attributable to the implementation or application of or compliance with the "International Convergence of Capital Measurement and Capital Standards, a Revised Framework" published by the Basel Committee on Banking Supervision in June 2004 in the form existing on the date of this Agreement (but excluding any amendment arising out of Basel III) ("Basel II") or any other law or regulation which implements Basel II (whether such implementation, application or compliance is by a government, regulator, Finance Party or any of its Affiliates). In this Clause 13.3, a reference to a "Tax Deduction" has the same meaning given to the term in Clause 12.1 (Definitions). LONUVE\30137956.24 Page 59

 
14 Other Indemnities 14.1 Currency indemnity If any sum due from a Borrower under the Finance Documents (a "Sum"), or any order, judgment or award given or made in relation to a Sum, has to be converted from the currency (the "First Currency") in which that Sum is payable into another currency (the "Second Currency") for the purpose of: 14.1.1 making or filing a claim or proof against that Borrower, or 14.1.2 obtaining or enforcing an order, judgment or award in relation to any litigation or arbitration proceedings, that Borrower shall as an independent obligation, within three Business Days of demand, indemnify each Finance Party to whom that Sum is due against any cost, loss or liability arising out of or as a result of the conversion including any discrepancy between (a) the rate of exchange used to convert that Sum from the First Currency into the Second Currency and (b) the rate or rates of exchange available to that Finance Party at the time of its receipt of that Sum. Each Borrower waives any right it may have in any jurisdiction to pay any amount under the Finance Documents in a currency or currency unit other than that in which it is expressed to be payable. 14.2 Other indemnities 14.2.1 The Borrowers shall, promptly following written demand from the Agent, indemnify each Finance Party against any cost, loss or liability incurred by that Finance Party as a result of: (a) the occurrence of any Event of Default; (b) any other information produced by or on behalf of a Security Party in connection with the Loan being knowingly misleading and/or deceptive in any material respect or omitting information relevant to the Loan where that omission is attributable to the gross negligence of those producing other information referred to above; (c) any enquiry, investigation, subpoena (or similar order) or litigation with respect to a Security Party or with respect to the transactions contemplated or financed under the Finance Documents; (d) a failure by a Borrower to pay any amount due under a Finance Document on its due date, including without limitation, any cost, loss or liability arising as a result of Clause 27 (Sharing among the Finance Parties); (e) funding, or making arrangements to fund, a Drawing following delivery by the Borrowers of a Drawdown Request but that Drawing not being advanced by reason of the operation of any one or more of the provisions of this Agreement (other than by reason of default or negligence by a Finance Party alone); or LONUVE\30137956.24 Page 60

 
(f) a Vessel Loan (or part of a Vessel Loan) not being prepaid in accordance with a notice of prepayment given by the Borrowers. 14.2.2 The Borrowers shall promptly on demand from the Agent indemnify each Finance Party, each Affiliate of a Finance Party and each officer of a Finance Party or its Affiliate (each such person for the purposes of this Clause 14.2 an "Indemnified Person") against any cost, loss or liability incurred by that Indemnified Person pursuant to or in connection with any litigation, arbitration or .administrative proceedings or regulatory enquiry, in connection with or arising out of the entry into and the transactions contemplated by the Finance Documents, having the benefit of any Encumbrance constituted by the Finance Documents or which relates to the condition or operation of, or any incident occurring in relation to, a Vessel, unless such cost, loss or liability is caused by the gross negligence or wilful misconduct of that Indemnified Person. 14.2.3 Subject to any limitations set out in Clause 14.2.2, the indemnity in that Clause shall cover any cost, loss or liability incurred by each Indemnified Person in any jurisdiction: (a) arising or asserted under or in connection with any law relating to safety at sea, the ISM Code, any Environmental Law or any Sanctions; or (b) in connection with any Environmental Claim. 14.3 Indemnity to the Agent The Borrowers shall promptly on written demand from the Agent indemnify the Agent against: 14.3.1 any cost, loss or liability incurred by the Agent (acting reasonably) as a result of: (a) investigating any event which it reasonably believes is a Default; or (b) acting or relying on any notice, request or instruction from any Security Party which it reasonably believes to be genuine, correct and appropriately authorised; or (c) instructing lawyers, accountants, tax advisers, surveyors or other professional advisers or experts as permitted under this Agreement; and 14.3.2 any cost, loss or liability (including, without limitation, for negligence or any other category of liability whatsoever) incurred by the Agent (otherwise than by reason of the Agent's gross negligence or wilful misconduct) and not including any claim based on the fraud of the Agent) in acting as Agent under the Finance Documents. 14.4 Indemnity to the Security Agent The Borrowers shall promptly indemnify the Security Agent and every Receiver and Delegate against any cost, loss or liability incurred by any of them as a resu It of: LONUVE\30137956.24 Page 61

 
14.4.1 any failure by the Borrowers to comply with their obligations under Clause 16 (Costs and Expenses); 14.4.2 acting or relying on any notice, request or instruction which it reasonably believes to be genuine, correct and appropriately authorised; 14.4.3 the taking, holding, protection or enforcement of the Security Documents; 14.4.4 any acts or omissions of the Account Holder in the operation of the Accounts; 14.4.5 the exercise of any of the rights, powers, discretions, authorities and remedies vested in the Security Agent and each Receiver and Delegate by the Finance Documents or by law; 14.4.6 any default by any Security Party in the performance of any of the obligations expressed to be assumed by it in the Finance Documents; or 14.4. 7 acting as Security Agent, Receiver or Delegate under the Finance Documents or which otherwise relates to any of the Charged Property (otherwise, in each case, than by reason of the relevant Security Agent's, Receiver's or Delegate's gross negligence or wilful misconduct). 14.5 Indemnity survival The indemnities contained in this Agreement shall survive repayment of the Loan. 15 Mitigation by the Lenders 15.1 Mitigation Each Finance Party shall, in consultation with the Borrowers, take all reasonable steps to mitigate any circumstances which arise and which would result in all or any part of a Vessel Loan ceasing to be available or any amount becoming payable under or pursuant to any of Clause 7.1 (Illegality), Clause 12 (Tax Gross Up and Indemnities) or Clause 13 (Increased Costs) including (but not limited to) transferring its rights and obligations under the Finance Documents to another Affiliate or Facility Office. The above does not in any way limit the obligations of any Security Party under the Finance Documents. 15.2 Limitation of liability The Borrowers shall promptly indemnify each Finance Party for all costs and expenses reasonably incurred by that Finance Party as a result of steps taken by it under Clause 15.1 (Mitigation). A Finance Party is not obliged to take any steps under Clause 15.1 if, in its opinion (acting reasonably), to do so might be prejudicial to it. 16 Costs and Expenses 16.1 Transaction expenses The Borrowers shall promptly on demand pay the Agent, the Security Agent and the Arranger the amount of all costs and expenses (including legal fees) reasonably incurred by any of them (and, in the case of the Security Agent, by any Receiver or Delegate) in connection with: 16.1.1 the negotiation, preparation, printing, execution, syndication and perfection of this Agreement and any other documents referred to in this Agreement; LONLIVE\30137956.24 Page 62

 
16.1.2 the negotiation, preparation, printing, execution and perfection of any other Finance Documents executed after the date of this Agreement; 16.1.3 any other document which may at any time be required by a Finance Party to give effect to any Finance Document or which a Finance Party is entitled to call for or obtain under any Finance Document (including, without limitation, any valuation of a Vessel); and 16.1.4 any discharge, release or reassignment of any of the Security Documents. 16.2 Amendment costs If (a) a Security Party requests an amendment, waiver or consent or (b) an amendment is required under Clause 28.11 (Change of currency), the Borrowers shall, within three Business Days of demand, reimburse each of the Agent and the Security Agent for the amount of all costs and expenses (including legal fees) reasonably incurred by the Agent and the Security Agent (and, in the case of the Security Agent, by any Receiver or Delegate) in responding to, evaluating, negotiating or complying with that request or requirement. 16.3 Enforcement and preservation costs The Borrowers shall, within three Business Days of demand from the Agent, pay to each Finance Party and each other Secured Party) the amount of all costs and expenses (including legal fees) incurred by that Finance Party in connection with the enforcement of, or the preservation of any rights under, any Finance Document and any proceedings instituted by or against the Security Agent as a consequence of taking or holding the Security Documents or enforcing those rights including (without limitation) any losses, costs and expenses which that Finance Party or other Secured Party may from time to time sustain, incur or become liable for by reason of that Finance Party or other Secured Party being mortgagee of a Vessel and/or a lender to a Borrower, or by reason of that Finance Party or other Secured Party being deemed by any court or authority to be an operator or controller, or in any way concerned in the operation or control, of a Vessel. 16.4 Security Agent expenses The Borrowers shall, promptly upon written demand from the Security Agent, pay to the Security Agent the amount of all costs and expenses (including legal fees) reasonably incurred by the Security Agent in connection with the administration or release of any Encumbrance created pursuant to any Security Document. 16.5 Advisers' costs and expenses The Borrowers shall, promptly upon written demand from the Agent, pay to the Agent the amount of all costs incurred by the Lenders in engaging legal advisers as required pursuant to the Finance Documents. 16.6 Other costs The Borrowers shall, within three Business Days of demand, pay to the each Finance Party and each other Secured Party) the amount of all sums which that Finance Party or other Secured Party may pay or become actually or contingently liable for on account of a Borrower in connection with a Vessel (whether alone or jointly or jointly and severally with any other person) including (without limitation) all sums which that Finance Party or other Secured Party may pay or guarantees which it may give in respect of the Insurances, any expenses incurred by that Finance Party or other Secured Party in connection with the maintenance or repair of a Vessel or in discharging any lien, bond or other claim relating in any way to a Vessel, and any sums which that Finance Party or other Secured Party may pay LONUVE\30137956.24 Page 63

 
--------------------------- -------------------------------- or guarantees which it may give to procure the release of a Vessel from arrest or detention. LONUVE\30137956.24 Page 64

 
Section 7 Security, Accounts and Application of Moneys 17 Security Documents, Accounts and Application of Moneys 17.1 Security Documents As security for the payment of the Indebtedness, the Borrowers shal_l execute and deliver to the Security Agent or cause to be executed and delivered to the Security Agent the following documents in such forms and containing such terms and conditions as the Security Agent shall require: 17.1.1 first priority deeds of assignment of the Building Contracts, the Refund Guarantees and the Supervision Agreements; 17.1.2 a several guarantee and indemnity from each Vessel Sponsor Guarantor limited to its share of the ownership interest of the relevant Borrowers; 17.1.3 first priority pledges of all the shares or membership interest (as applicable) of the Borrowers; 17 .1.4 first priority statutory mortgages over the Vessels together with collateral deeds of covenants; 17.1.5 first priority deeds of assignment of the Insurances, Earnings and Requisition Compensation of the Vessels from the Borrowers; and the first priority assignments of Insurances from the Approved Managers contained in the Managers' Undertakings; 17.1.6 first priority deeds of assignment of the Charters and other Assigned Documents in respect of the Vessels from the-Borrowers; 17.1.7 first priority account security deeds in respect of all amounts from time to time standing to the credit of the Accounts of the Borrowers; 17.1.8 a first priority deed of charge aver the Master Agreement Proceeds; 17.1.9 first priority pledge of all the shares or membership interest (as applicable) of the Parent; and 17.1.10 Managers' Undertakings from the Approved Manager in relation to the Vessels. 17.2 Accounts Each Borrower shall maintain its Accounts with the Account Holder for the duration of the Facility Period free of Encumbrances and rights of set off other than those created by or under the Finance Documents or a Permitted Encumbrance. If at any time the Account Holder gives notice of the termination of its agreement to act as Account Holder, the Borrowers shall appoint a replacement Account Holder before such termination becomes effective. 17.3 Earnings Each Borrower shall procure that all Earnings and any Requisition Compensation received by it are credited to that Borrower's Proceeds Account and, if any such amounts are in euro, the Borrower shall instruct the Account Holder to convert (at the Account Holder's spot rate of exchange) such amounts to dollars for transfer from the relevant Proceeds Account (euro) to the relevant Proceeds Account (dollar). LONUVE\30137956.24 Page 65

 
17.4 Application of Proceeds Account Each Borrower shall, on the date falling ten (10) Business Days after the Delivery Date of the Vessel owned by such Borrower and thereafter on the day in each Month during the Facility Period which numerically corresponds to the 7'" Business Day following the relevant Delivery Date (or, if there is no such day, on the last Business Day of that Month), apply, and for this purpose, each Borrower undertakes, subject to Clause 17.12 (Restriction on transfers and withdrawals), to instruct the Account Holder to apply the amounts standing to the credit of its Proceeds Account (dollar) in the following order: 17.4.1 first, in and towards payment of an amount equal to: (a) the Operating Expenses of the relevant Vessel; and (b) any Taxes, in each case, due and payable by such Borrower as at such date of application; 17.4.2 secondly, in transfer to the relevant Retention Account of such sum so as to enable such Borrower to comply with Clause 17.5 (Transfers to Retention Account); 17.4.3 thirdly, in transfer to the relevant Debt Service Reserve Account of such sum so as to enable such Borrower to comply with Clause 17.9 (Debt Service Reserve Account); 17.4.4 fourthly, in transfer to the relevant Operating Reserve Account of such sum so as to enable such Borrower to comply with Clause 17.10 (Operating Reserve Account); 17 .4.5 fifthly, in transfer to the relevant Dry-docking Reserve Account of such sum so as to comply with Clause 17.11 (Dry-docking Reserve Account); and 17.4.6 sixthly, any moneys remaining in such Proceeds Account (dollar) shall: (a) in the absence of a Dividend Restriction Event that is continuing, be transferred to the relevant Distribution Account without the Agent's prior consent; and (b) upon the occurrence of a Dividend Restriction Event which is continuing, be transferred to the relevant Dividend Lock-Up Account until such time as the relevant Dividend Restriction Event has either been remedied to the satisfaction of, or waived by, the Lenders, following from which such moneys shall, subject to Clause 17.17 (Application of moneys by Security Agent), be transferred to the relevant Distribution Account for applicable by the relevant Borrower in accordance with paragraph (a) above. 17.5 Transfers to Retention Account 17.5.1 Each Borrower shall, on the date falling ten (10) Business Days after the Delivery Date of the Vessel owned by such Borrower and thereafter on the day in each Month during the Facility Period which numerically corresponds LONUVE\30137956.24 Page 66

 
to the 7'" Business Day following the relevant Delivery Date (or, if there is no such day, on the last Business Day of that Month), such Borrower shall, subject to Clause 17.12 (Restriction on transfers and withdrawals), procure that there is transferred from such Borrower's Proceeds Account (dollar) to its Retention Account: (a) one-sixth of the amount of the Repayment Instalment in respect of the relevant Vessel Loan due on the next Repayment Date (which shall be deemed to be the day for that transfer if that day is a Repayment Date); and (b) the amount of interest in respect of the relevant Vessel Loan due on the next Interest Payment Date (which shall be deemed to be the day for that transfer if that day is an Interest Payment Date) divided by the number of months between the last Interest Payment Date (or, if none, the first Drawdown Date in respect of that Vessel Loan) and that next Interest Payment Date. 17.6 Additional payments to Retention Account If for any reason the amount standing to the credit of the Proceeds Account (dollar) is insufficient to make any transfer to the Retention Account required by Clause 17.5 (Transfers to Retention Account), the Borrowers shall, without demand, procure that there is credited to the Retention Account, on the date on which the relevant amount would have been transferred from the Proceeds Account (dollar), an amount equal to the amount of the shortfall. 17.7 Application of Retention Account The Borrowers shall procure that there is transferred from the Retention Account to the Agent for the account of the Lenders: 17.7.1 on each Repayment Date in respect of the relevant Vessel Loan, the amount of the Repayment Instalment then due; and 17.7.2 on each Interest Payment Date in respect of the relevant Vessel Loan, the amount of interest then due, and the Borrowers undertakes to instruct the Account Holder to make those transfers. 17.8 Borrowers' obligations not affected If for any reason the amount standing to the credit of the Retention Account is insufficient to pay any Repayment Instalment or to make any payment of interest when due, the Borrowers' obligation to pay that Repayment Instalment or to make that payment of interest shall not be affected. 17.9 Debt Service Reserve Account 17.9.1 Each Borrower shall at all times maintain in its Debt Service Reserve Account such amount which is at least: (a) before the Delivery Date in respect of that Borrower's Vessel, the net amount of interest payable in respect of the Vessel Loan relating to that Borrower's Vessel on the next Interest Payment Date in respect of the Vessel Loan relating to that Borrower's Vessel; or LONUVE\30137956.24 Page 67

 
-------------------------------------------------------------------------------------------------------- (b) from and including the Delivery Date in respect of that Borrower's Vessel, (i) the net amount of interest payable in respect of the Vessel Loan relating to that Borrower's Vessel on the next Interest Payment Date in respect of the Vessel Loan relating to that Borrower's Vessel plus (ii) the Repayment Instalment of the Vessel Loan relating to that Borrower's Vessel due to be repaid under this Agreement on the next Repayment Date in respect of the Vessel Loan relating to that Borrower's Vessel. 17.9.2 Each Borrower shall, on the date falling ten (10) Business Days after the Delivery Date of the Vessel owned by such Borrower and thereafter on the day in each Month during the Facility Period which numerically corresponds to the 7th Business Day following the relevant Delivery Date (or, if there is no such day, on the last Business Day of that Month), subject to Clause 17.12 (Restriction on transfers and withdrawals), transfer from the Proceeds Account (dollar) into its Debt Service Reserve Account any remaining amounts standing to the credit of its Proceeds Account (dollar) following application in accordance with Clauses 17.4.1 and 17.4.2 until the amount standing to the credit of its Debt Service Reserve Account is in compliance with Clause 17.9.1. 17.10 Operating Reserve Account Each Borrower shall, on the date falling ten (10) Business Days after the Delivery Date of the Vessel owned by such Borrower and thereafter on the day in each Month during the Facility Period which numerically corresponds to the 7th Business Day following the relevant Delivery Date (or, if there is no such day, on the last Business Day of that Month), subject to Clause 17.12 (Restriction on transfers and withdrawals), pay into its Operating Reserve Account following application in accordance with Clauses 17.4.1 to 17.4.3 until the amount standing to the credit of such Operating Reserve Account is equal to the relevant Operating Expenses Reserve. Each Borrower shall thereafter unless otherwise permitted by the Security Agent ensure that there is always standing to the credit of its Operating Reserve Account an amount not less than the relevant Operating Expenses Reserve. 17.11 Dry-docking Reserve Account Each Borrower shall procure that the Charterer pays to its Proceeds Account (euro) each amount it is obliged to pay under the terms of the Charter; in relation to such payments, each Borrower undertakes: (i) to provide to the Agent, at the same time as any dry docking expenses payments are made by the Charterer, a copy of the budget (the "Dry-docking Expenses Budget") in relation to which the payments have been made as evidence of the amount of such expenses; and (ii) to instruct the Account Holder to transfer the relevant amount from its Proceeds Account (dollar) to its Dry docking Reserve Account. 17.12 Restriction on withdrawal 17.12.1 The Borrowers may transfer sums (i) between the Accounts or (ii) to the Agent without the prior written consent of the Agent. 17.12.2 Unless an Event of Default has occurred and is continuing, each Borrower may make any withdrawal or transfer of any sum to any person from its LONUVE\30137956.24 Page 68

 
Proceeds Account which will not result in an aggregate amount of more than US$2,000,000 being withdrawn or transferred from such Account in any one calendar Month without the prior written consent of the Agent; any withdrawal or transfer of any sum to any person from the relevant Proceeds Account which will result in an aggregate amount of more than US$2,000,000 being withdrawn or transferred from such Account in any one calendar Month will be subject to the prior written consent of the Agent which consent shall not be unreasonably withheld or delayed. 17.12.3 Unless an Event of Default has occurred and is continuing, each Borrower may make any withdrawal or transfer of any sum from its Dry-docking Reserve Account with the prior written consent of the Agent. The consent of the Agent required in accordance with this Clause 17.12.3 shall be granted by the Agent provided that the relevant Borrower has delivered to the Agent: (a) a copy of the relevant Dry-docking Expenses Budget for the relevant dry-docking payments as approved by the Charterer; and (b) a copy of the invoice issued to the Charterer for such dry-docking expenses together with evidence that the relevant funds have been received from the Charterer into the relevant Proceeds Account 17.12.4 Unless an Event of Default has occurred and is continuing, each Borrower may make any withdrawal or transfer of any sum from its Distribution Account for dividend distribution payments or payments for Capital Expenditure (as defined in Clause 20.1) with the prior written consent of the Agent. The consent of the Agent required in accordance with this Clause 17.12.4 shall be granted by the Agent provided that: (a) in the case of any dividend distribution requests, no Borrower shall declare, make or pay any dividend, charge, fee or other distribution (or interest on any unpaid dividend, charge, fee or other distribution) (whether in cash or in kind) on or in respect of its share capital (or any class of its share capital), or repay or distribute any dividend or share premium reserve more than once every 12 Months; and (b) in the case of any payment for the Capital Expenditure (as defined in Clause 20.1) the Agent's consent for such payment shall not be unreasonably withheld if the relevant Borrower has delivered to the Agent a copy of the invoice relating to the proposed payment together with such other evidence as the Agent may reasonably require. For the avoidance of doubt, no payment for the Operating Expenses or Taxes of the relevant Vessel shall be made from the Distribution Account. LONUVE\30137956.24 Page 69

 
17.12.5 Unless otherwise permitted under Clauses 17.12.1, 17.12.2, 17.12.3 and 17.12.4 above, no Borrower shall make any withdrawal or transfer of any sum from any one or more of the Accounts without the prior written consent of the Agent. 17.12.6 No Account shall be overdrawn. 17.13 Relocation of Accounts On and at any time after the occurrence of an Event of Default which is continuing, the Security Agent may without the consent of the Borrowers instruct the Account Holder to relocate any of the Accounts to any other branch of the Account Holder, without prejudice to the continued application of this Clause 17 and the rights of the Finance Parties under the Finance Documents. 17.14 Access to information The Borrowers agree that the Security Agent (and its nominees) may from time to time during the Facility Period on prior written notice review the records held by the Account Holder (whether in written or electronic form) in relation to the Accounts, and irrevocably waive any right of confidentiality which may exist in relation to those records. 17.15 Statements Without prejudice to the rights of the Security Agent under Clause 17.14 (Access to information), the Borrowers shall procure that the Account Holder provides to the Security Agent, no less frequently than each calendar month during the Facility Period, written statements of account showing all entries made to the credit and debit of each of the Accounts during the immediately preceding calendar month. 17.16 Application after acceleration From and after the g1vmg of notice to the Borrowers by the Agent under Clause 22.2.1 (Acceleration), the Borrowers shall procure that all sums from time to time standing to the credit of any of the Accounts are immediately transferred to the Security Agent or any Receiver or Delegate for application in accordance with Clause 17.17 (Application of moneys by Security Agent) and the Borrowers undertake to instruct the Account Holder to make those transfers. 17.17 Application of moneys by Security Agent The Borrowers and the Finance Parties irrevocably authorise the Security Agent or any Receiver or Delegate to apply all moneys which it receives and is entitled to receive: 17.17.1 pursuant to a sale or other disposition of a Vessel or any right, title or interest in a Vessel; or 17.17.2 by way of payment of any sum in respect of the Insurances, Earnings or Requisition Compensation; or 17.17.3 by way of transfer of any sum from any of the Accounts; or 17.17.4 pursuant to clause 7.4(f) of a Quiet Enjoyment Agreement; or 17.17.5 otherwise under or in connection with any Security Document, in or towards satisfaction of the Indebtedness in the following order: LONLlVE\30137956.24 Page 70

 
(a) first, any unpaid fees, costs, expenses and default interest due to the Agent and the Security Agent (and, in the case of the Security Agent, to any Receiver or Delegate) under all or any of the Finance Documents, such application to be apportioned between the Agent and the Security Agent pro rata to the aggregate amount of such items due to each of them; (b) second, any unpaid fees, costs, expenses (including any sums paid by the Lenders under Clause 25.11 (Lenders' indemnity to the Agent) due under this Agreement, such application to be apportioned between the Lenders pro rata to the aggregate amount of such items due to each of them; (c) third, any accrued but unpaid default interest due to the Lenders under this Agreement, such application to be apportioned between the Lenders pro rata to the aggregate amount of such default interest due to each of them; (d) fourth, any other accrued but unpaid interest due to the Lenders under this Agreement, such application to be apportioned between the Lenders pro rata to the aggregate amount of such interest due to each of them; (e) fifth, any principal of the Loan due and payable but unpaid under this Agreement, such application to be apportioned between the Lenders pro rata to the aggregate amount of such principal due to each of them; and (f) sixth, any other sum due and payable to any Finance Party but unpaid under any of the Finance Documents, such application to be apportioned between the Finance Parties pro rata to the aggregate amount of any such sum due to each of them, Provided that any part of the Indebtedness arising out of the Master Agreement shall be satisfied on a pari passu basis with any repayment of the principal of the Loan; and Provided that the balance (if any) of the moneys received shall be paid to the Security Parties from whom or from whose assets those sums were received or recovered or to any other person entitled to them. 17.18 Retention on account Moneys to be applied by the Security Agent or any Receiver or Delegate under Clause 17.17 (Application of moneys by Security Agent) shall be applied as soon as practicable after the relevant moneys are received by it, or otherwise become available to it, save that (without prejudice to any other provisions contained in any of the Security Documents) the Security Agent or any Receiver or Delegate may retain any such moneys by crediting them to a suspense account for so long and in such manner as the Security Agent or such Receiver or Delegate may from time to time determine following the occurrence of an Insolvency Event with a view to preserving the rights of the Finance Parties or any of them to prove for the whole of the Indebtedness (or any relevant part) against the Borrowers or any of them or any other person liable. LONLlVE\30137956.24 Page 71

 
17.19 Additional security 17.19.1 If the aggregate amount of (i) the relevant Vessel Loan then outstanding and (ii) the amount of interest on the relevant Vessel Loan payable on the last day of the next two Interest Periods is more than: (a) during the first two years after the relevant Delivery Date, 95%, or (b) during the following four years, 90%, or (c) during the period thereafter, 80%, of the Market Value of a Vessel and the value of any additional security for the time being provided to the Security Agent under this Clause 17.19, the Borrowers shall, within 30 days of the Agent's request, either: (a) pay to the Security Agent or to its nominee a cash deposit in the amount of the shortfall to be secured in favour of the Security Agent as additional security for the payment of the Indebtedness; or (b) give to the Security Agent other additional security in amount and form acceptable to the Security Agent in its absolute discretion; or (c) prepay the relevant Vessel Loan in the amount of the shortfall. 17.19.2 The Market Value of a Vessel shall be determined semi-annually or at any other time required by the Security Agent following the occurrence of an Event of Default which is continuing. 17.19.3 Clauses 6.3 (Reborrowing), 7.3 (Voluntary prepayment of a Vessel Loan) and 7.11 (RestrictioQs) shall apply, mutatis mutandis, to any prepayment made under this Clause 17 .19. 17.19.4 Any additional security provided pursuant to clause 17.19.1(a) or (b) shall be released following compliance with Clause 17.19.1, provided at that time there is no Event of Default continuing. LONLlVE\30137955.24 Page 72

 
Section 8 Representations, Undertakings and Events of Default 18 Representations 18.1 Representations Each Borrower makes the representations and warranties set out in this Clause 18 to each Finance Party, except that the representations and warranties set out in Clauses 18.1.1(c) and 18.1.25 are not made to any Lender that is not a PRC Lender. 18.1.1 Status Each of the Security Parties: (a) is a corporation, limited partnership or limited liability company, duly incorporated or formed and validly existing under the law of its jurisdiction of incorporation or formation (as the case may be); (b) has the power to own its assets and carry on its business as it is being conducted; and (c) is not a FATCA FFI. 18.1.2 Binding obligations (a) The obligations expressed to be assumed by each of the Security Parties in each of the Relevant Documents to which it is a party are legal, valid, binding and enforceable obligations. (b) Without limiting the generality of Clause 18.1.2(a), each Security Document to which it is a party creates the security interests which that Security Document purports to create and those security interests are valid and effective. 18.1.3 Non-conflict with other obligations and no obligation to create security The entry into and performance by each of the Security Parties of, and the transactions contemplated by, the Relevant Documents do not: (a) conflict with any law or regulation applicable to such Security Party; or (b) conflict with the constitutional documents of such Security Party; or (c) conflict with any agreement or instrument binding upon such Security Party or any of such Security Party's assets or constitute a default or termination event (however described) under any such agreement or instrument and having a Material Adverse Effect; or (d) (except as provided in the Security Documents) result in the existence of, or oblige such Security Party to create, any Encumbrance over its assets. 18.1.4 Power and authority (a) Each of the Security Parties has the power to enter into, perform and deliver, and has taken all necessary action to authorise its entry into, performance and delivery of, the Relevant Documents to LONUVE\30137956.24 Page 73

 
which it is or will be a party and the transactions contemplated by those Relevant Documents. (b) No limit on the powers of any Security Party will be exceeded as a result of the borrowing, grant of security or giving of guarantees or indemnities contemplated by the Relevant Documents to which it is a party. 18.1.5 Validity and admissibility in evidence All Authorisations required or desirable: (a) to enable each of the Security Parties lawfully to enter into, exercise its rights and comply with its obligations in the Relevant Documents to which it is a party or to enable each Finance Party to enforce and exercise all its rights under the Relevant Documents; (b) to ensure that the obligations expressed to be assumed by each of the Security Parties in the Relevant Documents to which it is a party are legal, valid and binding; and (c) to make the Relevant Documents to which any Security Party is a party admissible in evidence in its Relevant Jurisdictions, have been obtained or effected and are in full force and effect, with the exception only of the registrations referred to in Schedule 2 (Conditions Precedent and Subsequent). 18.1.6 Governing law and enforcement (a) The choice of governing law of any Finance Document will be recognised and enforced in the Relevant Jurisdictions of each relevant Security Party. (b) Any judgment obtained in relation to any Finance Document in the jurisdiction of the governing law of that Finance Document will be recognised and enforced in the Relevant Jurisdictions of each relevant Security Party. 18.1.7 Insolvency No corporate action, legal proceeding or other procedure or step described in Clause 22.1.8 (Insolvency proceedings) or creditors' process described in Clause 22.1.9 (Creditors' process) has been taken or, to the best knowledge and belief of any Borrower, threatened in relation to a Security Party or the Borrowers Group taken as a whole; and none of the circumstances described in Clause 22.1.7 (Insolvency) applies to a Security Party which might have a material adverse effect on the business or financial condition of the Borrowers Group taken as a whole. 18.1.8 No filing or stamp taxes Under the laws of the Relevant Jurisdictions of each relevant Security Party, it is not necessary (subject to the Security Perfection Requirements) that the Finance Documents be filed, recorded or enrolled with any court or other authority in any of those jurisdictions or that any stamp, registration, notarial or similar tax or fees be paid on or in lONUVE\30137956.24 Page 74

 
relation to the Finance Documents or the transactions contemplated by the Finance Documents. 18.1.9 Deduction of Tax None of the Security Parties is required under the law of its jurisdiction of incorporation to make any Tax Deduction. 18.1.10 No material default (a) No Event of Default, Mandatory Prepayment Event or any event set out in Clause 7 (Illegality, Prepayment and Cancellation) and, on the date of this Agreement and each Drawdown Date, no Default has occurred is continuing or is reasonably likely to result from the advance of any Drawing or the entry into, the performance of, or any transaction contemplated by, any of the Relevant Documents. (b) No event or circumstance is outstanding under any of the Relevant Documents which constitutes a material default thereunder which has not been waived (excluding a default by any Finance Party). (c) Without prejudice to paragraph (a) above, no other event or circumstance is outstanding which constitutes (or, with the expiry of a grace period, the giving of notice, the making of any determination or any combination of any of the foregoing, would constitute) a default or termination event (howsoever described) under any other agreement or instrument which is binding on any of the Security Parties or to which its assets are subject which has or is reasonably likely to have a Material Adverse Effect. 18.1.11 No misleading information Save as disclosed in writing to the Agent and the Arranger prior to the date of this Agreement, to the best of each Borrower's knowledge: (a) any factual information provided by any Security Party to any Finance Party was true and accurate in all material respects as at the date of the relevant report or document containing the information or (as the case may be) as at the date the information is expressed to be given; (b) any financial projection or forecast provided by any Security Party to any Finance Party has been prepared on the basis of recent historical information and on the basis of reasonable assumptions and was fair (as at the date of the relevant report or document containing the projection or forecast) and arrived at after careful consideration; (c) all material information provided to a Finance Party by or on behalf of any of the Security Parties on or before the date of this Agreement and not superseded before that date was accurate and not misleading in any material respect and all projections provided to any Finance Party on or before the date of this Agreement have been prepared in good faith on the basis of assumptions which LONUVE\30137956.24 Page 75

 
were reasonable at the time at which they were prepared and supplied; and (d) all other written information provided by any of the Security Parties (including its advisers) to a Finance Party was true, complete and accurate in all material respects as at the date it was provided and is not misleading in any respect. 18.1.12 Financial statements The Original Financial Statements and all financial statements relating to the Borrowers and the Vessel Sponsor Guarantors required to be delivered under Clause 19.1 (Financial statements): (a) were each prepared in accordance with the applicable GAAP or !FRS (as applicable) consistently applied; and (b) give (in conjunction with the notes thereto) a true and fair view of (in the case of the Original Financial Statements and any other annual financial statements) or fairly represent (in the case of semi-annual and quarterly financial statements) the financial condition of each Borrower or Vessel Sponsor Guarantor (as the case may be) and its Subsidiaries at the date as of which they were prepared and the results of their operations during the financial period then ended. 18.1.13 No material proceedings (a) No litigation, arbitration or administrative proceedings of or before any court, arbitral body or agency which, if adversely determined, are reasonably likely to have a Material Adverse Effect have (to the best of its knowledge and belief (having made due and careful enquiry)) been started or threatened against any of the Security Parties. (b) No judgment or order of a court, arbitral tribunal or other tribunal or any order or sanction of any governmental or other regulatory body which is reasonably likely to have a Material Adverse Effect has (to the best of its knowledge and belief (having made due and careful enquiry)) been made against any of the Security Parties. 18.1.14 No breach of laws (a) None of the Security Parties has breached any law or regulation which breach has or is reasonably likely to have a Material Adverse Effect. (b) No labour disputes are current or (to the best of each Borrower's knowledge and belief) threatened against any member of the Borrowers Group which have or are reasonably likely to have a Material Adverse Effect. LONUVE\30137956.24 Page 76

 
18.1.15 Environmental laws (a) Each member of the Borrowers Group is in compliance with Clause 21.3 (Environmental compliance) and to the best of its knowledge and belief no circumstances have occurred which would prevent such compliance in a manner or to an extent which has or is reasonably likely to have a Material Adverse Effect. (b) No Environmental Claim has been commenced or (to the best of its knowledge and belief) is threatened against any of the Security Parties where that claim has or is reasonably likely, if determined against that Security Party, to have a Material Adverse Effect. (c) All records, reports, returns, registrations and information necessary for compliance with any Environmental Law applicable to the Charters or any Environmental Approvals have been made or given to the relevant competent authority in accordance with the requirements thereof. 18.1.16 Taxation (a) None of the Security Parties is materially overdue in the filing of any Tax returns or is overdue in the payment of any amount in respect of Tax of US$5,000,000 (or its equivalent in any other currency) or more. (b). No claims or investigations are being, or are reasonably likely to be, made or conducted against any of the Security Parties with respect to Taxes such that a liability of, or claim against, such Security Party of US$5,000,000 (or its equivalent in any other currency) or more is reasonably likely to arise. (c) No Security Party is resident for Tax purposes in any jurisdiction outside of its Original Jurisdiction. 18.1.17 Anti-corruption law Each of the Security Parties and each Affiliate of any of them has conducted its businesses in compliance with applicable anti­ corruption laws and has instituted and maintained policies and procedures designed to promote and achieve compliance with such laws. 18.1.18 Good title to assets and Encumbrance (a) Each Security Party and each of its Subsidiaries has a good, valid and marketable title to, or valid leases or licences of, and all appropriate Authorisations to use, the assets necessary to carry on its business as presently conducted. (b) Each of the Security Parties is the legal and beneficial owner of all assets and other property which it purports to charge, mortgage, pledge, assign or otherwise secure pursuant to each Security Document and those Security Documents to which it is a party create and give rise to valid and effective security having the ranking expressed in those Security Documents. LONLlVE\30137956.24 Page 77

 
18.1.19 Pari passu ranking (a) The payment obligations of each of the Security Parties under the Finance Documents to which it is a party rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors, except for obligations preferred solely by any bankruptcy, insolvency or other similar laws of general applicable. (b) The obligations of each Security Party under the Finance Documents to which it is a party are direct, general and unconditional obligations of that Security Party. 18.1.20 No adverse consequences (a) It is not necessary under the laws of the Relevant Jurisdictions of any of the Security Parties: (i) in order to enable any Finance Party to enforce its rights under any Finance Document; or (ii) by reason of the execution of any Finance Document or the performance by it of its obligations under any Finance Document, that any Finance Party should be licensed, qualified or otherwise entitled to carry on business in any of the Relevant Jurisdictions of any of the Security Parties. (b) No Finance Party is or will be deemed to be resident, domiciled or carrying on business in any of the Relevant Jurisdictions of any of the Security Parties by reason only of the execution, performance and/or enforcement of any Finance Document. 18.1.21 Disclosure of material facts No Borrower is aware of any material facts or circumstances which have not been disclosed to the Agent and which might, if disclosed, have adversely affected the decision of a person considering whether or not to make loan facilities of the nature contemplated by this Agreement available to the Borrowers. 18.1.22 Relevant Documents (a) The copies of the Relevant Documents provided or to be provided by the Borrowers to the Agent in accordance with Clause 4 (Conditions of Utilisation) are, or will be, true and accurate copies of the originals and represent, or will represent, the full agreement between the parties to those Relevant Documents in relation to the subject matter of those Relevant Documents and there are no commissions, rebates, premiums or other payments due or to become due in connection with the subject matter of those Relevant Documents other than in the ordinary course of business or as disclosed to, and approved in writing by, the Agent. LONUVE\30137956.24 Page 78

 
(b) Other than the Relevant Documents to which it is a party, no Borrower has entered into any charterparty, contract of affreightment, management agreement or other contract relating to the purchase, operation or use of its Vessel except as contemplated by or permitted under the Finance Documents. (c) No Borrower has previously charged, encumbered or assigned any of its rights, titles, interests or benefit in and to any Relevant Document (or support, guarantee, assurance or the like given to that Borrower in connection with any Relevant Document). 18.1.23 No Immunity No Security Party or any of its assets is immune to any legal action or proceeding in their respective jurisdictions of incorporation or formation (as applicable). 18.1.24 Money laundering Any borrowing by a Borrower under this Agreement, and the performance of its obligations under this Agreement and under the other Finance Documents, will be for its own account and will not involve any breach by it of any law or regulatory measure relating to "money laundering" as defined in Article 1 of the Directive (2005/EC/60) of the European Parliament and of the Council of the European Communities. 18.1.25 US Tax Obligor No Security Party is a US Tax Obligor. 18.1.26 Sanctions As regards Sanctions: (a) no Security Parties, nor any Affiliate of any Security Party, nor any of their respective directors, officers or employees is a Restricted Party; (b) no Security Parties, nor any of their respective directors, officers or employees or any person 50% or more owned or controlled by, or acting directly or indirectly on their behalf received notice or are aware of any claim, action, suit, proceeding or investigation against any of them with respect to Sanctions by a Sanctions Authority; (c) no proceeds of the Loan shall be made available, directly or indirectly, to or for the benefit of a Restricted Party (other than the Charterer, JSC Novatek and YLNG) if to do so would be prohibited by Sanctions applicable to any Security Party, the Borrowers or any Finance Party or otherwise shall be, directly or indirectly, applied in a manner or for a purpose prohibited by Sanctions applicable to any Security Party; and (d) each Security Party is in compliance with all Sanctions. 18.1.27 Assets Save for the relevant Vessel and any other assets and properties arising out of each Borrower's purchase, ownership and chartering "of the relevant Vessel and entering into the Relevant Documents to which it is a party, no Borrower has other vessels or significant assets or property. 18.1.28 Private and commercial acts Each Borrower irrevocably acknowledges and accepts that the Finance Documents and all agreements entered into by LONLIVE\30137956.24 Page 79

 
each Security Party in connection the Finance Documents (including all appendices, schedules and exhibits thereto) and the performance or non­ performance of its obligations under the Finance Documents are commercial rather than sovereign or governmental acts. 18.1.29 Encumbrances and Financial Indebtedness (a) No Encumbrance or Quasi-Security exists over all or any of the present or future assets of any Borrower other than as permitted by this Agreement. (b) No Borrower has any Financial Indebtedness outstanding other than as permitted by this Agreement. 18.2 Repetition Each Repeating Representation is deemed to be repeated by each Borrower by reference to the facts and circumstances then existing on the date of each Drawdown Request, on each Drawdown Date, on the first day of each Interest Period. 18.3 Repetition of Clause 18.1.26 (Sanctions) 18.3.1 Notwithstanding Clause 18.2 (Repetition), the repetition of Clause 18.1.26(a) of this Agreement or clause 7.1.23 of the Guarantee shall not give rise to an Event of Default under Clause 22.1.5 (Misrepresentation) if: (a) in relation to any applicable director, officer or employee, within thirty (30) days from the date on which such representation was deemed repeated, it ceases to be a Restricted Party or ceases to be a director, officer or employee of a Security Party or an Affiliate of any Security Party; or (b) the relevant Security Party, Affiliate of any Security Party or any of their respective directors, officers or employees: (i) becomes a Restricted Party solely as a result of Sanctions administered, enacted or enforced by an EU Member State other than: (A) the United Kingdom, France, Germany; or (B) an EU Member State where any Finance Party or any Yamal Sponsor Guarantor is incorporated, and it would not otherwise be a Restricted Party; and (ii) the circumstances set out above in this Clause 18.3.1(b)(i) do not have a Material Adverse Effect or, in relation to any applicable director, officer or employee, within thirty (30) days from the date on which such representation was deemed repeated, it ceases to be a Restricted Party or ceases to be a director, officer or employee of a Security Party or an Affiliate of any Security Party. LONLIVE\30137956.24 Page so

 
18.3.2 Notwithstanding Clause 18.2 (Repetition), the repetition of Clause 18.1.26(b) of this Agreement or clause 7.1.23 of the Guarantee shall only give rise to an Event of Default under Clause 22.1.5 (Misrepresentation) in relation to any applicable director, officer or employee if thirty days (30) days after the date of notice of awareness of any applicable claim, action, suit, proceeding or investigation with respect to Sanctions by a Sanctions Authority it is still under such claim, action, suit, proceeding or investigation and it is still a director, officer or employee. 18.3.3 Notwithstanding Clause 18.2 (Repetition), the repetition of Clause 18.1.26(c) shall be made with reference to Sanctions in force as at the Drawdown Date on which the applicable proceeds of the Loan are made available. 18.3.4 This Clause 18.3 (Repetition of Clause 18.1.26 (Sanctions)) is without prejudice to any of the other provisions of this Agreement (except Clause 18.2) including, without limitation, Clause 7.1 (Illegality), Clause 7.8 (Sanctions Event under a Charter), Clause 21.2.2 (Compliance with Jaws) or Clause 22.1.28 (Sanctions). 19 Information Undertakings The undertakings in this Clause 19 remain in force for the duration of the Facility Period. 19.1 Financial statements Each Borrower shall supply to the Agent in sufficient copies for all of the Lenders as soon as the same become available, but in any event within: 19.1.1 120 days after the end of each of its financial years, its audited financial statements for that financial year; 19.1.2 90 days after the end of each of its financial half-year, its unaudited financial statements for that financial half-year; 19.1.3 90 days after the end of each of its financial quarters, its unaudited financial statements for that financial quarter; 19.1.4 120 days after the end of each of the Vessel Sponsor Guarantors and the Parent's financial years, the audited consolidated financial statements of such Vessel Sponsor Guarantor or the Parent for that financial year; 19.1.5 90 days after the end of each of the Vessel Sponsor Guarantors' and the Parent's financial half-year, the unaudited consolidated financial statements of such Vessel Sponsor Guarantor or the Parent for that financial half-year; and 19.1.6 90 days after the end of each of the Vessel Sponsor Guarantors' and the Parent's financial quarters, the unaudited consolidated financial statements of such Vessel Sponsor Guarantor or the Parent for that financial quarter. Notwithstanding the latest times specified in Clauses 19.1.2, 19.1.3, 19.1.5 and 19.1.6, the Borrowers shall use their reasonable endeavours to supply the unaudited LONUVE\30137956.24 Page 81

 
financial statements referred to in those clauses within forty five ( 45) days of the end of each half year or quarter as the case may be of the relevant financial years. 19.2 Compliance Certificate The Borrowers shall supply to the Agent, with each set of financial statements delivered pursuant to Clause 19.1 (Financial statements), a Compliance Certificate setting out (in reasonable detail) computations as to compliance with Clause 20 (Financial covenants) as at the date as at which those financial statements were drawn up. 19.3 Requirements as to financial statements Each set of financial statements delivered by a Borrower under Clause 19.1 (Financial statements): 19.3.1 shall be certified by an authorised officer of the relevant entity as fairly presenting its financial condition as at the date as at which those financial statements were drawn up; and 19.3.2 shall be prepared using GAAP or !FRS (as applicable), accounting practices and financial reference periods consistent with those applied in the preparation of the Original Financial Statements unless, in relation to any set of financial statements, it notifies the Agent that there has been a change in GAAP or !FRS (as applicable), the accounting practices or reference periods and its auditors deliver to the Agent: (a) a description of any change necessary for those financial stattJments to reflect the GAAP or !FRS (as applicable), accounting practices and reference periods upon which the Original Financial Statements were prepared; and (b) sufficient information, in form and substance as may be reasonably required by the Agent, to enable the Agent to make an accurate comparison between the financial position indicated in those financial statements and the Original Financial Statements. Any reference in this Agreement to those financial statements shall be construed as a reference to those financial statements as adjusted to reflect the basis upon which the Original Financial Statements were prepared. 19.4 Information: miscellaneous Each Borrower shall, and shall procure that each of the other Security Parties shall, supply to the Agent (in sufficient copies for all the Lenders, if the Agent so requests): 19.4.1 promptly upon becoming aware of them, the details of any material litigation, arbitration or administrative proceedings which are current, threatened or pending against any Security Party and which, if adversely determined, are reasonably likely to have a Material Adverse Effect; 19.4.2 promptly upon becoming aware of them, details of (i) any casualty or other accident or damage to any of the Vessels the cost of repair of which is likely to exceed ten million dollars (US$10,000,000) and (ii) a Total Loss of any of the Vessels; LONUVE\30137956.24 Page 82

 
19.4.3 promptly, details of any material Environmental Claim or any other material incident, event or circumstance which may give rise to any such material Environmental Claim which is reasonably likely to have a Material Adverse Effect; 19.4.4 promptly, details of any capture, seizure, arrest, confiscation or detention of any Vessel which remains in existence five Business Days after the initial capture, seizure, arrest, confiscation or detention (as the case may be); 19.4.5 promptly on written request, such further information regarding the financial condition, business and operations of any Security Party as any Finance Party through the Agent may reasonably request including, without limitation, cash flow analyses and details of the operating costs of any Vessel; 19.4.6 promptly upon becoming aware of them, the details of any judgment or order of a court, arbitral tribunal or other tribunal of any order or sanction of any governmental or other regulatory body which is made against any Security Party and which is reasonably likely to have a Material Adverse Effect; 19.4.7 promptly upon becoming aware of them, details of the exercise or any purported exercise of any lien on the Insurances or the Earnings which is not discharged within ten Business Days and which is reasonably likely to have a Material Adverse Effect; 19.4.8 as soon as they become available, but in any event prior to the end of each of the financial years of each Borrower and each Vessel Sponsor Guarantor, the budget and cash flow projections for such Borrower and each Vessel Sponsor Guarantor; 19.4.9 promptly, upon becoming aware of the same, notification in writing should (i) the Charterer of a Vessel declare an intention to terminate the relevant Charter (otherwise than by effiuxion of time), (ii) two (2) consecutive payments of charter hire not be paid as scheduled under a Charter (other than as previously advised to the Agent in writing prior to the date of this Agreement), (iii) any charter hire under a Charter be paid in a materially reduced amount on three consecutive occasions or (iv) a Vessel subject to a Charter be off-hire for forty five (45), consecutive or cumulative, days in any six-Month period; 19.4.10 promptly, such information regarding the material milestones on the progress of construction of each Vessel and other information regarding incidents occurring which affect the material progress of the construction of each Vessel or which are otherwise material to the construction of that Vessel or such other related information as the Agent may reasonably request; 19.4.11 promptly, upon becoming aware of that, the occurrence of a force majeure event (howsoever defined) under a Charter or a Building Contract; lONUVE\30137956.24 Page 83

 
19.4.12 promptly, any notice being received from any competent authority amending, terminating or ·suspending or threatening to amend, terminate or suspend any Authorisation where such action (or implementing the result thereof) would be reasonably likely to have a Material Adverse Effect; 19.4.13 promptly, upon becoming aware of them, the details of any circumstances which may lead to: (a) any Authorisation not being obtained or effected or not remaining in full force and effect (other than in accordance with its terms); or (b) any Authorisation not being obtained, renewed or effected when required; where failure to obtain and/or maintain the same would have a Material Adverse Effect; and 19.4.14 any other information connected with the Charters or the Building Contracts reasonably requested by the Agent. 19.5 Notification of Event of Default etc. Each Borrower shall: 19.5.1 promptly, upon becoming aware of the same, notify the Agent in writing of the occurrence of any Event of Default, Mandatory Prepayment Event or any event set out in Clause 7.5 (Mandatory prepayment on Total Loss) and 7.6 (Mandatory prepayment on sale of a Vessel) and steps, if any, and if applicable, being taken to remedy it; and 19.5.2 promptly upon a request by the Agent, each Borrower shall confirm to the Agent that, save as previously notified to the Agent or as notified in such confirmation, no Event of Default, Mandatory Prepayment Event or any event set out in Clause 7.5 (Mandatory prepayment on Total Loss) and 7.6 (Mandatory prepayment on sale of a Vessel) is continuing, or if an Event of Default, Mandatory Prepayment Event or event set out in Clause 7.5 (Mandatory prepayment on Total Loss) and 7.6 (Mandatory prepayment on sale of a Vessel) is continuing, specifying the steps, if any, and if applicable, taken to remedy it. 19.6 "Know your customer" checks 19.6.1 If: (a) the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation made after the date of this Agreement; (b) any change in the status of a Security Party (or of a Holding Company of a Security Party) or the composition of the shareholders of a Security Party (or of a Holding Company of a Security Party) after the date of this Agreement; or LONUVE\30137956.24 Page 84

 
(c) a proposed assignment or transfer by a Lender of any of its rights and obligations under this Agreement to a party that is not a Lender prior to such assignment or transfer, obliges the Agent or any Lender (or, in the case of Clause 19.6.1(c), any prospective new Lender) to comply with "know your customer" or similar identification procedures in circumstances where the necessary information is not already available to it, each Borrower shall promptly upon the request of the Agent or any Lender supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself or on behalf of any Lender) or any Lender (for itself or, in the case of the event described in Clause 19.6.1(c), on behalf of any prospective new Lender) in order for the Agent, such Lender or, in the case of the event described in Clause 19.6.1(c), any prospective new Lender to carry out and be satisfied it has complied with all necessary "know your customer" or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents. 19.6.2 Each Lender shall promptly upon the request of the Agent supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself) in order for the Agent to carry out and be satisfied it has complied with all necessary "know your customer" or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents. 19.7 Winding-up The Borrowers shall promptly notify the Agent of any petition or notice of meeting to consider any resolution to wind-up any Security Party (or any event analogous thereto under the laws of the place of its incorporation), unless that Security Party in its reasonable opinion has deemed such petition or notice to be vexatious or frivolous in nature. 19.8 Project Budget The Borrowers shall notify the Agent of any change to the allocation of the funds within the items of the Total Project Costs where the re-allocation is in the amount of US$2,000,000 per Vessel or above. 19.9 Updating information If a Borrower becomes aware of the occurrence of any event or circumstance as a result of which the information which has been provided by it or another Security Party to the Agent under the Finance Documents (including an event or circumstance which would have resulted in a breach of a representation under Clause 18.1.9 (Deduction of Tax) or Clause 18.1.25 (US Tax Obligor) had that representation been a Repeating Representation) includes an untrue statement of a material fact or omitted to state any material fact, it will (without prejudice to any rights which may have arisen in relation to the relevant untrue statements or omission) inform the Agent and, if appropriate, will promptly furnish to the Agent updated or revised information. LONUVE\30137956.24 Page 85

 
20 Financial Covenants 20.1 Financial definitions "Available Credit Lines" means any undrawn committed revolving credit lines, other than undrawn committed revolving credit lines with less than six (6) months to maturity, available to be drawn by any member of the TGP Group or CLNG Group (as applicable), as reflected in TGP's or CLNG's (as applicable) most recent financial statements forming part of TGP's Accounts or CLNG's Accounts (as applicable). "Borrowings" means, in respect of any Borrower, any Financial Indebtedness owed by it falling within paragraph (g) of the definition of Financial Indebtedness alone. "Business Acquisition" means the acquisition of a company or any shares or securities or a business or undertaking (or, in each case, any interest in any of them) or the incorporation of a company. "Capital Expenditure" means any expenditure or obligation in respect of expenditure which, in accordance with GAAP or !FRS (as applicable), is treated as capital expenditure (and (except for the purposes of paragraph (g) of the definition of "Cashflow" where it shall not be included) including the capital element of any expenditure or obligation incurred in connection with a Finance Lease). "Cash" means, at any time, cash in hand or at bank and (in the latter case) credited to an account in the name of a Borrower with an Acceptable Bank and to which a Borrower is alone beneficially entitled and for so long as: (a) that cash is repayable 10 days after the relevant date of calculation; (b) repayment of that cash is not contingent on the prior discharge of any other indebtedness or of any other person whatsoever or on the satisfaction of any other condition; (c) there is no Security over that cash except for Encumbrances permitted under the Finance Documents and constituted by a netting or set-off arrangement entered into by the Borrower in the ordinary course of their banking arrangements; and (d) the cash is freely and (except as mentioned in paragraph (a) above) immediately available to be applied in repayment or prepayment of the Facility. "Cashflow" means, in respect of any Relevant Period, EBITDA for that Relevant Period after: (a) adding the amount of any decrease (and deducting the amount of any increase) in Working Capital for that Relevant Period; (b) adding the amount of any cash receipts (and deducting the amount of any cash payments) during that Relevant Period in respect of any Exceptional Items not already taken account of in calculating EBITDA for any Relevant Period (other than, in the case of cash receipts, Relevant Proceeds); LONUVE\30137956.24 Page 86

 
(c) adding the amount of any cash receipts during that Relevant Period in respect of any Tax rebates or credits and deducting the amount actually paid or due and payable in respect of Taxes during that Relevant Period by the Borrower; (d) adding the amount of any increase in provisions, other non-cash debits and other non-cash charges (which are not Current Assets or Current Liabilities) and deducting the amount of any non-cash credits (which are not Current Assets or Current Liabilities) in each case to the extent taken into account in establishing EBITDA; (e) deducting the amount of any Capital Expenditure actually made in cash during that Relevant Period by the Borrower unless funded by (i) withdrawals from the Dry-docking Reserve Account or Distribution Account or (ii) equity injections provided by the Vessel Sponsor Guarantors to the Borrower; (f) deducting the amount of any cash costs of Pension Items during that Relevant Period to the extent not taken into account in establishing EBITDA, and so that no amount shall be added (or deducted) more than once. "CLNG's Accounts" means the consolidated financial statements of CLNG to be provided to the Lenders. "Current Assets" means the aggregate (on a consolidated basis) of all inventory, work in progress, trade and other receivables of each Borrower including prepayments in relation to operating items and sundry debtors (but excluding Cash) expected to be realised within twelve Months from the date of computation but excluding amounts in respect of: (a) receivables in relation to Tax; (b) Exceptional Items and other non-operating items; (c) insurance claims; and (d) any interest owing to any Borrower. "Current Liabilities" means the aggregate (on a consolidated basis) of all liabilities (including trade creditors, accruals and provisions) of each Borrower expected to be settled within twelve Months from the date of computation but excluding amounts in respect of: (a) liabilities for Borrowings and Finance Charges; (b) liabilities for Tax; (c) Exceptional Items and other non-operating items; (d) insurance claims; and (e) liabilities in relation to dividends declared .but not paid by a Borrower. LONLIVE\30137956.24 Page 87

 
"Debt Service" means, in respect of any Relevant Period, the aggregate of: (a) Finance Charges for that Relevant Period; (b) all scheduled and mandatory repayments of Borrowings falling due during that Relevant Period but excluding: (i) any amounts falling due under any overdraft or revolving facility and which were available for simultaneous redrawing according to the terms of that facility; and (ii) any such obligations owed to any member of the Borrower's Group; (c) the amount of the capital element of any payments in respect of that Relevant Period payable under any Finance Lease entered into by the Borrower, and so that no amount shall be included more than once. "Debt Service Cover Ratio" means the ratio of Cashflow to Debt Service in respect of any Relevant Period. "EBITDA" means, in respect of any Relevant Period, the consolidated operating profit of the Borrower before taxation (excluding the results from discontinued operations): (a) before deducting any interest, comm1ss1on, fees, discounts, prepayment fees, premiums or charges and other finance payments whether paid, payable or capitalised by the Borrower in respect of that Relevant Period; (b) not including any accrued interest owing to any member of the Borrower's Group; (c) after adding back any amount attributable to the amortisation, depreciation or impairment of assets of members of the Borrower Group (and taking no account of the reversal of any previous impairment charge made in that Relevant Period); (d) before taking into account any Exceptional Items; (e) (after deducting the amount of any profit (or adding back the amount of any loss) of any member of the Borrower's Group which is attributable to minority interests); (f) after deducting the amount of any profit of any Non-Group Entity to the extent that the amount of the profit included in the financial statements of the Borrower's Group exceeds the amount actually received in cash by members of the Borrower's Group through distributions by the Non-Group Entity; (g) before taking into account any unrealised gains or losses on any financial instrument; LONUVE\30137956.24 Page 88

 
(h) before taking into account any gain or loss ansmg from an upward or downward revaluation of any other asset at any time after 31 December 2016; (i) before taking into account any Pension Items; (j) excluding the charge to profit represented by the expensing of stock options; (k) before taking into account any gain arising from any transaction where a member of the Borrower's Group: (i) purchases by way of assignment or transfer; (ii) enters into any sub-participation in respect of; or (iii) enters into any other agreement or arrangement having an economic effect substantially similar to a sub-participation in respect of, any Commitment or amount outstanding under this Agreement, in each case, to the extent added, deducted or taken into account, as the case may be, for the purposes of determining operating profits of the Borrower before taxation. "Equity" means the aggregate of the amount paid up on the issued share capital of TGP or CLNG (as applicable) and the amount standing to the credit of its capital and revenue reserves (including any share premium account or capital redemption reserve but excluding any revaluation reserve), plus or minus the amount standing to the credit or debit (as the case may be) of its profit and loss account. "Exceptional Items" means any material items of an unusual or non-recurring nature which represent gains or losses including those arising on: (a) the restructuring of the activities of an entity and reversals of any provisions for the cost of restructuring; (b) disposals, revaluations, write downs or impairment of non-current assets or any reversal of any write down or impairment; and (c) disposals of assets associated with discontinued operations. "Finance Charges" means, for any Relevant Period, the aggregate amount of the accrued interest, commission, fees, discounts, prepayment fees, premiums or charges and other finance payments in respect of Borrowings paid or payable by the Borrower in cash or capitalised in respect of that Relevant Period: (a) including any costs which are included as part of the effective interest rate adjustments; (b) including the interest (but not the capital) element of payments in respect of Finance Leases; LONLIVE\30137956.24 Page 89

 
(c) including any comm1ss1on, fees, discounts and other finance payments payable by (and deducting any such amounts payable to) the Borrower under any interest rate hedging arrangement; and (d) if a Joint Venture is accounted for on a proportionate consolidation basis, after adding the TGP Group's, or CLNG' (as applicable), share of the finance costs or interest receivable of the Joint Venture; and (e) taking no account of any unrealised gains or losses on any financial instruments other than any derivative instruments which are accounted for on a hedge accounting basis; and (f) excluding interest (capitalised or otherwise) in respect of any debt which is fully subordinated to the Loan, and so that no amount shall be added (or deducted) more than once. "Finance Lease" means any lease or hire purchase contract which would, in accordance with GAAP or !FRS (as applicable), be treated as a finance or capital lease. "Free Liquidity" means cash, cash equivalents and marketable securities of maturities less than one (1) year to which the members of the TGP Group or CLNG Group (as applicable) shall have free, immediate and direct access each as reflected in TGP's or CLNG's (as applicable) most recent financial statements forming part of the TGP Accounts or CLNG Accounts (as applicable). "Net Debt" means TGP's or CLNG's (as applicable) Total Debt less its Free Liquidity. "Net Debt to Net Debt plus Equity Ratio" means the ratio of Net Debt to Net Debt plus Equity. "Non-Group Entity" means any investment or entity (which is not itself a member of the Borrower's Group (including associates and Joint Ventures)) in which any member of the Borrower's Group or has an ownership interest. "Quarter Date" means each of 31 March, 30 June, 30 September and 31 December. "Pension Items" means any income or charge attributable to a post-employment benefit scheme other than the current service costs and any past service costs and curtailments and settlements attributable to the scheme. "Relevant Period" means the 12 month period which immediately precedes the each date on which the financial covenants set out in Clause 20.2 ,(Financial condition) are tested pursuant to Clause 20.3 (Financial testing). "Relevant Proceeds" means the proceeds of an insurance claim subject to a mandatory prepayment under Clause 7.5 (Mandatory prepayment on Total Loss) or a sale of a Vessel subject to a mandatory prepayment under Clause 7.6 (Mandatory Prepayment on sale of a Vessel). "Tangible Net Worth" means the issued and paid up share capital (including share premium or items of a similar nature (but excluding shares which are expressed to lONLIVE\30137956.24 Page 90

 
be redeemable)), loans from shareholders, and amounts standing to the credit of the consolidated capital reserves of the TGP Group or the CLNG Group (as applicable), (a) plus any credit balance carried forward on TGP's or CLNG's (as applicable) consolidated profit and loss account, (b) less: (i) any debit balance carried forward on TGP's or CLNG's (as applicable) consolidated profit and loss account; (ii) any amount shown for goodwill, including on consolidation, or any other intangible property (other than intangible property relating to contracts as shown in the balance sheet of TGP or CLNG (as applicable)); and (iii) any amount attributable to minority interests in Subsidiaries. "TGP's Accounts" means the consolidated financial statements of TGP to be provided to the Lenders. "Total Debt" means the aggregate of: (a) the amount calculated in accordance with US GAAP or !FRS (as applicable) shown as each of "long term debt", "short term debt" and "current portion of long term debt" on the latest consolidated balance sheet of TGP or CLNG (as applicable); and (b) the amount of any liability in respect of any lease or hire purchase contract entered into by TGP or CLNG (as applicable) or any of its Subsidiaries which would, in accordance with US GAAP or !FRS (as applicable), be treated as a finance or capital lease (excluding any amounts applicable to leases to the extent that the lease obligations are secured by a security deposit which is held on the balance sheet under "Restricted Cash"). "Working Capital" means, on any date, Current Assets less Current Liabilities. 20.2 Financial condition The Borrower shall ensure that: 20.2.1 Debt Service Cover Ratios: (a) Debt Service Cover Ratio of each Borrower in respect of any Relevant Period shall not be less than 1.05:1, unless one or more Vessels is off-hire at any time during the Relevant Period in which case Debt Service Cover Ratio of the Borrowers on a consolidated basis in respect of any Relevant Period shall not be less than 1.05:1. (b) For the purpose only of determining a Dividend Restriction Event, Debt Service Cover Ratio of each Borrower in respect of any Relevant Period shall not be less than 1.2: 1, unless one or more LONLIVE\30137956.24 Page 91

 
Vessels is off-hire at any time during the Relevant Period in which case Debt Service Cover Ratio of the Borrowers on a consolidated basis in respect of any Relevant Period shall not be less than 1.2: 1. 20.2.2 CLNG's Free Liquidity and Available Credit Lines: CLNG maintains Free Liquidity and Available Credit Lines of (in aggregate) not less than thirty two million dollars (US$32,000,000); and 20.2.3 CLNG 's Net Debt to Net Debt plus Equity Ratio: CLNG maintains a Net Debt to Net Debt plus Equity Ratio of not more than seventy five per cent. (75%). 20.2.4 CLNG's Total Net Worth: CLNG maintains a Tangible Net Worth of at least three hundred million dollars (US$300,000,000). 20.2.5 TGP's Free Liquidity and Available Credit Lines TGP maintains Free Liquidity and Available Credit Lines of (in aggregate) not less than thirty five million dollars ($35,000,000); 20.2.6 TGP's Net Debt to Net Debt plus Equity Ratio TGP maintains a Net Debt to Net Debt plus Equity Ratio of not more than eighty per cent (80%); and 20.2. 7 TGP's Total Net Worth TGP maintains a Tangible Net Worth of at least four hundred million dollars ($400,000,000). 20.3 Financial testing 20.3.1 The financial covenants set out in Clause 20.2.1 (Financial condition) shall be calculated in accordance with GAAP and tested by reference to each of the Borrowers' financial statements delivered pursuant to Clauses 19.1.1 and 19.1.2. 20.3.2 The financial covenants set out in Clauses 20.2.2, 20.2.3 and 20.2.4 (Financial condition) shall be calculated in accordance with IFRS and tested by reference to each of CLNG's financial statements delivered pursuant to Clauses 19.1.4 and 19.1.5. 20.3.3 The financial covenants set out in Clauses 20.2.5, 20.2.6 and 20.2.7 (Financial condition) shall be calculated in accordance with GAAP and tested by reference to each of TGP's financial statements delivered pursuant to Clauses 19.1.4 and 19.1.5. 20.4 No less favourable financial covenants 20.4.1 The financial covenants in 20.2.2, 20.2.3 and 20.2.4 (Financial covenants) are as favourable as, or more favourable than, those given by CLNG lONUVE\30137956.24 Page 92

 
currently to other lenders or finance lessors. If during the Facility Period CLNG provides to another lender or finance lessor financial covenants which are more favourable than those in Clauses 20.2.2, 20.2.3 and 20.2.4 (Financial covenants) the Borrowers will promptly notify the Agent and hereby agrees to amend Clauses 20.2.2, 20.2.3 and 20.2.4 so as to be consistent with those more favourable financial covenants. 20.4.2 The financial covenants in 20.2.5, 20.2.6 and 20.2.7 (Financial covenants) are as favourable as, or more favourable than, those given by TGP currently to other lenders or finance lessors. If during the Facility Period TGP provides to another lender or finance lessor financial covenants which are more favourable than those in Clauses 20.2.5, 20.2.6 and 20.2.7 (Financial covenants) the Borrowers will promptly notify the Agent and hereby agree to amend Clauses 20.2.5, 20.2.6 and 20.2.7 so as to be consistent with those more favourable financial covenants. 21 General Undertakings The undertakings in this Clause 21 remain in force for the duration of the Facility Period. 21.1 Authorisations Each Borrower shall, and shall procure that each of the other Security Parties shall: 21.1.1 obtain, comply with and do all that is necessary to maintain in full force and. effect all Authorisations and promptly supply certified copies to the Agent of any Authorisation required under any law or regulation of a Relevant Jurisdiction, in each case to: (a) enable any Security Party to perform its obligations under the Finance Documents to which it is a party; (b) ensure the legality, validity, enforceability or admissibility in evidence of any Finance Document; and (c) enable any Security Party to carry on its business where failure to do so has or is reasonably likely to have a Material Adverse Effect; and 21.1.2 ensure that no failure to obtain, comply with or maintain any Authorisation may cause a Material Adverse Effect. 21.2 Compliance with laws 21.2.1 Each Borrower shall, and shall procure that each of the other Security Parties shall, comply in all respects with all laws to which it may be subject, if (except as regards Sanctions, to which Clause 21.2.2 applies, and anti­ corruption laws, to which Clause 21.5 applies) failure so to comply has or is reasonably likely to have a Material Adverse Effect. 21.2.2 No Borrower shall, and shall not permit or authorise any other person to, directly utilise or employ the Vessel, or to use, lend, make payments of, contribute or otherwise make available, all or any part of the proceeds of LONLIVE\30137956.24 Page 93

 
any transaction(s) contemplated by the Finance Documents to fund any trade, business or other activities: (a) involving or for the direct or indirect benefit of any Restricted Party (other than the Charterer, JSC Novatek and YLNG) or in any country or territory that at the time of such funding is a Sanctioned Country (other than Russia) if to do so would be prohibited by Sanctions applicable to any Security Party or any Finance Party; (b) in any manner that would reasonably be expected to result in any Security Party, any Approved Manager or any Finance Party or any Affiliate of such party or any other person (including any person participating in the Loan hereunder, whether as lender, facility agent or security agent or otherwise) being party to or which benefits from any Finance Document being in breach of any Sanctions by which it is bound or (other than the Charterer, JSC Novatek and YLNG) becoming a Restricted Party provided that: (i) it shall not be a breach of this Clause 21.2.2(b) if the relevant Security Party, Approved Manager, Finance Party, Affiliate of such parties or other person is in breach of any Sanctions by which it is bound or becomes a Restricted Party solely as a result of Sanctions administered, enacted or enforced by a EU Member State other than: (A) the United Kingdom, France, Germany; or (B) an EU Member State where any Finance Party or any Yamal Sponsor Guarantor is incorporated, and it would not otherwise be in breach of any Sanctions which it is bound or be a Restricted Party and the circumstances set out in this Clause 21.2.2(b)(i) do not have a Material Adverse Effect; (c) which is prohibited under applicable Sanctions or which ·could expose any Security Party, its assets, any asset subject to Security Documents, the Vessels, any Finance Party, any other person being party to or which benefits from any Finance Document (other than the Charterer, JSC Novatek and YLNG) or any Approved Manager to enforcement proceedings or any other consequences whatsoever arising from Sanctions by which it is bound. 21.3 Environmental compliance Each Borrower shall, and shall procure that each of the Security Parties will: 21.3.1 comply with all Environmental Laws; 21.3.2 obtain, maintain and ensure compliance with all requisite Environmental Approvals; and LONUVE\30137956.24 Page 94

 
21.3.3 implement procedures to monitor compliance with and to prevent liability under any Environmental Law, where failure to do so has or is reasonably likely to have a Material Adverse Effect. 21.4 Environmental Claims Each Borrower shall promptly upon becoming aware of the same, inform the Agent in writing of: 21.4.1 any Environmental Claim against any Security Party which is current, pending or threatened; and 21.4.2 any facts or circumstances which are reasonably likely to result in any Environmental Claim being commenced or threatened against any Security Party, where the claim, if determined against that Security Party, has or is reasonably likely to have a Material Adverse Effect. 21.5 Anti-corruption law Each Borrower warrants, represents and agrees that it and its Affiliates and its respective officers, directors, employees, consultants, agents and/or intermediaries have complied with, and shall comply with, all applicable Business Ethics Laws in connection with this Agreement. 21.6 Taxation Each Borrower shall pay and discharge all Taxes imposed upon it or its assets within the time period allowed without incurring penalties unless and only to the extent that: 21.6.1 such payment is being contested in good faith; 21.6.2 adequate reserves are being maintained for those Taxes and the costs required to contest them which have been disclosed in its latest financial statements delivered to the Agent under Clause 19.1 (Financial statements); and 21.6.3 such payment can be lawfully withheld and failure to pay those Taxes does not have or is not reasonably likely to have a Material Adverse Effect. 21.7 Evidence of good standing Each Borrower will from time to time if requested, upon reasonable notice by the Agent provide the Agent with evidence in form and substance satisfactory to the Agent that the Security Parties and all corporate shareholders of any of the Security Parties remains in good standing. 21.8 Pari passu ranking Each Borrower shall ensure that at all times any unsecured and unsubordinated claims of a Finance Party against it under the Finance Documents rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors except those creditors whose claims are preferred by any bankruptcy, insolvency, liquidation, winding-up or other similar laws of general application. 21.9 Negative pledge No Borrower shall: LONLlVE\30137956.24 Page 95

 
21.9.1 create, or permit to subsist, any Encumbrance (other than pursuant to the Security Documents) over all or any part of the Vessel owned by it, its other assets or undertakings (other than Permitted Encumbrances); or 21.9.2 sell, lease, assign, transfer or otherwise dispose of a Vessel or any of those assets or all or any part of those undertakings other than, in the case of a sale of the Vessel, where such sale complies with the requirements of this Agreement or any other Finance Documents. 21.10 Charter Arrangements In the event that: 21.10.1 a Charter is novated, amended or otherwise supplemented in accordance with the terms of such Charter (the "Restructured Time Charter"); or 21.10.2 a Borrower and the Charterer (or the Charterer's nominee) enter into a bareboat charter in accordance with clause 46 (Bareboat Charter Option) of the relevant Charter (the "Yamal Bareboat Charter"), the relevant Borrower shall, to the extent that it is a party to the Restructured Time Charter (in respect of the Restructured Time Charter): (a) assign its rights and interest under such Restructured Time Charter or the Yamal Bareboat Charter (as the case may be) by a legal assignment duly notified to the Charterer in favour of the Security Agent; (b) subject to Clause 21.10.2(c) below, if the Yamal Bareboat Charter is entered into, each Borrower shall procure that the Charterer complies with the requirements of clause 6.6 of the relevant Quiet Enjoyment Agreement which, inter alia, provides that the relevant Borrower (as owner) (and not the Charterer (as bareboat charterer)) shall provide the Insurances in accordance with the terms set out at clause 13 of the relevant Yamal Bareboat Charter; and (c) if, pursuant to the Charterer's request for the prior written consent of its financiers to an assignment by Charterer to the relevant Borrower of Charterer's rights and interests (or the Charterer's nominee's rights and interests) to the relevant Vessel's Insurances (the "Charterer's Insurance Assignment"), such consent is received, Clause 21.10.2(b) above shall not apply. In such circumstances, the relevant Borrower shall procure that Charterer enters into a Charterer's Insurance Assignment and such Borrower shall on-assign such rights and interests in the Vessel's Insurances in favour of the Security Agent. The Borrowers shall give the Agent no less than twenty (20) days' prior written notice of any such novation, amendment or restructure referred to in this Clause 21.10. 21.11 Arm's length basis No Borrower shall (and the Borrowers shall procure that no other Security Party (other than TGP and Teekay Operating) will), sell or transfer any of its material assets other than (and provided not otherwise prohibited by any other term of this Agreement): LONUVE\30137956.24 Page 96

 
21.11.1 on arm's length terms to third parties where the net proceeds of sale are used as a prepayment hereunder; 21.11.2 on arm's length terms to its Affiliates, which are and remain members of the Borrowers Group; or 21.11.3 on arm's length terms and for full market value. 21.12 Merger No Borrower shall, and the Borrowers shall procure that the Parent shall not, enter into any amalgamation, demerger, merger, consolidation or corporate reconstruction without the prior written consent of the Agent. 21.13 Change of business No Borrower shall, and the Borrowers shall procure that the Parent shall not, make any substantial change to the general nature of its business from that carried on at the date of this Agreement without the prior written consent of all Lenders. 21.14 .No other business No Borrower shall engage in any business other than the ownership, operation, chartering and management of the relevant Vessel. 21.15 No acquisitions No Borrower shall make any acquisition or investment without the prior written consent of the Agent save for the acquisition of the relevant Vessel under the relevant Building Contract (such consent not to be unreasonably withheld or delayed). 21.16 No borrowings No Borrower shall (a) incur or allow to remain outstanding any bank loan, bond issuance or any other Financial Indebtedness or (b) incur any other liability or obligation except, in either case: 21.16.1 liabilities and obligations under the Finance Documents to which they are parties; 21.16.2 liabilities or obligations (other than a bank loan) reasonably incurred in the ordinary course of operating, chartering, repairing and maintaining the Vessel; 21.16.3 with the prior written consent of the Agent, Financial Indebtedness (other than a bank loan) owing to their Affiliates provided that: (a) such Financial Indebtedness is unsecured and subordinated to the Loan on terms acceptable to the Majority Lenders; and (b) no Borrower shall be permitted to repay any Financial Indebtedness owing to its Affiliates at any time during the Facility Period; 21.16.4 any other Financial Indebtedness (other than a bank loan) the principal amount of which (when aggregated with the principal amount of any other Financial Indebtedness incurred by any Borrower (except any permitted under Clauses 21.16.1 or 21.16.2 or 21.16.3 above) does not exceed US$5,000,000 (or its equivalent in another currency or currencies), plus an amount equal to amounts credited to the Drydocking Reserve Account and the Operating Reserve Account. LONLIVE\30137956.24 Page 97

 
21.17 No loans or credit or other financial commitments No Borrower shall be a creditor in respect of any Financial Indebtedness or enter into any guarantee and indemnity or otherwise voluntarily assume any actual or contingent liability in respect of any obligation of any other person unless pursuant to the Finance Documents and loans made in the ordinary course of business in connection with the chartering, operation or repair of the relevant Vessel. 21.18 No guarantee or indemnities 21.18.1 No Borrower shall incur or allow to remain outstanding any guarantee in respect of any obligation of any person. 21.18.2 No Borrower shall incur or allow to remain outstanding any indemnity in respect of any obligation of any person other than indemnities incurred in the ordinary course of trading and/or operating a Vessel. 21.19 Disposals 21.19.1 No Borrower shall enter into a single transaction or a series of transactions (whether related or not) and whether voluntary or involuntary to sell, lease, transfer or otherwise dispose of any asset. 21.19.2 Clause 21.19.1 does not apply to any sale, lease, transfer or other disposal which is a Permitted Transaction. 21.20 Inspection of records Each Borrower will permit the inspection of its financial records and accounts from time to time on reasonable notice during business hours by the Agent or its nominee. 21.21 Relevant Documents In relation to the Relevant Documents, each Borrower undertakes that: 21.21.1 there shall be no: (a) termination by such Borrower of any Relevant Document; or (b) alteration to or waiver of any material term of any Relevant Document where doing so would have a Material Adverse Effect, in each case, unless the prior written consent of the Agent is obtained (it being understood, and for the avoidance of doubt, that any (x) replacement of a Yamal Sponsor Guarantee, or (y) execution of an Alternative Yamal Sponsor Guarantee (in each case) pursuant to clause 67.3 of the Charter shall, subject to each Borrower's compliance of Clause 21.26 (Proposed Alternative Yama/ Sponsor Guarantor), not have a Material Adverse Effect); 21.21.2 without: (a) limiting the generality of Clause 21.21.1 above; and (b) prejudice to the provisions of the Relevant Documents which expressly contemplate or permit a sale of a Vessel to the Charterer, any Yamal Sponsor Guarantor or any nominee of the Charterer or of any Yamal Sponsor Guarantor, LONUVE\30137956.24 Page 98

 
no Borrower will, without the prior written consent of the Agent, effect any sale of the Vessel to the Charterer, any Yamal Sponsor Guarantor or any nominee of the Charterer or of any Yamal Sponsor Guarantor; and 21.21.3 without prejudice to the foregoing, each Borrower shall, where applicable, use reasonable endeavours and forthwith execute and deliver any and all such other agreements, instruments and documents (including any novation agreement) as may be required by law or deemed necessary to ensure that the Relevant Documents which are in effect on the date of this Agreement shall remain in effect, so that all obligations previously owed by the applicable Transaction Party to such Borrower under such Relevant Documents shall continue to be owed to such Borrower throughout the Facility Period (provided that this shall not be applicable to expiration of such Relevant Document through effluxion of time). 21.22 Constitutional Documents No Borrower shall agree to any material amendment to or variation of its constitutional documents, except as required by the Finance Documents or pursuant to a reduction of capital (while the Borrower is solvent) by (A) a share or common unit buy-back, or (B) redemption of redeemable shares or units, without the approval of the Agent or as required by applicable law, including share capital reductions to set off accumulated losses. 21.23 Further assurance 21.23.1 Each Borrower shall, and shall procure each other Security Party shall, promptly do all such acts or execute all such documents (including assignments, transfers, mortgages, charges, notices and instructions) as the Security Agent may reasonably specify (and in such form as the Security Agent may reasonably require in favour of the Security Agent or its nominee(s)): (a) to perfect any Encumbrance created or intended to be created under or evidenced by the Security Documents (which may include the execution of a mortgage, charge, assignment or other Encumbrance aver all or any of the assets which are, or are intended to be, the subject of the Security Documents) or for the exercise of any rights, powers and remedies of the Security Agent or the Finance Parties provided by or pursuant to the Finance Documents or by law; (b) to confer on the Security Agent or confer on the Finance Parties an Encumbrance aver any property and assets of that Borrower (or that other Security Party as the case may be) located in any jurisdiction equivalent or similar to the Encumbrance intended to be conferred by or pursuant to the Security Documents; and/or (c) to facilitate the realisation of the assets which are, or are intended to be, the subject of the Security Documents. LONLIVE\30137956.24 Page 99

 
21.23.2 Each Borrower shall, and shall procure each other Security Party shall, take all such action as is available to it (including making all filings and registrations) as may be necessary for the purpose of the creation, perfection, protection or maintenance of any Encumbrance conferred or intended to be conferred on the Security Agent or the Finance Parties by or pursuant to the Finance Documents. 21.24 Access 21.24.1 If a Default is continuing, each Borrower shall and shall ensure that each member of the Borrowers Group will, permit the Agent or the Security Agent and/or accountants or other professional advisers of the Agent or Security Agent reasonable access upon prior written notice at the cost of the Borrowers to (a) the premises, assets, books, accounts and records of each member of the Borrowers Group and (b) meet and discuss matters with the senior management of each member of the Borrowers Group. 21.24.2 On the request of the Agent or the Security Agent or accountants or other professional advisers of the Agent or Security Agent (a "relevant person"), each Borrower shall take (and shall procure that each member of the Borrowers Group takes) all steps necessary to enable such relevant person at the cost of the Borrowers to perform the activities or obtain the information, to the extent it is available, referred to in the column entitled "Relevant Access" at a frequency of not less than the period specified in the column entitled "Frequency" in the following table: Relevant Access Frequency (i) Conducting on-site monitoring of members of the Once a year Borrowers Group, and have access at reasonable times and on reasonable notice to (a) the premises, assets, books, accounts and records of each member of the Borrowers Group and (b) meeting and discussing matters with the senior management of each member of the Borrowers Group. (ii) Conducting off-site monitoring of members of Once a half-year the Borrowers Group and have access to books, accounts and records of each member of the Borrowers Group. (iii) Obtaining general information about members of Once a half-year the Borrowers Group, including (without limitation) corporate financial statements and project management reports. (iv) Collecting other information relevant to members Once a half-year of the Borrower's Group in connection with the Relevant Documents and any credit ratings which shall including any governmental ratings. LONUVE\30137956.24 Page 100

 
21.25 No dealings with Master Agreement No Borrower shall assign, novate or encumber or in any other way transfer any of its rights or obligations under the Master Agreement (other than Permitted Encumbrances), nor enter into any interest rate exchange or hedging agreement with anyone other than the Swap Provider. 21.26 Proposed Alternative Yamal Sponsor Guarantor 21.26.1 Each Borrower undertakes that, unless its consent has been deemed to have been given in accordance with clause 67.3 of the Charter, it may only agree to any: (a) replacement of a Yamal Sponsor Guarantee; or (b) execution of an Alternative Yamal Sponsor Guarantee (in each case) pursuant to clause 67.3 of the Charter if the Agent has, after conducting relevant due diligence, given its written confirmation of its acceptance of the relevant Alternative Yamal Sponsor Guarantor (such confirmation not to be unreasonably withheld or delayed). 21.26.2 For the purpose of this Clause 21.26, the Agent's due diligence shall be deemed to include (but not be limited to) the Agent's procurement of a legal opinion issued (at the cost of the Borrowers) by a firm of lawyers qualified to practise in the jurisdiction of incorporation of the relevant Alternative Yamal Sponsor Guarantor and a legal opinion issued (at the cost of the Borrowers) by a firm of lawyers qualified to practise in the jurisdiction of the governing law of the relevant Alternative Yamal Sponsor Guarantee. 21.27 Application of FATCA The Borrowers shall procure that, unless agreed by all the Finance Parties, no Security Party shall become a US Tax Obligor. 21.28 Insurances Each,Borrower covenants to ensure at their own expense throughout the Facility Period each Vessel remains insured in accordance with: 21.28.1 clause 5 (Insurance) of the relevant Deed of Covenants; and 21.28.2 the terms of the respective Charter. 21.29 Registration of Vessels and Mortgages The Borrowers shall: 21.29.1 maintain the registration of each Vessel under its current flag or another Approved Flag; 21.29.2 effect and maintain the registration of each Mortgage at the relevant Vessel's Ship Registry; and 21.29.3 not cause nor permit to be done any act or omission as a result of which any of those registrations might be defeated or imperilled. 22 Events of Default 22.1 Events of Default Each of the events or circumstances set out in this Clause 22.1 is an Event of Default. LONLlVE\30137956.24 Page 101

 
22.1.1 Non-payment A Security Party does not pay on the due date any amount payable pursuant to a Finance Document at the place at and in the currency in which it is expressed to be payable unless: (a) its failure to pay is caused by: (i) administrative or technical error; or (ii) a Disruption Event; and (b) payment is made within three Business Days of its due date. 22.1.2 Financial covenants and financial information Any requirement of Clause 19.1 (Financial statements), Clause 19.2 (Compliance Certificate) or Clause 20 (Financial covenants) (other than Clause 20.2.1(b)) is not satisfied. 22.1.3 Other specific obligations A Security Party does not comply with its obligations in Clause 21.29 (Insurances). 22.1.4 Other obligations (a) A Security Party does not comply with any provision of a Finance Document or any obligation expressed to be assumed by or procured by the Borrowers under this Agreement (other than those referred to in Clause 22.1.1 (Non-payment) and Clause 22.1.3 (Other specific obligations)). (b) No Event of Default under this Clause 22.1.4 will occur if the failure to comply is capable of remedy and is remedied within thirty (30) days of the Agent giving notice to the Borrowers provided that such remedy period shall not apply in addition to any other remedy period provided for under any other provision in this Agreement. 22.1.5 Misrepresentation Any representation or statement made or deemed to be repeated by a Security Party in any Finance Document or any other document delivered by or on behalf of a Security Party under or in connection with any Finance Document is or proves to have been incorrect or misleading in any material respect when made or deemed to be made where the circumstances causing the same give rise to a Material Adverse Effect. 22.1.6 Cross default Any Financial Indebtedness of any Security Party: (a) is not paid when due nor within any originally applicable grace period; or (b) is declared to be, or otherwise becomes, due and payable prior to its specified maturity as a result of an event of default (however described); or (c) is capable of being declared by a creditor to be due and payable prior to its specified maturity as a result of such an event of default. LONUVE\30137956.24 Page 102

 
No Event of Default will occur under this Clause 22.1.6 if the aggregate amount of Financial Indebtedness or commitment for Financial Indebtedness falling within (a) to (c) is, (i) in respect of a Vessel Sponsor Guarantor, equal to or less than thirty million dollars (US$30,000,000) or its equivalent in any other currency or currencies, or (ii) in respect of each of a Borrower and the Parent, equal to or less than three million dollars (US$3,000,000) or its equivalent in any other currency or currencies. 22.1.7 Insolvency A Security Party is unable to pay its debts as they fall due, commences negotiations with any one or mo;e of its creditors with a view to the general readjustment or rescheduling of its indebtedness or makes a general assignment for the benefit of its creditors or a composition with its creditors. 22.1.8 Insolvency proceedings A Security Party: (a) files for initiation of formal restructuring proceedings; or (b) is wound up or declared bankrupt; or (c) takes any steps or legal proceedings are started for its winding up, dissolution, administration or re-organisation or for the appointment of a liquidator, receiver, administrator, administrative receiver, conservator, custodian, trustee or similar officer of it or of any or all of its revenues or assets; or (d) declares any moratorium or any moratorium is declared or sought, in each case, in respect of any of its indebtedness; or (e) any analogous procedure or step is taken in any relevant jurisdiction. 22.1.9 Creditors' process (a) A Security Party fails to comply with or pay any sum due from it (within thirty (30) days of such amount falling due) under any final judgment or any final order made or given by any court or other official body of a competent jurisdiction in an aggregate in respect of: (i) each Vessel Sponsor Guarantor, equals to or is greater than thirty million dollars (US$30,000,000) or its equivalent in any other currency or currencies; or (ii) each of the Borrowers, the Parent and Teekay Operating, equals to or is greater than three million dollars (US$3,000,000) or its equivalent in any other currency, in each case being a judgment or order against which there is no right of appeal or if a right of appeal exists, where the time limit for making such appeal has expired. LONLIVE\30137956.24 Page 103

 
(b) Any execution or distress is levied against, expropriation, attachment or sequestration affects, or an encumbrance takes possession of, the whole or any part of, the property, undertaking or assets of a Security Party in an aggregate amount in respect of: (i) each Vessel Sponsor Guarantor, equals to or is greater than thirty hundred million dollars (US$30,000,000) or its equivalent in any other currency or currencies; or (ii) each of the Borrowers, the Parent and Teekay Operating, equals to or is greater than three million dollars (US$3,000,000) or its equivalent in any other currency or currencies, in each case other than any execution, distress, expropriation, attachment or sequestration which is being contested in good faith and which is either discharged within thirty (30) days or in respect of which adequate security has been provided within thirty (30) days to the relevant court or other authority to enable the relevant execution, distress, expropriation, attachment or sequestration to be lifted or released. 22.1.10 Unlawfulness and invalidity (a) It is or becomes unlawful for a Security Party to perform any of its obligations under the Finance Documents (except for the Replacement Novation Side Letters) or any Encumbrance created or expressed to be created or evidenced by the Security Documents ceases to be effective. (b) Any obligation or obligations of any Security Party under any Finance Documents (except for the Replacement Novation Side Letters) are not or cease to be legal, valid, binding or enforceable and the cessation individually or cumulatively materially and adversely affects the interests of the Lenders under the Finance Documents. (c) Any Finance Document (except for a Replacement Novation Side Letter) ceases to be in full force and effect or any Encumbrance created or expressed to be created or evidenced by the Security Documents ceases to be legal, valid, binding, enforceable or effective or is alleged by a party to it (other than a Finance Party) to be ineffective. (d) Provided that it shall only be an Event of Default under this Clause 22.1.10 if such illegality is not remedied or mitigated to the satisfaction of the Agent within thirty (30) days after notice has been given to the relevant Security Party. 22.1.11 Cessation of business A Security Party ceases to carry on all or any material part of its business and which would have a Material Adverse Effect. LONUVE\30137956.24 Page 104

 
22.1.12 Curtailment of business The business of any of the Security Parties is wholly or materially curtailed by any intervention by or under authority of any government, or if all or a substantial part of the undertaking, property or assets of any of the Security Parties is seized, nationalised, expropriated or compulsorily acquired by or under authority of any government or any Security Party disposes or threatens to dispose of a substantial part of its business or assets which would have a Material Adverse Effect. 22.1.13 Loss of property All or a substantial part of the business or assets of any Security Party is destroyed, abandoned, seized, appropriated or forfeited for any reason, and such occurrence in the reasonable opinion of the Agent has or could reasonably be expected to have a Material Adverse Effect. 22.1.14 Repudiation, rescission or breach of agreements (a) A Security Party rescinds or purports to rescind or repudiates or purports to repudiate a Finance Document or evidences an intention to rescind or repudiate a Finance Document. (b) Subject to Clause 22.1.14(c), any party to any of the Relevant Documents that is not a Finance Document (other than the Purchase Option Side Letter or the Currency Conversion Letter (each as defined in Schedule 7 (List of Assigned Documents) (the "Excluded Documents")) repudiates that Relevant Document, provided that it shall not be an Event of Default if: (i) such repudiation is in respect of a Charter and the relevant Borrower is able 'to enter into a substitute charter on terms and conditions acceptable to the Majority Lenders within forty five (45) days of such repudiation; or (ii) the Borrowers prepay the relevant Vessel Loan within forty five ( 45) days of such repudiation. (c) Any Relevant Document (other than the Excluded Documents) is terminated, cancelled or otherwise ceases to remain in full force and effect at any time prior to its contractual expiry date, provided that it shall not be an Event of Default if: (i) such termination or cancellation is in respect of a Charter and either the Charter is converted into a bareboat charterparty under the terms of the Charter or the relevant Borrower is able to enter into a substitute charter on terms and conditions acceptable to the Majority Lenders within forty five (45) days of such termination or cancellation; or (ii) the Borrowers prepay the relevant Vessel Loan in full with in forty five ( 45) days of such termination or cancellation. (d) Any default by a Borrower or any other breach by a Borrower or any other Security Party occurs under any of the Relevant Documents (other than the Excluded Documents) where any such default or breach gives rise to a right of termination under the Relevant Document, provided that it shall not be an Event of default if the Borrowers either cure such default or breach or LONUVE\30137956.24 Page 105

 
prepay the relevant Vessel Loan within ninety (90) days of such default or breach. Any prepayment made by the Borrowers pursuant to this Clause 21.14 (Repudiation, rescission or breach of agreements) shall not be subject to the conditions set out in Clause 7.3 (Voluntary prepayment of a Vessel Loan). 22.1.15 Conditions subsequent Any of the conditions referred to in Clause 4.4 (Initial Conditions subsequent) and Clause 4.9 (Delivery conditions subsequent) is not satisfied within the time reasonably required by the Agent. 22.1.16 Revocation or modification of Authorisation Any Authorisation of any governmental, judicial or other public body or authority which is now, or which at any time during the Facility Period becomes, necessary to enable any of the Security Parties or any other person (except a Finance Party) to comply with any of their obligations under any Relevant Document is not obtained, is revoked, suspended, withdrawn or withheld, or is modified in a manner which the Agent considers is, or may be, prejudicial to the interests of any Finance Party, or ceases to remain in full force and effect. 22.1.17 Reduction of capital Any Security Party (other than Teekay Operating) reduces its committed or subscribed capital other than any reduction effected by any Security Party pursuant to (in each case while such Security Party is solvent) (A) a share or common unit buy-back, or (B) redemption of redeemable shares or units. 22.1.18 Loss of Vessel A Vessel suffers a Total Loss or a Total Loss occurs in relation to any other vessel which may from time to time be mortgaged to the Security Agent as security for the payment of all or any part of the Indebtedness, except that a Total Loss (which term shall for the purposes of the remainder of this Clause 22.1.18 include an event similar to a Total Loss in relation to any other vessel) shall not be an Event of Default if: (a) that Vessel or other vessel is insured in accordance with the Security Documents and a claim for Total Loss is available under the terms of the relevant insurances; and (b) no insurer has refused to meet or has disputed the claim for Total Loss and it is not apparent to the Agent in its discretion that any such refusal or dispute is likely to occur; and (c) payment of all insurance proceeds in respect of the Total Loss is made in full to the Security Agent within 180 days of the occurrence of date of the Total Loss in question or such longer period as the Agent may in its discretion agree, or the Borrowers prepay the relevant Vessel Loan in full immediately upon the expiry of a one hundred and eighty (180) day period after the occurrence of the Total Loss in question. LONUVE\30137956.24 Page 106

 
Any prepayment made by the Borrowers pursuant to this Clause 22.1.18 (Loss of Vessel) shall not be subject to the conditions set out in Clause 7.3 (Voluntary prepayment of a Vessel Loan). 22.1.19 Challenge to registration The registration of a Vessel or a Mortgage is contested or becomes void or voidable or liable to cancellation or termination, or the validity or priority of a Mortgage is contested. 22.1.20 War The country of registration of a Vessel becomes involved in war (whether or not declared) or civil war or is occupied by any other power and the Agent in its discretion considers that, as a result, the security conferred by any of the Security Documents is materially prejudiced provided that there shall be no Event of Default under this clause if the Vessel can be moved to another acceptable flag within thirty (30) days. 22.1.21 Master Agreement termination A notice is given by the Swap Provider under section 6(a) of the Master Agreement, or by any person under section 6(b )(iv) of the Master Agreement, in either case designating an Early Termination Date for the purpose of the Master Agreement, or the Master Agreement is for any other reason terminated, cancelled, suspended, rescinded, revoked or otherwise ceases to remain in full force and effect due to a default by the Borrowers. 22.1.22 Notice of Determination If either Vessel Sponsor Guarantor gives notice to the Agent to determine its obligations under the Guarantee. 22.1.23 Environmental matters (a) Any Environmental Claim is made against any Borrower or in connection with any Vessel, where such Environmental Claim has a Material Adverse Effect. (b) Any actual Environmental Incident occurs in connection with the Vessel, where such Environmental Incident has a Material Adverse Effect. 22.1.24 Non-Security Party Transaction Parties any event which, under the laws of any jurisdiction, has a similar or analogous effect to any of those events mentioned in Clauses 22.1.7 (Insolvency), 22.1.8 (Insolvency proceedings) and 22.1.9 (Creditors' process) occurs (mutatis mutandis) in relation to a Transaction Party that is not a Security Party (but in relation to a Yamal Sponsor Guarantor, only until such time as the Yamal Sponsor Guarantee issued by that Yamal Sponsor Guarantor is terminated or ceases to have effect in accordance with its terms) except where: (a) in the case of the Charterer, the Charterer (or a third party acting on its behalf) continues to pay hire in accordance with the Charters and provided further that: (i) in the case of hire paid by the Charterer, the Agent (acting in their sole discretion) is satisfied that such payment is irrevocable and not subject to any claw-back; or (ii) in the case of hire paid by a third party acting on behalf of the Charterer, the Agent (acting in their sole discretion) is satisfied that LONLIVE\30137956.24 Page 107

 
all applicable know your customer requirements required by the Agent are fulfilled and that such payment is irrevocable and not subject to any claw-back; and (b) in the case of the Charterer, YLNG and each Yamal Sponsor Guarantor, any event which, under the laws of any jurisdiction, has a similar or analogous effect to the events mentioned in 22.1.9 (Creditors' process) occurs in relation to the Charterer, YLNG or a Yamal Sponsor Guarantor and the amount of the applicable judgment, final order, execution, distress, expropriation, attachment, sequestration or encumbrance which takes possession (each as referred to in 22.1.9 (Creditors' process)) is for an aggregate amount of: (i) in respect of YLNG and each Yamal Sponsor Guarantor, less than fifty million dollars (US$50,000,000) or its equivalent in any other currency or currencies; and (ii) in respect of the Charterer, less than thirty million dollars (US$30,000,000) or its equivalent in any other currency or currencies; and (c) in the case of the Builder and Refund Guarantor, such event occurs after the final Delivery Date. 22.1.25 Non-delivery of Vessel A Vessel is not delivered to the relevant Borrower by the Builder under the relevant Building Contract by the relevant Long Stop Date and any Drawings of the relevant Vessel Loan relating to that Vessel have not been prepaid within thirty (30) days. 22.1.26 Litigation Any litigation, arbitration, administrative, governmental, regulatory or other investigations, proceedings or disputes are commenced or threatened, or any judgment or order of a court, arbitral tribunal or other tribunal or any order or sanction of any governmental or other regulatory body is made, in relation to the Relevant Documents or the transactions contemplated in the Relevant Documents or against a Security Party or its assets which have, or has, or are, or is, reasonably likely to have a Material Adverse Effect. 22.1.27 Material adverse change Any event or change occurs which has a Material Adverse Effect and such change if capable of remedy is not so remedied within thirty (30) days of such event or change. 22.1.28 Sanctions Any Security Party, any Affiliate of any Security Party or any of their respective directors, officers or employees becomes a Restricted Party, provided that: (a) it shall not be an Event of Default in relation to any applicable director, officer or employee, if thirty (30) days after it became a Restricted Party it ceases to be a Restricted Party or ceases to be a director, officer or employee; and LONUVE\30137956.24 Page 108

 
(b) it shall not be an Event of Default if: (i) the relevant Security Party, Affiliate of any Security Party or any of their respective directors, officers or employees becomes a Restricted Party solely as a result of Sanctions administered, enacted or enforced by a EU Member State other than: (A) the United Kingdom, France, Germany; or (B) an EU Member State where any Finance Party or any Yamal Sponsor Guarantor is incorporated, and it would not otherwise be a Restricted Party; and (ii) the circumstances set out in Clause 22.1.28(b)(i) above, do not have a Material Adverse Effect or, in relation to any applicable director, officer or employee, within thirty (30) days from the date on which it became a Restricted Party, it ceases to be a Restricted Party or ceases to be a director, officer or employee of a Security Party or an Affiliate of any Security Party. 22.1.29 Arrest Any Vessel is arrested or seized for any reason whatsoever unless (i) such Vessel is released and returned to the possession of the relevant Borrower within thirty (30) days of such arrest or seizure or (ii) within thirty (30) days the Borrowers prepay the relevant Vessel Loan. Any prepayment made by the Borrowers pursuant to this Clause 22.1.29 (Arrest) shall not be subject to the conditions set out in Clause 7.3 (Voluntary prepayment of a Vessel Loan). 22.1.30 Exercise of step-in or other related rights There occurs any of the following event or circumstance: (a) the Charterer exercises: (i) its purchase option in accordance with clause 47.l{a) of any Charter; or (ii) its termination rights under clause 44.2(a) (Owner's default) of any Charter; or (b) any Yamal Sponsor Guarantor (or a nominee of any such Yamal Sponsor Guarantor) exercises its right to: (i) require a novation of any Building Contract in accordance with the relevant Replacement Novation Side Letter; or (ii) acquire any Vessel in accordance with any Purchase Option Side Letter in circumstances where the purchase option under clause 47.l{a) of the Charter to which such Purchase option Side Letter relates has become exercisable; or LONUVE\30137956.24 Page 109

 
(c) the Charterer and/or any Borrower exercise their right to terminate any Charter in accordance with clause 70.10 of such Charter, provided that it shall not be an Event of Default if the Borrowers prepay the relevant Vessel Loan within thirty (30) days of such event or circumstance. Any prepayment made by the Borrowers pursuant to this Clause 22.1.30 (Exercise of step-in or other related rights) shall not be subject to the conditions set out in Clause 7.3 (Voluntary prepayment of a Vessel Loan). 22.1.31 Validity and admissibility At any time any act, condition or thing reasonably required to be done, fulfilled or performed in order: (a) to enable any Security Party lawfully to enter into, exercise its rights under and perform the respective obligations expressed to be assumed by it in the Finance Documents; (b) to ensure that the obligations expressed to be assumed by each of the Security Parties in the Relevant Documents are legal, valid and binding; or (c) to make the Relevant Documents admissible in evidence in any applicable jurisdiction is not done, fulfilled or performed within thirty (30) days after notification from the Agent to the relevant Security Party requiring the same to be done, fulfilled or performed. 22.1.32 Money laundering and financing of terrorism (a) Any Security Party, any Affiliate of any Security Party involves any breach by it of any law or regulatory measure relating to "money laundering" as defined in Article 1 of the Directive (2005/EC/60) of the European Parliament and of the Council of the European Communities. (b) Any Security Party, any Affiliate of any Security Party engages in any act of providing or collecting funds with the intention that they be used, or in the knowledge that they are to be used, in order to carry out terrorist acts. 22.1.33 Expropriation The authority or ability of any member of the Borrowers Group to conduct its business is limited or wholly or substantially curtailed by any seizure, expropriation, nationalisation, intervention, restriction or other action by or on behalf of any governmental, regulatory or other authority or other person in relation to any member of the Borrowers Group or any of its assets. 22.2 Acceleration On and at any time after the occurrence of an Event of Default which is continuing the Agent may, and shall if so directed by the Majority Lenders: LONUVE\30137956.24 Page 110

 
22.2.1 by notice to the Borrowers: (a) cancel the Total Commitments, at which time they shall immediately be cancelled; (b) declare that the Loan, together with accrued interest, and all other amounts accrued or outstanding under the Finance Documents are immediately due and payable, at which time they shall become immediately due and payable; and/or (c) declare that the Loan is payable on demand, at which time it shall immediately become payable on demand by the Agent on the instructions of the Majority Lenders; and/or 22.2.2 exercise or direct the Security Agent to exercise any or all of its rights, remedies, powers or discretions under the Finance Documents. LONLlVE\30137956.24 Page 111

 
Section 9 Changes to Parties 23 Changes to the Lenders 23.1 Assignments and transfers by the Lenders Subject to this Clause 23, a Lender (the "Existing Lender") may: 23.1.1 assign any of its rights; or 23.1.2 transfer by novation any of its rights and obligations, under any Finance Document to another bank or financial institution or to a trust, fund or other entity which is regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities or other financial assets (the "New Lender") without the consent of the Borrowers provided that: (a) it is one of: (i) Industrial and Commercial Bank of China Limited; (ii) China Construction Bank Corporation; (iii) Agricultural Bank of China Limited; (iv) Bank of China Limited; (v) Bank of Communications Co., Ltd.; (vi) The Export-Import Bank of China; (vii) China Merchants Bank Co., Ltd.; or (b) it has, on the date it becomes a New Lender, a credit rating with Standard & Poor's of at least A- and is not an Excluded Transferee, otherwise the consent of the Borrowers shall be required, such consent not to be unreasonably withheld or delayed. 23.2 Conditions of assignment or transfer 23.2.1 An assignment will only be effective on: (a) receipt by the Agent of written confirmation from the New Lender (in form and substance satisfactory to the Agent) that the New Lender will assume the same obligations to the other Finance Parties as it would have been under if it was an Original Lender; and (b) performance by the Agent of all necessary "know your customer" or other similar checks under all applicable laws and regulations in relation to such assignment to a New Lender, the completion of which the Agent shall promptly notify to the Existing Lender and the New Lender. LONLIVE\30137956.24 Page 112

 
23.2.2 A transfer will only be effective if the procedure set out in Clause 23.5 (Procedure for transfer) is complied with. 23.2.3 If: (a) a Lender assigns or transfers any of its rights or obligations under the Finance Documents or changes its Facility Office; and (b) as a result of circumstances existing at the date the assignment, transfer or change occurs, a Borrower would be obliged to make a payment to the New Lender or Lender acting through its new Facility Office under Clause 12 (Tax Gross Up and Indemnities) or Clause 13 (Increased Costs), then the New Lender or Lender acting through its new Facility Office is only entitled to receive payment under those Clauses to the same extent as the Existing Lender or Lender acting through its previous Facility Office would have been if the assignment, transfer or change had not occurred. 23.2.4 Each New Lender confirms, for the avoidance of doubt, that the Agent has authority to execute on its behalf any amendment or waiver that has been approved by or on behalf of the requisite Lender or Lenders in accordance with this Agreement on or prior to the date on which the transfer or assignment becomes effective in accordance with this Agreement and that it is bound by that decision to the same extent as the Existing Lender would have been had it remained a Lender. 23.3 Assignment or transfer fee 23.3.1 Subject to Clause 23.3.2, the New Lender shall, on the date upon which an assignment or transfer takes effect, pay to the Agent (for its own account) a fee of $10,000. 23.3.2 No fee is payable pursuant to Clause 23.3.1 if: (a) the Agent agrees that no fee is payable; or (b) the assignment or transfer is made by an Existing Lender: (i) to an Affiliate of that Existing Lender; (ii) to a fund which is a Related Fund of that Existing Lender; or (iii) in connection with the primary syndication of the Loan. 23.4 Limitation of responsibility of Existing Lenders 23.4.1 Unless expressly agreed to the contrary, an Existing Lender makes no representation or warranty and assumes no responsibility to a New Lender for: (a) the legality, validity, effectiveness, adequacy or enforceability of the Relevant Documents or any other documents; LONUVE\30137956.24 Page 113

 
(b) the financial condition of any Security Party; (c) the performance and observance by any Security Party of its obligations under the Relevant Documents or any other documents; or (d) the accuracy of any statements (whether written or oral) made in or in connection with any of the Relevant Documents or any other document, and any representations or warranties implied by law are excluded. 23.4.2 Each New Lender confirms to the Existing Lender and the other Finance Parties that it: (a) has made (and shall continue to make) its own independent investigation and assessment of the financial condition and affairs of each Security Party and its related entities in connection with its participation in this Agreement and has not relied exclusively on any information provided to it by the Existing Lender in connection with any of the Relevant Documents; and (b) will continue to make its own independent appraisal of the creditworthiness of each Security Party and its related entities whilst any amount is or may be outstanding under the Finance Documents or any Commitment is in force. 23.4.3 Nothing in any Finance Document obliges an Existing Lender to: (a) accept a re-transfer or re-assignment from a New Lender of any of the rights and obligations assigned or transferred under this Clause 23; or (b) support any losses directly or indirectly incurred by the New Lender by reason of the non-performance by any Security Party of its obligations under the Relevant Documents or otherwise. 23.5 Procedure for transfer 23.5.1 Subject to the conditions set out in Clause 23.2 (Conditions of assignment or transfer) a transfer is effected in accordance with Clause 23.5.3 when the Agent executes an otherwise duly completed Transfer Certificate delivered to it by the Existing Lender and the New Lender. The Agent shall, subject to Clause 23.2.1(b), as soon as reasonably practicable after receipt by it of a duly completed Transfer Certificate appearing on its face to comply with the terms of this Agreement and delivered in accordance with the terms of this Agreement, execute that Transfer Certificate. 23.5.2 The Agent shall only be obliged to execute a Transfer Certificate delivered to it by the Existing Lender and the New Lender once it is satisfied it has complied with all necessary "know your customer" or other similar checks under all applicable laws and regulations in relation to the transfer to such New Lender. LONUVE\30137956.24 Page 114

 
23.5.3 Subject to Clause 23.8 (Pro rata interest settlement), on the Transfer Date: (a) to the extent that in the Transfer Certificate the Existing Lender seeks to transfer by novation its rights and obligations under the Finance Documents each Borrower and the Existing Lender shall be released from further obligations towards one another under the Finance Documents and their respective rights against one another shall be cancelled (being the "Discharged Rights and Obligations"); (b) each Borrower and the New Lender shall assume obligations towards one another and/or acquire rights against one another which differ from the Discharged Rights and Obligations only insofar as that Borrower and the New Lender have assumed and/or acquired the same in place of that Borrower and the Existing Lender; (c) the Agent, the Security Agent, the Arranger, the New Lender and other Lenders shall acquire the same rights and assume the same obligations between themselves as they would have acquired and assumed had the New Lender been an Original Lender with the rights and/or obligations acquired or assumed by it as a result of the transfer and to that extent the Agent, the Security Agent, the Arranger and the Existing Lender shall each be released from further obligations to each other under this Agreement; and (d) the New Lender shall become a Party as a "Lender". 23.6 Procedure for assignment 23.6.1 Subject to the conditions set out in Clause 23.2 (Conditions of assignment or transfer) an assignment may be effected in accordance with Clause 23.6.3 when the Agent executes an otherwise duly completed Assignment Agreement delivered to it by the Existing Lender and the New Lender. The Agent shall, subject to Clause 23.6.2, as soon as reasonably practicable after receipt by it of a duly completed Assignment Agreement appearing on its face to comply with the terms of this Agreement and delivered in accordance with the terms of this Agreement, execute that Assignment Agreement. 23.6.2 The Agent shall only be obliged to execute an Assignment Agreement delivered to it by the Existing Lender and the New Lender once it is satisfied it has complied with all necessary "know your customer" or similar checks under all applicable laws and regulations in relation to the assignment to such New Lender. 23.6.3 Subject to Clause 23.8 (Pro rata interest settlement), on the Transfer Date: (a) the Existing Lender will assign absolutely to the New Lender its rights under the Finance Documents and in respect of any Encumbrance created or expressed to be created or evidenced by LONLIVE\30137956.24 Page 115

 
the Security Documents and expressed to be the subject of the assignment in the Assignment Agreement; (b) the Existing Lender will be released from the obligations (the "Relevant Obligations") expressed to be the subject of the release in the Assignment Agreement (and any corresponding obligations by which it is bound in respect of any Encumbrance created or expressed to be created or evidenced by the Security Documents); and (c) the New Lender shall become a Party as a "Lender" and will be bound by obligations equivalent to the Relevant Obligations. 23.6.4 Lenders may utilise procedures other than those set out in this Clause 23.6 to assign their rights under the Finance Documents (but not, without the consent of the relevant Security Party or unless in accordance with Clause 23.5 (Procedure for transfer), to obtain a release by that Security Party from the obligations owed to that Security Party by the Lenders nor the assumption of equivalent obligations by a New Lender) provided that they comply with the conditions set out in Clause 23.2 (Conditions of assignment or transfer). 23.7 Copy of Transfer Certificate or Assignment Agreement to Borrowers The Agent shall, as soon as reasonably practicable after it has executed a Transfer Certificate or an Assignment Agreement, send to the Borrowers a copy of that Transfer Certificate or Assignment Agreement. 23.8 Pro rata interest settlement 23.8.1 If the Agent has notified the Lenders that it is able to distribute interest payments on a "pro rata basis" to Existing Lenders and New Lenders then (in respect of any transfer pursuant to Clause 23.5 (Procedure for transfer) or any assignment pursuant to Clause 23.6 (Procedure for assignment) the Transfer Date of which is after the date of such notification and is not on the last day of an Interest Period): (a) any interest or fees in respect of the relevant participation which are expressed to accrue by reference to the lapse of time shall continue to accrue in favour of the Existing Lender up to but excluding the Transfer Date ("Accrued Amounts") and shall become due and payable to the Existing Lender (without further interest accruing on them) on the last day of the current Interest Period (or, if the Interest Period is longer than six Months, on the next of the dates which falls at six monthly intervals after the first day of that Interest Period); and (b) the rights assigned or transferred by the Existing Lender will not include the right to the Accrued Amounts, so that, for the avoidance of doubt: LONUVE\30137956.24 Page 116

 
(i) when the Accrued Amounts become payable, those Accrued Amounts will be payable to the Existing Lender; and (ii) the amount payable to the New Lender on that date will be the amount which would, but for the application of this Clause 23.8, have been payable to it on that date, but after deduction of the Accrued Amounts. 23.8.2 In this Clause 23.8 references to "Interest Period" shall be construed to include a reference to any other period for accrual of fees. 23.8.3 An Existing Lender which retains the right to the Accrued Amounts pursuant to this Clause 23.8 but which does not have a Commitment shall be deemed not to be a Lender for the purposes of ascertaining whether the agreement of any specified group of Lenders has been obtained to approve any request for a consent, waiver, amendment or other vote of Lenders under the Finance Documents. 24 Changes to the Security Parties 24.1 No assignment or transfer by Security Parties No Security Party may assign any of its rights or transfer any of its rights or obligations under the Finance Documents. LONLIVE\30137956.24 Page 117

 
Section 10 The Finance Parties 2S Role of the Agent, the Security Agent and the Arranger 25.1 Appointment of the Agent 25.1.1 Each of the Arranger and the Lenders appoints the Agent to act as .its agent under and in connection with the Finance Documents and each of the Arranger, the Lenders and the Agent appoints the Security Agent to act as its security agent for the purpose of the Security Documents. 25.1.2 Each of the Arranger and the Lenders authorises the Agent and each of the Arranger, the Lenders and the Agent authorises the Security Agent to perform the duties, obligations and responsibilities and to exercise the rights, powers, authorities and discretions specifically given to the Agent or the Security Agent (as the case may be) under or in connection with the Finance Documents together with any other incidental rights, powers, authorities and discretions. 25.1.3 The Swap Provider appoints the Security Agent to act as its security agent for the purpose of the Security Documents and authorises the Security Agent to exercise the rights, powers, authorities and discretions specifically given to the Security Agent under or in connection with the Security Documents together with any other incidental rights, powers, authorities and discretions. 25.1.4 Except in Clause 25.14 (Replacement of the Agent) or where the context otherwise requires, references in this Clause 25 to the "Agent" shall mean the Agent and the Security Agent individually and collectively and references in this Clause 25 to the "Finance Documents" or to any "Finance Document" shall not include the Master Agreement. 25.2 Instructions 25.2.1 The Agent shall: (a) unless a contrary indication appears in a Finance Document, exercise or refrain from exercising any right, power, authority or discretion vested in it as Agent in accordance with any instructions given to it by: (i) all Lenders if the relevant Finance Document stipulates the matter is an all Lender decision; and (ii) in all other cases, the Majority Lenders; and (b) not be liable for any act (or omission) if it acts (or refrains from acting) in accordance with Clause 25.2.1(a). 25.2.2 The Agent shall be entitled to request instructions, or clarification of any instruction, from the Majority Lenders (or, if the relevant Finance Document stipulates the matter is a decision for any other Lender or group of Lenders, from that Lender or group of Lenders) as to whether, and in what manner, it LONUVE\30137956.24 ,Page 118

 
should exercise or refrain from exerc1smg any right, power, authority or discretion and the Agent may refrain from acting unless and until it receives any such instructions or clarification that it has requested. 25.2.3 Save in the case of decisions stipulated to be a matter for any other Lender or group of Lenders under the relevant Finance Document and unless a contrary indication appears in a Finance Document, any instructions given to the Agent by the Majority Lenders shall override any conflicting instructions given by any other Parties and will be binding on all Finance Parties. 25.2.4 The Agent may refrain from acting in accordance with any instructions of any Lender or group of Lenders until it has received any indemnification and/or security that it may in its discretion require (which may be greater in extent than that contained in the Finance Documents and which may include payment in advance) for any cost, loss or liability which it may incur in. complying with those instructions. 25.2.5 In the absence of instructions, the Agent may act (or refrain from acting) as it considers to be in the best interest of the Lenders. 25.2.6 The Agent is not authorised to act on behalf of a Lender (without first obtaining that Lender's consent) in any legal or arbitration proceedings relating to any Finance Document. This Clause 25.2.6 shall not apply to any legal or arbitration proceeding relating to the perfection, preservation or protection of rights under the Finance Documents or the enforcement of the Finance Documents. 25.3 Duties of the Agent 25.3.1 The Agent's duties under the Rnance Documents are solely mechanical and administrative in nature. 25.3.2 Subject to Clause 25.3.3, the Agent shall promptly forward to a Party the original or a copy of any document which is delivered to the Agent for that Party by any other Party. 25.3.3 Without prejudice to Clause 23.7 (Copy of Transfer Certificate or Assignment Agreement to Borrowers), Clause 25.3.1 shall not apply to any Transfer Certificate or any Assignment Agreement. 25.3.4 Except where a Finance Document specifically provides otherwise, the Agent is not obliged to review or check the adequacy, accuracy or completeness of any document it forwards to another Party. 25.3.5 If the Agent receives notice from a Party referring to this Agreement, describing a Default and stating that the circumstance described is a Default, it shall promptly notify the Finance Parties. 25.3.6 If the Agent is aware of the non-payment of any principal, interest, commitment fee or other fee payable to a Finance Party (other than the Agent, the Arranger or the Security Agent) under this Agreement it shall promptly notify the other Finance Parties. LONLlVE\30137956.24 Page 119

 
25.3.7 The Agent shall have only those duties, obligations and responsibilities expressly specified in the Finance Documents to which it is expressed to be a party (and no others shall be implied). 25.4 Role of the Arranger Except as specifically provided in the Finance Documents, the Arranger has no obligations of any kind to any other Party under or in connection with any Finance Document. 25.5 No fiduciary duties 25.5.1 Subject to Clause 25.12 (Trust) which relates to the Security Agent only, nothing in any Finance Document constitutes the Agent or the Arranger as a trustee or fiduciary of any other person. 25.5.2 Neither the Agent nor the Arranger shall be bound to account to any Lender for any sum or the profit element of any sum received by it for its own account. 25.6 Business with Security Parties The Agent and the Arranger may accept deposits from, lend money to and generally engage in any kind of banking or other business with any Borrower and any other Security Party or its Affiliate. 25.7 Rights and discretions of the Agent 25.7.1 The Agent may: (a) rely on any representation, communication, notice or document believed by it to be genuine, correct and appropriately authorised; (b) assume that: (i) any instructions received by it from the Majority Lenders, any Lenders or any group of Lenders are duly given in accordance with the terms of the Finance Documents; and (ii) unless it has received notice of revocation, that those instructions have not been revoked; and (iii) rely on a certificate from any person: (A) as to any matter of fact or circumstance which might reasonably be expected to be within the knowledge of that person; or (B) to the effect that such person approves of any particular dealing, transaction, step, action or thing, as sufficient evidence that that is the case and, in the case of (A), may assume the truth and accuracy of that certificate. LONUVE\30137956.24 Page 120

 
25.7.2 The Agent may assume (unless it has received notice to the contrary in its capacity as agent for the Lenders or security agent for the Finance Parties (as the case may be)) that: (a) no Default has occurred (unless it has actual knowledge of a Default arising under Clause 22.1 (Events of Default)); (b) any right, power, authority or discretion vested in any Party or the Majority Lenders has not been exercised; and (c) any notice or request made by the Borrowers (other than a Drawdown Request) is made on behalf of and with the consent and knowledge of all the Security Parties. 25.7.3 The Agent may engage and pay for the advice or services of any lawyers, accountants, surveyors or other experts. 25.7.4 Without prejudice to the generality of Clause 25.7.3 or Clause 25.7.5, the Agent may at any time engage and pay for the services of any lawyers to act as independent counsel to the Agent (and so separate from any lawyers instructed by the Lenders) if the Agent in its reasonable opinion deems this to be desirable. 25.7 .5 The Agent may rely on the advice or services of any lawyers, accountants, tax advisers, surveyors or other professional advisers or experts (whether obtained by the Agent or by any other Party) and shall not be liable for any damages, costs or losses to any person, any diminution in value or any liability whatsoever arising as a result of its so relying. 25.7.6 The Agent may act in relation to the Finance Documents through its officers, employees and agents and the Agent shall not: (a) be liable for any error of judgment made by any such person; or (b) be bound to supervise, or be in any way responsible for any loss incurred by reason of misconduct, omission or default on the part, of any such person, unless such error or such loss was directly caused by the Agent's gross negligence or wilful misconduct. 25.7.7 Unless a Finance Document expressly provides otherwise the Agent may disclose to any other Party any information it reasonably believes it has received as agent under this Agreement. 25.7.8 Notwithstanding any other provision of any Finance Document to the contrary, neither the Agent nor the Arranger is obliged to do or omit to do anything if it would or might in its reasonable opinion constitute a breach of any law or regulation or a breach of a fiduciary duty or duty of confidentiality. LONLIVE\30137956.24 Page 121

 
25.7.9 The Agent is not obliged to disclose to any Finance Party any details of the rate notified to the Agent by any Lender or the identity of any such Lender for the purpose of Clause 10.2.2 (Market Disruption). 25.7.10 Notwithstanding any provision of any Finance Document to the contrary, the Agent is not obliged to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties, obligations or responsibilities or the exercise of any right, power, authority or discretion if it has grounds for believing the repayment of such funds or adequate indemnity against, or security for, such risk or liability is not reasonably assured to it. 25.8 Responsibility for documentation Neither the Agent nor the Arranger is responsible or liable for: 25.8.1 the adequacy, accuracy and/or completeness of any information (whether oral or written) supplied by the Agent, the Arranger, a Security Party or any other person given in or in connection with any Relevant Document; or 25.8.2 the legality, validity, effectiveness, adequacy or enforceability of any Relevant Document or any other agreement, arrangement or document entered into, made or executed in anticipation of or in connection with any Relevant Document; or 25.8.3 any determination as to whether any information provided or to be provided to any Finance Party is non-public information the use of which may be regulated or prohibited by applicable law or regulation relating to insider dealing or otherwise. 25.9 No duty to monitor The Agent shall not be bound to enquire: 25.9.1 whether or not any Default has occurred; 25.9.2 as to the performance, default or any breach by any Party of its obligations under any Finance Document; or 25.9.3 whether any other event specified in any Finance Document has occurred. 25.10 Exclusion of liability 25.10.1 Without limiting Clause 25.10.2 (and without prejudice to any other provision of any Finance Document excluding or limiting the liability of the Agent) the Agent shall not be liable (including, without limitation, for negligence or any other category of liability whatsoever) for: (a) any damages, costs or losses to any person, any diminution in value, or any liability whatsoever arising as a result of taking or not taking any action under or in connection with any Finance Document or any Encumbrance created or expressed to be created or evidenced by the Security Documents, unless directly caused by its gross negligence or wilful misconduct; LONUVE\30137956.24 Page 122

 
(b) exercising, or not exercising, any right, power, authority or discretion given to it by, or in connection with, any Finance Document, any Encumbrance created or expressed to be created or evidenced by the Security Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with, any Finance Document or any Encumbrance created or expressed to be created or evidenced by the Security Documents; (c) any shortfall which arises on the enforcement or realisation of the Trust Property; or (d) without prejudice to the generality of Clauses 25.10.1(a), 25.10.1(b) and 25.10.1(c), any damages, costs or losses to any person, any diminution in value or any liability whatsoever arising as a result of: (i) any act, event or circumstance not reasonably within its control; or (ii) the general risks of investment in, or the holding of assets in, any jurisdiction, including (in each case and without limitation) such damages, costs, losses, diminution in value or liability arising as a result of: nationalisation, expropriation or other governmental actions; any regulation, currency restriction, devaluation or fluctuation; market conditions affecting the execution or settlement of transactions or the value of assets (including any Disruption Event); breakdown, failure or malfunction of any third party transport, telecommunications, computer services or systems; natural disasters or acts of God; war, terrorism, insurrection or revolution; or strikes or industrial action. 25.10.2 No Party (other than the Agent) may take any proceedings against any officer, employee or agent of the Agent in respect of any claim it might have against the Agent or in respect of any act or omission of any kind by that officer, employee or agent in relation to any Relevant Document and any officer, employee or agent of the Agent may rely on this Clause. 25.10.3 The Agent will not be liable for any delay (or any related consequences) in crediting an account with an amount required under the Finance Documents to be paid by the Agent if the Agent has taken all necessary steps as soon as reasonably practicable to comply with the regulations or operating procedures of any recognised clearing or settlement system used by the Agent for that purpose. 25.10.4 Nothing in this Agreement shall oblige the Agent or the Arranger to carry out: (a) any "know your customer" or other checks in relation to any person; or LONUVE\30137956.24 Page 123

 
(b) any check on the extent to which any transaction contemplated by this Agreement might be unlawful for any Lender or for any Affiliate of any Lender, on behalf of any Lender and each Lender confirms to the Agent and the Arranger that it is solely responsible for any such checks it is required to carry out and that it may not rely on any statement in relation to such checks made by the Agent or the Arranger. 25.10.5 Without prejudice to any provision of any Finance Document excluding or limiting the Agent's liability, any liability of the Agent arising under or in connection with any Finance Document or any Encumbrance created or expressed to be created or evidenced by the Security Documents shall be limited to the amount of actual loss which has been finally judicially determined to have been suffered (as determined by reference to the date of default of the Agent or, if later, the date on which the loss arises as a result of such default) but without reference to any special conditions or circumstances known to the Agent at any time which increase the amount of that loss. In no event shall the Agent be liable for any loss of profits, goodwill, reputation, business opportunity or anticipated saving, or for special, punitive, indirect or consequential damages, whether or not the Agent has been advised of the possibility of such loss or damages. 25.11 Lenders' indemnity to the Agent 25.11.1 Each Lender shall (in proportion to its share of the Total Commitments or, if the Total Commitments are then zero, to lts share of the Total Commitments immediately prior to their reduction to zero) indemnify the Agent and every Receiver and Delegate, within three Business Days of demand, against any cost, loss or liability (including, without limitation, for negligence or any other category of liability whatsoever) incurred by any of them (otherwise than by reason of the relevant Agent's, Receiver's or Delegate's gross negligence or wilful misconduct) (or, in the case of any cost, loss or liability pursuant to Clause 28.12 (Disruption to payment systems etc.) notwithstanding the Agent's negligence, gross negligence or any other category of liability whatsoever but not including any claim based on the fraud of the Agent) in acting as Agent, Receiver or Delegate under, or exercising any authority conferred under, the Finance Documents (unless the relevant Agent, Receiver or Delegate has been reimbursed by a Security Party pursuant to a Finance Document). 25.11.2 Subject to Clause 25.11.3, the Borrowers shall immediately on demand reimburse any Lender for any payment that Lender makes to the Agent pursuant to Clause 25.11.1 25.11.3 Clause 25.11.2 shall not apply to the extent that the indemnity payment in respect of which the Lender claims reimbursement relates to a liability of the Agent to a Security Party. 25.12 Trust The Security Agent agrees and declares, and each of the other Finance Parties acknowledges, that, subject to the terms and conditions of this Clause 25.12, the Security Agent holds the Trust Property on trust for the Finance Parties LONLIVE\30137956.24 Page 124

 
absolutely. Each of the other Finance Parties agrees that the obligations, rights and benefits vested in the Security Agent shall be performed and exercised in accordance with this Clause 25.12. The Security Agent shall have the benefit of all of the provisions of this Agreement benefiting it in its capacity as security agent for the Finance Parties, and all the powers and discretions conferred on trustees by the Trustee Act 1925 (to the extent not inconsistent with this Agreement). In addition: 25.12.1 the Security Agent and any Delegate may indemnify itself or himself out of the Trust Property against all liabilities, costs, fees, damages, charges, losses and expenses sustained or incurred by it or him in relation to the taking or holding of any of the Trust Property or in connection with the exercise or purported exercise of the rights, trusts, powers and discretions vested in the Security Agent or any Delegate by or pursuant to the Security Documents or in respect of anything else done or omitted to be done in any way relating to the Security Documents; 25.12.2 the other Finance Parties acknowledge that the Security Agent shall be under no obligation to insure any property nor to require any other person to insure any property and shall not be responsible for any loss which may be suffered by any person as a result of the lack or insufficiency of any insurance; 25.12.3 the Finance Parties agree that the perpetuity period applicable to the trusts declared by this Agreement shall be the period of 125 years from the date of this Agreement; 25.12.4 the Security Agent shall not be liable for any failure, omission, or defect in perfecting the security constituted or created by any Finance Document including, without limitation, any failure to register the same in accordance with the provisions of any of the documents of title of any Security Party to any of the assets thereby charged or effect or procure registration of or otherwise protect the security created by any Security Document under any registration laws in any jurisdiction and may accept without enquiry such title as any Security Party may have to any asset; 25.12.5 the Security Agent shall not be under any obligation to hold any title deed, Finance Document or any other documents in connection with the Finance Documents or any other documents in connection with the property charged by any Finance Document or any other such security in its own possession or to take any steps to protect or preserve the same, and may permit any Security Party to retain all such title deeds, Finance Documents and other documents in its possession; and 25.12.6 save as otherwise provided in the Finance Documents, all moneys which under the trusts therein contained are received by the Security Agent may be placed on deposit in the name of or under the control of the Security Agent at such bank or institution (including the Security Agent) and upon such terms as the Security Agent may think fit pending application of those moneys in accordance with Clause 17.17 (Application of moneys by Security Agent). LONLIVE\30137956.24 Page 125

 
The provisions of Part I of the Trustee Act 2000 shall not apply to the Security Agent or the Trust Property. 25.13 Resignation of the Agent 25.13.1 The Agent may resign and appoint one of its Affiliates acting through an office as successor by giving notice to the other Finance Parties and the Borrowers. 25.13.2 Alternatively the Agent may resign by giving thirty (30) days' notice to the other Finance Parties and the Borrowers, in which case the Majority Lenders (after consultation with the Borrowers) may appoint a successor Agent. 25.13.3 If the Majority Lenders have not appointed a successor Agent in accordance with Clause 25.13.2 within 20 days after notice of resignation was given, the retiring Agent (after consultation with the Borrowers) may appoint a successor Agent. 25.13.4 If the Agent wishes to resign because (acting reasonably) it has concluded that it is no longer appropriate for it to remain as agent and the Agent is entitled to appoint a successor Agent under Clause 25.13.3, the Agent may (if it concludes (acting reasonably) that it is necessary to do so in order to persuade the proposed successor Agent to become a party to this Agreement as Agent) agree with the proposed successor Agent amendments to this Clause 25 and any other term of this Agreement dealing with the rights or obligations of the Agent consistent with then current market practice for the ilppointment and protection of corporate trustees together with any reasonable amendments to the agency fee payable under this Agreement which are consistent with the successor Agent's normal fee rates and those amendments will bind the Parties. 25.13.5 The retiring Agent shall make available to the successor Agent such documents and records and provide such assistance as the successor Agent may reasonably request for the purposes of performing its functions as Agent under the Finance Documents. The Borrowers shall, within three Business Days of demand, reimburse the retiring Agent for the amount of all costs and expenses (including legal fees) properly incurred by it in making available such documents and records and providing such assistance. 25.13.6 The Agent's resignation notice shall only take effect upon the appointment of a successor and (in the case of the Security Agent) the transfer of all the Trust Property to that successor. 25.13.7 Upon the appointment of a successor, the retiring Agent shall be discharged from any further obligation in respect of the Finance Documents (other than its obligations under Clause 25.13.5) but shall remain entitled to the benefit of Clause 14.3 (Indemnity to the Agent) and this Clause 25 (and any agency fees for the account of the retiring Agent shall cease to accrue from (and shall be payable on) that date). Any successor and each of the other Parties shall have the same rights and obligations amongst themselves as they would have had if such successor had been an original Party. LONUVE\30137956.24 Page 126

 
25.13.8 The Agent shall resign in accordance with Clause 25.13.2 (and, to the extent applicable, shall use reasonable endeavours to appoint a successor Agent pursuant to Clause 25.13.3) if on or after the date which is three months before the earliest FATCA Application Date relating to any payment to the Agent under the Finance Documents, either: (a) the Agent fails to respond to a request under Clause 12.7 (FATCA information) and a Lender reasonably believes that the Agent will not be (or will have ceased to be) a FATCA Exempt Party on or after that FATCA Application Date; (b) the information supplied by the Agent pursuant to Clause 12.7 (FATCA information) indicates that the Agent will not be (or will have ceased to be) a FATCA Exempt Party on or after that FATCA Application Date; or (c) the Agent notifies the Borrowers and the Lenders that the Agent will not be (or will have ceased to be) a FATCA Exempt Party on or after that FATCA Application Date; and (In each case) a Lender reasonably believes that a Party will be required to make a FATCA Deduction that would not be required if the Agent were a FATCA Exempt Party, and that Lender, by notice to the Agent, requires it to resign. 25.14 Replacement of the Agent 25.14.1 After consultation with the Borrowers, the Majority Lenders may, by giving thirty (30) days' notice to the Agent (or, at any time the Agent is an Impaired Agent, by giving any shorter notice determined by the Majority Lenders) replace the Agent by appointing a successor Agent. 25.14.2 The retiring Agent shall (at its own cost if it is an Impaired Agent and otherwise at the expense of the Lenders) make available to the successor Agent such documents and records and provide such assistance as the successor Agent may reasonably request for the purposes of performing its function as Agent under the Finance Documents. 25.14.3 The appointment of the successor Agent shall take effect on the date specified in the notice from the Majority Lenders to the retiring Agent. As from this date, the retiring Agent shall be discharged from any further obligation in respect of the Finance Documents (other than its obligations under Clause 25.14.2 but shall remain entitled to the benefit of Clause 14.3 (Indemnity to the Agent) and this Clause 25 (and any agency fees for the account of the retiring Agent shall cease to accrue from (and shall be payable on) that date). 25.14.4 Any successor Agent and each of the other Parties shall have the same rights and obligations amongst themselves as they would have had if such successor had been an original Party. 25.15 Confidentiality LONUVE\30137956.24 Page 127

 
25.15.1 In acting as agent for the Finance Parties, the Agent shall be regarded as acting through its agency division which shall be treated as a separate entity from any other of its divisions or departments. 25.15.2 If information is received by another division or department of the Agent, It may be treated as confidential to that division or department and the Agent shall not be deemed to have notice of it. 25.16 Relationship with the Lenders 25.16.1 Subject to Clause 23.8 (Pro rata interest settlement), the Agent may treat the person shown in its records as Lender at the opening of business (in the place of the Agent's principal office as notified to the Finance Parties from time to time) as the Lender acting through its Facility Office: (a) entitled to or liable for any payment due under any Finance Document on that day; and (b) entitled to receive and act upon any notice, request, document or communication or make any decision or determination under any Finance Document made or delivered on that day, unless it has received not less than five Business Days' prior notice from that Lender to the contrary in accordance with the terms of this Agreement. 25.16.2 Any Lender may by notice to the Agent appoint a person to receive on its behalf all notices, communications, information and documents to be made or dispatched to that Lender under the Finance Documents. Such notice shall contain the address, fax number and (where communication by electronic mail or other electronic means is permitted under Clause 30.6 (Electronic communication)) electronic mail address and/or any other information required to enable the sending and receipt of information by that means (and, in each case, the department or officer, if any, for whose attention communication is to be made) and be treated as a notification of a substitute address, fax number, electronic mail address, department and officer by that Lender for the purposes of Clause 30.2 (Addresses) and Clause 30.6.1(b) (Electronic communication) and the Agent shall be entitled to treat such person as the person entitled to receive all such notices, communications, information and documents as though that person were that Lender. 25.17 Credit appraisal by the Lenders Without affecting the responsibility of any Security Party for information supplied by it or on its behalf in connection with any Finance Document, each Lender confirms to the Agent and the Arranger that it has been, and will continue to be, solely responsible for making its own independent appraisal and investigation of all risks arising under or in connection with any Finance Document including but not limited to: 25.17.1 the financial condition, status and nature of each Security Party; 25.17.2 the legality, validity, effectiveness, adequacy or enforceability of any Finance Document and any other agreement, arrangement or document lONUVE\30137956.24 Page 128

 
entered into, made or executed in anticipation of, under or in connection with any Finance Document; 25.17.3 whether that Lender has recourse, and the nature and extent of that recourse, against any Party or any of its respective assets under or in connection with any Finance Document, the transactions contemplated by the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of under or in connection with any Finance Document; and 25.17.4 the right or title of any person in or to, or the value or sufficiency of any part of the Charged Property, the priority of any Encumbrance created or expressed to be created or evidenced by the Security Documents or the existence of any Encumbrance affecting the Charged Property. 25.18 Reference Banks If a Reference Bank (or, if a Reference Bank is not a Lender, the Lender of which it is an Affiliate) ceases to be a Lender, the Agent shall (in consultation with the Borrowers) appoint another Lender or an Affiliate of a Lender to replace that Reference Bank. 25.19 Agent's management time Any amount payable to the Agent under Clause 14.3 (Indemnity to the Agent), Clause 14.4 (Indemnity to the Security Agent), Clause 16 (Costs and expenses) and Clause 25.11 (Lenders' indemnity to the Agent) shall include the cost of utilising the Agent's management time or other resources and will be calculated on the basis of such reasonable daily or hourly rates as the Agent may notify to the Borrowers and the Lenders, ~nd is in addition to any fee paid or payable to the Agent under Clause 11 (Fees). 25.20 Deduction from amounts payable by the Agent If any Party owes an amount to the Agent under the Finance Documents the Agent may, after giving notice to that Party, deduct an amount not exceeding that amount from any payment to that Party which the Agent would otherwise be obliged to make under the Finance Documents and apply the amount deducted in or towards satisfaction of the amount owed. For the purposes of the Finance Documents that Party shall be regarded as having received any amount so deducted. 26 Conduct of Business by the Finance Parties No provision of this Agreement will: 26.1 interfere with the right of any Finance Party to arrange its affairs (tax or otherwise) in whatever manner it thinks fit; 26.2 oblige any Finance Party to investigate or claim any credit, relief, remission or repayment available to it or the extent, order and manner of any claim; or 26.3 oblige any Finance Party to disclose any information relating to its affairs (tax or otherwise) or any computations in respect of Tax. 27 Sharing among the Finance Parties 27.1 Payments to Finance Parties If a Finance Party (a "Recovering Finance Party") receives or recovers any amount from a Security Party other than in LONUVE\30137956.24 Page 129

 
accordance with Clause 28 (Payment Mechanics) (a "Recovered Amount") and applies that amount to a payment due under the Finance Documents then: 27.1.1 the Recovering Finance Party shall, within three Business Days, notify details of the receipt or recovery, to the Agent; 27.1.2 the Agent shall determine whether the receipt or recovery is in excess of the amount the Recovering Finance Party would have been paid had the receipt or recovery been received or made by the Agent and distributed · in accordance with Clause 28 (Payment Mechanics), without taking account of any Tax which would be imposed on the Agent in relation to the receipt, recovery or distribution; and 27.1.3 the Recovering Finance Party shall, within three Business Days of demand by the Agent, pay to the Agent an amount (the "Sharing Payment") equal to such receipt or recovery less any amount which the Agent determines may be retained by the Recovering Finance Party as its share of any payment to be made, in accordance with Clause 28.6 (Partial payments). 27.2 Redistribution of payments The Agent shall treat the Sharing Payment as if it had been paid by the relevant Security Party and distribute it between the Finance Parties (other than the Recovering Finance Party) (the "Sharing Finance Parties") in accordance with Clause 28.6 (Partial payments) towards the obligations of that Security Party to the Sharing Finance Parties. 27.3 Recovering Finance Party's rights On a distribution by the Agent under Clause 27.2 (Redistribution of payments) of a payment received by a Recovering Finance Party from a Security Party, as between the relevant Security Party and the Recovering Finance Party, an amount of the Recovered Amount equal to the Sharing Payment will be treated as not having been paid by that Security Party. 27.4 Reversal of redistribution If any part of the Sharing Payment received or recovered by a Recovering Finance Party becomes repayable and is repaid by that Recovering Finance Party, then: 27.4.1 each Sharing Finance Party shall, upon request of the Agent, pay to the Agent for the account of that Recovering Finance Party an amount equal to the appropriate part of its share of the Sharing Payment (together with an amount as is necessary to reimburse that Recovering Finance Party for its proportion of any interest on the Sharing Payment which that Recovering Finance Party is required to pay) (the "Redistributed Amount"); and 27.4.2 as between the relevant Security Party and each relevant Sharing Finance Party, an amount equal to the relevant Redistributed Amount will be treated as not having been paid by that Security Party. 27.5 Exceptions 27.5.1 This Clause 27 shall not apply to the extent that the Recovering Finance Party would not, after making any payment pursuant to this Clause, have a valid and enforceable claim against the relevant Security Party. LONLIVE\30137956.24 Page 130

 
27.5.2 A Recovering Finance Party is not obliged to share with any other Finance Party any amount which the Recovering Finance Party has received or recovered as a result of taking legal or arbitration proceedings, if: (a) it notified that other Finance Party of the legal or arbitration proceedings; and (b) that other Finance Party had an opportunity to participate in those legal or arbitration proceedings but did not do so as soon as reasonably practicable having received notice and did not take separate legal or arbitration proceedings. LONLIVE\30137956.24 Page 131

 
Section 11 Administration 28 Payment Mechanics 28.1 Payments to the Agent On each date on which a Security Party or a Lender is required to make a payment under a Finance Document (other than the Master Agreement), that Security Party or that Lender shall make the same available to the Agent for value on the due date at the time and in such funds specified by the Agent as being customary at the time for settiement of transactions in the relevant currency in the place of payment. Payment shall be made to such account in the principal financial centre of the country of that currency with such bank as the Agent specifies. 28.2 Distributions by the Agent Each payment received by the Agent under the Finance Documents for another Party shall, subject to Clause 28.3 (Distributions to a Security Party) and Clause 28.4 (C/awback and pre-funding) be made available by the Agent as soon as practicable after receipt to the Party entitled to receive payment in accordance with this Agreement (in the case of a Lender, for the account of its Facility Office), to such account as that Party may notify to the Agent by not less than five Business Days' notice with a bank specified by that Party in the principal financial centre of the country of that currency. 28.3 Distributions to a Security Party The Agent may (with the consent of a Security Party or in accordance with Clause 29 (Set-Off)) apply any amount received by it for that Security Party in or towards payment (on the date and in the currency and funds of receipt) of any amount due from that Security Party under the Finance Documents or in or towards purchase of any amount of any currency to be so applied. 28.4 Clawback and pre-funding 28.4.1 Where a sum is to be paid to the Agent under the Finance Documents for another Party, the Agent is not obliged to pay that sum to that other Party (or to enter into or perform any related exchange contract) until it has been able to establish to its satisfaction that it has actually received that sum. 28.4.2 Unless Clause 28.4.3 applies, if the Agent pays an amount to another Party and it proves to be the case that the Agent had not actually received that amount, then the Party to whom that amount (or the proceeds of any related exchange contract) was paid by the Agent shall on demand refund the same to the Agent together with interest on that amount from the date of payment to the date of receipt by the Agent, calculated by the Agent to reflect its cost of funds. 28.4.3 If the Agent is willing to make available amounts for the account of a Borrower before receiving funds from the Lenders then if and to the extent that the Agent does so but it proves to be the case that it does not then receive funds from a Lender in respect of a sum which it paid to a Borrower: (a) the Borrower to whom that sum was made available shall on demand refund it to the Agent; and LONUVE\30137956.24 Page 132

 
(b) the Lender by whom those funds should have been made available or, if that Lender fails to do so, the Borrower to whom that sum was made available, shall on demand pay to the Agent the amount (as certified by the Agent) which will indemnify the Agent against any funding cost incurred by it as a result of paying out that sum before receiving those funds from that Lender. 28.5 Impaired Agent 28.5.1 If, at any time, the Agent becomes an Impaired Agent, a Security Party or a Lender which is required to make a payment under the Finance Documents to the Agent in accordance with Clause 28.1 (Payments to the Agent) may instead either: (a) pay that amount direct to the required recipient(s); or (b) if in its absolute discretion it considers that it is not reasonably practicable to pay that amount direct to the required recipient(s), pay that amount or the relevant part of that amount to an interest­ bearing account held with an Acceptable Bank in relation to which no Insolvency Event has occurred and Is continuing, In the name of the Security Party or the Lender making the payment (the "Paying Party") and designated as a trust account for the benefit of the Party or Parties beneficially entitled to that payment under the Finance Documents (the "Recipient Party" or "Recipient Parties"). In each case such payments must be made on the due date for payment under the Finance Documents. 28.5.2 All interest accrued on the amount standing to the credit of the trust account shall be for the benefit of the Recipient Party or the Recipient Parties pro rata to their respective entitlements. 28.5.3 A Party which has made a payment in accordance with this Clause 28.5 shall be discharged of the relevant payment obligation under the Finance Documents and shall not take any credit risk with respect to the amounts standing to the credit of the trust account. 28.5.4 Promptly upon the appointment of a successor Agent in accordance with Clause 25.14 (Replacement of the Agent), each Paying Party shall (other than to the extent that that Party has given an instruction pursuant to Clause 28.5.5) give all requisite instructions to the bank with whom the trust account is held to transfer the amount (together with any accrued interest) to the successor Agent for distribution to the relevant Recipient Party or Recipient Parties in accordance with Clause 28.2 (Distributions by the Agent). 28.5.5 A Paying Party shall, promptly upon request by a Recipient Party and to the extent: (a) that it has not given an instruction pursuant to Clause 28.5.4; and LONUVE\30137956.24 Page 133

 
(b) that it has been provided with the necessary information by that Recipient Party, give all requisite instructions to the bank with whom the trust account is held to transfer the relevant amount (together with any accrued interest) to that Recipient Party. 28.6 Partial payments 28.6.1 If the Agent receives a payment that is insufficient to discharge all the amounts then due and payable by a Security Party under the Finance Documents (other than the Master Agreement), the Agent shall apply that payment towards the obligations of that Security Party under the Finance Documents (other than the Master Agreement) in the following order: (a) first, in or towards payment pro rata of any unpaid fees, costs and expenses of the Agent or the Security Agent under the Finance Documents; (b) secondly, in or towards payment pro rata of any accrued interest, fee or commission due but unpaid under this Agreement; (c) thirdly, in or towards payment pro rata of any principal due but unpaid under this Agreement; and (d) fourthly, in or towards payment pro rata of any other sum due but unpaid under the Finance Documents. 28.6.2 The Agent shall, if so directed by the Majority Lenders, vary the order set out in Clauses 28.6.1(b) to 28.6.1(d). 28.6.3 Clauses 28.6.1 and 28.6.2 will override any appropriation made by a Security Party. 28.7 No set-off by Security Parties All payments to be made by a Security Party under the Finance Documents shall be calculated and be made without (and free and clear of any deduction for) set-off or counterclaim. 28.8 Business Days Any payment which is due to be made on a day that is not a Business Day shall be made on the next Business Day in the same calendar month (if there is one) or the preceding Business Day (if there is not). During any extension of the due date for payment of any principal or Unpaid Sum under this Agreement interest is payable on the principal or Unpaid Sum at the rate payable on the original due date. 28.9 Currency of account 28.9.1 Subject to Clauses 28.9.2 to 28.9.5, dollars is the currency of account and payment for any sum due from a Security Party under any Finance Document. LONLlVE\30137956.24 Page 134

 
28.9.2 A repayment or payment of all or part of a Vessel Loan or an Unpaid Sum shall be made in the currency in which that Vessel Loan or Unpaid Sum is denominated on its due date. 28.9.3 Each payment of interest shall be made in the currency in which the sum in respect of which the interest is payable was denominated when that interest accrued. 28.9.4 Each payment in respect of costs, expenses or Taxes shall be made in the currency in which the costs, expenses or Taxes are incurred. 28.9.5 Any amount expressed to be payable in a currency other than dollars shall be paid in that other currency. 28.10 Control account The Agent shall open and maintain on its books a control account in the names of the Borrowers showing the advance of the Loan and the computation and payment of interest and all other sums due under this Agreement. The Borrowers' obligations to repay the Loan and to pay interest and all other sums due under this Agreement shall be evidenced by the entries from time to time made in the control account opened and maintained under this Clause 28.10 and those entries will, in the absence of manifest error, be conclusive and binding. 28.11 Change of currency 28.11.1 Unless otherwise prohibited by law, if more than one currency or currency unit are at the same time recognised by the central bank of any country as the lawful currency of that country, then: (a) any reference in the Finance Documents to, and any obligations arising under the Finance Documents in, the currency of that country shall be translated into, or paid in, the currency or currency unit of that country designated by the Agent (after consultation with the Borrowers); and (b) any translation from one currency or currency unit to another shall be at the official rate of exchange recognised by the central bank for the conversion of that currency or currency unit into the other, rounded up or down by the Agent (acting reasonably). 28.11.2 If a change in any currency of a country occurs, this Agreement will, to the extent the Agent (acting reasonably and after consultation with the Borrowers) specifies to be necessary, be amended to comply with any generally accepted conventions and market practice in the Relevant Interbank Market and otherwise to reflect the change in currency. 28.12 Disruption to payment systems etc. If either the Agent determines in its discretion that a Disruption Event has occurred or the Agent is notified by the Borrowers that a Disruption Event has occurred: 28.12.1 the Agent may, and shall if requested to do so by the Borrowers, consult with the Borrowers with a view to agreeing with the Borrowers such changes to the operation or administration of the Loan as the Agent may deem necessary in the circumstances; LONUVE\30137956.24 Page 135

 
28.12.2 the Agent shall not be obliged to consult with the Borrowers in relation to any changes mentioned in Clause 28.12.1 if, in its opinion, it is not practicable to do so in the circumstances and, in any event, shall have no obligation to agree to any such changes; 28.12.3 the Agent may consult with the Finance Parties in relation to any changes mentioned in ·clause 28.12.1 but shall not be obliged to do so if, in its opinion, it is not practicable to do so in the circumstances; 28.12.4 any such changes agreed upon by the Agent and the Borrowers shall (whether or not it is finally determined that a Disruption Event has occurred) be binding upon the Parties as an amendment to (or, as the case may be, waiver of) the terms of the Finance Documents notwithstanding the provisions of Clause 34 (Amendments and Waivers); 28.12.5 the Agent shall not be liable for any damages, costs or losses whatsoever (including, without limitation, for negligence, gross negligence or any other category of liability whatsoever but not including any claim based on the fraud of the Agent) arising as a result of its taking, or failing to take, any actions pursuant to or in connection with this Clause 28.12; and 28.12.6 the Agent shall notify the Finance Parties of all changes agreed pursuant to Clause 28.12.4. 29 Set-Off 29.1 Set-off A Finaoce Party may set off any matured obligation due from a Security Party under the Finance Documents (to the extent beneficially owned by that Finance Party) against any matured obligation owed by that Finance Party to that Security Party, regardless of the place of payment, booking branch or currency of either obligation. If the obligations are in different currencies, the Finance Party may convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set-off. 29.2 Master Agreement rights The rights conferred on the Swap Provider by this Clause 29 shall be in addition to, and without prejudice to or limitation of, the rights of netting and set off conferred on the Swap Provider by the Master Agreement. 30 Notices 30.1 Communications in writing Any communication to be made under or in connection with the Finance Documents shall be made in writing and, unless otherwise stated, may be made by fax or letter or (subject to Clause 30.6) electronic mail. 30.2 Addresses The address and fax number (and the department or officer, if any, for whose attention the communication is to be made) of each Party for any communication or document to be made or delivered under or in connection with the Finance Documents is: 30.2.1 in the case of each Borrower, that identified with its name below; LONUVE\30137956.24 Page 136

 
30.2.2 in the case of each Lender, that notified in writing to the Agent on or prior to the date on which it becomes a Party; 30.2.3 in the case of the Swap Provider, that identified with its name below; and 30.2.4 in the case of the Agent or the Security Agent, that identified with its name below, or any substitute address, fax number, or department or officer as the Party may notify to the Agent (or the Agent may notify to the other Parties, if a change is made by the Agent) by not less than five Business Days' notice. 30.3 Delivery Any communication or document made or delivered by one Party to another under or in connection with the Finance Documents will only be effective: 30.3.1 if by way of fax, when received in legible form; or 30.3.2 if by way of letter, when it has been left at the relevant address or five Business Days after being deposited in the post postage prepaid in an envelope addressed to it at that address; or 30.3.3 if by way of electronic mail, in accordance with Clause 30.6, and, if a particular department or officer is specified as part of its address details provided under Clause 30.2 (Addresses), if addressed to that department or officer. Any communication or document to be made or delivered to the Agent or the Security Agent will be effective only when actually received by the Agent or the Security Agent and then only if it is expressly marked for the attention of the department or officer identified with the Agent's or the Security Agent's signature below (or any substitute department or officer as the Agent or the Security Agent shall specify for this purpose). All notices from or to a Security Party (save in respect of the Master Agreement) shall be sent through the Agent. Any communication or document which becomes effective, in accordance with this Clause 30.3, after 5.00 p.m. in the place of receipt shall be deemed only to become effective on the following day. 30.4 Notification of address and fax number Promptly upon changing its address or fax number, the Agent shall notify the other Parties. 30.5 Communication when Agent is Impaired Agent If the Agent is an Impaired Agent the Parties may, instead of communicating with each other through the Agent, communicate with each other directly and (while the Agent is an Impaired Agent) all the provisions of the Finance Documents which require communications to be made or notices to be given to or by the Agent shall be varied so that communications may be made and notices given to or by the relevant Parties directly. This provision shall not operate after a replacement Agent has been appointed. 30.6 Electronic communication LONUVE\30137956.24 Page 137

 
30.6.1 Any communication to be made between any two Parties under or in connection with the Finance Documents may be made by electronic mail or other electronic means to the extent that those two Parties agree that, unless and until notified to the contrary, this is to be an accepted form of communication and if those two Parties: (a) notify each other in writing of their electronic mail address and/or any other information required to enable the sending and receipt of information by that means; and (b) notify each other of any change to their address or any other such information supplied by them by not less than five Business Days' notice. 30.6.2 Any electronic communication made between those two Parties will be effective only when actually received in readable form and in the case of any electronic communication made by a Party to the Agent or the Security Agent only if it is addressed in such a manner as the Agent or the Security Agent shall specify for this purpose. 30.6.3 Any electronic communication which becomes effective, in accordance with Clause 30.6.2, after 5.00 p.m. in the place of receipt shall be deemed only to become effective on the following day. 30.7 English language Any notice given under or in connection with any Finance Document must be in English. All other documents provided under or in connection with any Finance Document must be: 30.7.1 in English; or 30.7.2 if not in English, and if so required by the Agent, accompanied by a certified English translation and, in this case, the English translation will prevail unless the document is a constitutional, statutory or other official document. 31 Calculations and Certificates 31.1 Accounts In any litigation or arbitration proceedings arising out of or in connection with a Finance Document, the entries made in the accounts maintained by the Agent pursuant to Clause 28.10 (Control account) are prima facie evidence of the matters to which they relate. 31.2 Certificates and determinations Any certification or determination by the Agent of a rate or amount under any Finance Document is, in the absence of manifest error, conclusive evidence of the matters to which it relates. 31.3 Day count convention Any interest, commission or fee accruing under a Finance Document will accrue from day to day and is calculated on the basis of the actual number of days elapsed and a year of 360 days or, in any case where the practice in the Relevant Interbank Market differs, in accordance with that market practice. lONUVE\30137956.24 Page 138

 
32 Partial Invalidity If, at any time, any provision of the Finance Documents is or becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision under the law of any other jurisdiction will in any way be affected or impaired, 33 Remedies and Waivers No failure to exercise, nor any delay in exercising, on the part of any Finance Party or Secured Party, any right or remedy under a Finance Document shall operate as a waiver of any such right or remedy or constitute an election to affirm any Finance Document. No election to affirm any Finance Document on the part of any Finance Party or Secured Party shall be effective unless it is in writing. No single or partial exercise of any right or remedy shall prevent any further or other exercise or the exercise of any other right or remedy. The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law. 34 Amendments and Waivers 34.1 Required consents 34.1.1 Subject to Clause 34.2 (Exceptions) any term of the Finance Documents (other than the Master Agreement) may be amended or waived only with the consent of the Majority Lenders and the Borrowers and any such amendment or waiver will be binding on all Parties. 34.1.2 The Agent may effect, on behalf of any Finance Party, any amendment or waiver permitted by this Clause 34. 34.1.3 Without prejudice to the generality of Clauses 25.7.3, 25.7.4 and 25.7.5 (Rights and discretions of the Agent), the Agent may engage, pay for and rely on the services of lawyers in determining the consent level required for and effecting any amendment, waiver or consent under this Agreement. 34.1.4 Clause 23.8.3 (Pro rata interest settlement) shall apply to this Clause 34. 34.2 Exceptions 34.2.1 An amendment, waiver or (in the case of a Security Document) a consent of, or in relation to, any term of any Finance Document that has the effect of changing or which relates to: (a) the definition of "Majority Lenders" in Clause 1.1 (Definitions); (b) an extension to the date of payment of any amount under the Finance Documents; (c) a reduction in the Margin or a reduction in the amount of any payment of principal, interest, fees or commission payable; LONUVE\30137956.24 Page 139

 
(d) a change in currency of payment of any amount under the Finance Documents; (e) an increase in any Commitment, an extension of the Availability Period or any requirement that a cancellation of Commitments reduces the Commitments of the Lenders rateably; (f) a change to a Borrower other than in accordance with Clause 24 (Changes to the Security Parties); (g) any provision which expressly requires the consent of all the Lenders; (h) Clause 2.2 (Finance Parties' rights and obligations), Clause 5.1 (Delivery of a Drawdown Request), Clause 7.1 (Illegality), Clause 7.5 (Mandatory prepayment on sale or Total Loss), Clause 23 (Changes to the Lenders), Clause 24 (Changes to the Security Parties), this Clause 34, Clause 39 (Governing Law) or Clause 40.1 (Jurisdiction of English courts); (i) (other than as expressly permitted by the provisions of any Finance Document) the nature or scope of: (i) any Guarantee; (ii) the Charged Property; or (iii) the manner in which the proceeds of enforcement of the Security Documents are distributed; or (j) the release of any Guarantee or of any Encumbrance created or expressed to be created or evidenced by the Security Documents unless permitted under this Agreement or any other Finance Document or relating to a sale or disposal of an asset which is the subject of any Encumbrance created or expressed to be created or evidenced by the Security Documents where such sale or disposal is expressly permitted under this Agreement or any other Finance Document, shall not be made, or given, without the prior consent of all the Lenders. 34.2.2 An amendment or waiver which relates to the rights or obligations of the Agent, the Security Agent or the Arranger (each in their capacity as such) may not be effected without the consent· of the Agent, the Security Agent or, as the case may be, the Arranger. 34.3 Replacement of Lender 34.3.1 If: (a) any Lender becomes a Non-Consenting Lender (as defined in Clause 34.3.4); or LONLIVE\30137956.24 Page 140

 
(b) a Borrower or any other Security Party becomes obliged to repay any amount in accordance with Clause 7.1 (Illegality) or to pay additional amounts pursuant to Clause 12.2 (Tax gross-up), Clause 12.3 (Tax Indemnity) or Clause 13.1 (Increased costs) to any Lender, then the Borrowers may, on ten Business Days' prior written notice to the Agent and such Lender, replace such Lender by requiring such Lender to (and, to the extent permitted by law, such Lender shall) transfer pursuant to Clause 23 (Changes to the Lenders) all (and not part only) of its rights and obligations under this Agreement to a Lender or other bank, financial institution, trust, fund or other entity (a "Replacement Lender") selected by the Borrowers, which confirms its willingness to assume and does assume all the obligations of the transferring Lender in accordance with Clause 23 (Changes to the Lenders) for a purchase price in cash payable at the time of transfer in an amount equal to the outstanding principal amount of such Lender's participation in the outstanding Loan and all accrued interest (to the extent that the Agent has not given a notification under Clause 23.8 (Pro rata interest settlement)), Break Costs and other amounts payable in relation thereto under the Finance Documents. 34.3.2 The replacement of a Lender pursuant to this Clause 34.3 shall be subject to the following conditions: (a) the Borrowers shall have no right to replace the Agent or Security Agent; (b) neither the Agent nor the Lender shall have any obligation to the Borrowers to find a Replacement Lender; (c) in the event of a replacement of a Non-Consenting Lender such replacement must take place no later than fifteen (15) days after the date on which that Lender is deemed a Non-Consenting Lender; (d) in no event shall the Lender replaced under this Clause 34.3 be required to pay or surrender to such Replacement Lender any of the fees received by such Lender pursuant to the Finance Documents; and (e) the Lender shall only be obliged to transfer its rights and obligations pursuant to Clause 34.3.1 once it is satisfied that it has complied with all necessary "know your customer" or other similar checks under all applicable laws and regulations in relation to that transfer. 34.3.3 A Lender shall perform the checks described in Clause 34.3.2(e) as soon as reasonably practicable following delivery of a notice referred to in Clause 34.3.1 and shall notify the Agent and the Borrowers when it is satisfied that it has complied with those checks. LONUVE\30137956.24 Page 141

 
34.3.4 In the event that: (a) the Borrowers or the Agent (at the request of the Borrowers) have requested the Lenders to give a consent in relation to, or to agree to a waiver or amendment of, any provisions of the Finance Documents; (b) the consent, waiver or amendment in question requires the approval of all the Lenders; and 2 (c) Lenders whose Commitments aggregate more than 66 /, per cent of the Total Commitments (or, if the Total Commitments have been 2 reduced to zero, aggregated more than 66 /, per cent of the Total Commitments prior to that reduction) have consented or agreed to such waiver or amendment, then any Lender who does not and continues not to consent or agree to such waiver or amendment shall be deemed a "Non-Consenting Lender". 35 Confidentiality 35.1 Confidential Information Each Finance Party agrees to keep all Confidential Information confidential and not to disclose it to anyone, save to the extent permitted by Clause 35.2 (Disclosure of Confidential Information) and Clause 35.3 (Disclosure to numbering service providers), and to ensure that all Confidential Information is protected with security measures and a degree of care that would apply to its own confidential information. 35.2 Disclosure of Confidential Information Any Finance Party may disclose: 35.2.1 to any of its Affiliates and Related Funds and any of its or their officers, directors, employees, professional advisers, auditors, partners and Representatives such Confidential Information as that Finance Party shall consider appropriate if any person to whom the Confidential Information is to be given pursuant to this Clause 35.2.1 is informed in writing of its confidential nature and that some or all of such Confidential Information may be price-sensitive information except that there shall be no such requirement to so inform if the recipient is subject to professional obligations to maintain the confidentiality of the information or is otherwise bound by requirements of confidentiality in relation to the Confidential Information; 35.2.2 to any person: (a) to (or through) whom it assigns or transfers (or may potentially assign or transfer) all or any of its rights and/or obligations under one or more Finance Documents or which succeeds (or which may potentially succeed) it as Agent or Security Agent and, in each case, to any of that person's Affiliates, Related Funds, Representatives and professional advisers; (b) with (or through) whom it enters into (or may potentially enter into), whether directly or indirectly, any sub-participation in LONUVE\30137956.24 Page 142

 
relation to, or any other transaction under which payments are to be made or may be made by reference to, one or more Finance Documents and/or one or more Security Parties and to any of that person's Affiliates, Related Funds, Representatives and professional advisers; (c) appointed by any Finance Party or by a person to whom Clause 35.2.2(a) or 35.2.2(b) applies to receive communications, notices, information or documents delivered pursuant to the Finance Documents on its behalf (including, without limitation, any person appointed under Clause 25.16.2 (Relationship with the Lenders)); (d) who invests in or otherwise finances (or may potentially invest in or otherwise finance), directly or indirectly, any transaction referred to in Clause 35.2.2(a) or 35.2.2(b); (e) to whom information is required or requested to be disclosed by any court of competent jurisdiction or any governmental, banking, taxation or other regulatory authority or similar body, the rules of any relevant stock exchange or pursuant to any applicable law or regulation; (f) to whom information is required to be disclosed in connection with, and for the purposes of, any litigation, arbitration, administrative or other investigations, proceedings or disputes; (g) who is a Party; or (h) with the consent of the Borrowers; in each case, such Confidential Information as that Finance Party shall consider appropriate if: (i) in relation to Clauses 35.2.2(a), 35.2.2(b) and 35.2.2(c), the person to whom the Confidential Information is to be given has entered into a Confidentiality Undertaking except that there shall be no requirement for a Confidentiality Undertaking if the recipient is a professional adviser and is subject to professional obligations to maintain the confidentiality of the Confidential Information; (ii) in relation to Clause 35.2.2(d), the person to whom the Confidential Information is to be given has entered into a Confidentiality Undertaking or is otherwise bound by requirements of confidentiality in relation to the Confidential Information they receive and is informed that some or all of such Confidential Information may be price­ sensitive information; (iii) in relation to Clauses 35.2.2(e) and 35.2.2(f) the person to whom the Confidential Information is to be given is LONUVE\30137956.24 Page 143

 
informed of its confidential nature and that some or all of such Confidential Information may be price-sensitive information except that there shall be no requirement to so inform if, in the opinion of that Finance Party, it is not practicable so to do in the circumstances; 35.2.3 to any person appointed by that Finance Party or by a person to whom Clause 35.2.2(a) or 35.2.2(b) applies to provide administration or settlement services in respect of one or more of the Finance Documents including without limitation, in relation to the trading of participations in respect of the Finance Documents, such Confidential Information as may be required to be disclosed to enable such service provider to provide any of the services referred to in this Clause 35.2.3 if the service provider to whom the Confidential Information is to be given has entered into a Confidentiality Undertaking; and 35.2.4 to any rating agency (including its professional advisers) such Confidential Information as may be required to be disclosed to enable such rating agency to carry out its normal rating activities in relation to the Finance Documents and/or the Security Parties if the rating agency to whom the Confidential Information is to be given is informed of its confidential nature and that some or all of such Confidential Information may be price-sensitive information. 35.3 Disclosure to numbering service providers 35.3.1 Any Finance Party may disclose t6 any national or international numbering service provider appointed by that Finance Party to provide identification numbering services in respect of this Agreement, the Loan and/or one or more Security Parties the following information: (a) names of Security Parties; (b) country of domicile of Security Parties; (c) place of incorporation of Security Parties; (d) date of this Agreement; (e) Clause 39 (Governing law); (f) the names of the Agent and the Arranger; (g) date of each amendment and restatement of this Agreement; (h) amount of Total Commitments; (i) currencies of the Loan; (j) type of Loan; (k) ranking of the Loan; (I) Termination Date; lONUVE\30137956.24 Page 144

 
(m) changes to any of the information previously supplied pursuant to 35.3.1(a) to 35.3.1(1); and (n) such other information agreed between such Finance Party and that Security Party, to enable such numbering service provider to provide its usual syndicated loan numbering identification services. 35.3.2 The Parties acknowledge and agree that each identification number assigned to this Agreement, the Loan and/or one or more Security Parties by a numbering service provider and the information associated with each such number may be disclosed to users of its services in accordance with the standard terms and conditions of that numbering service provider. 35.3.3 Each Borrower represents that none of the information set out in Clauses 35.3.1(a) to 35.3.1(n) is, nor will at any time be, unpublished price­ sensitive information. 35.4 Entire agreement This Clause 35 constitutes the entire agreement between the Parties in relation to the obligations of the Finance Parties under the Finance Documents regarding Confidential Information and supersedes any previous agreement, whether express or implied, regarding Confidential Information. 35.5 Inside information Each of the Finance Parties acknowledges that some or all of the Confidential Information is or may be price-sensitive information and that the use of such information may be regulated or prohibited by applicable legislation including securities law relating to insider dealing and market abuse and each of the Finance Parties undertakes not to use any Confidential Information for any unlawful purpose. 35.6 Notification of disclosure Each of the Finance Parties agrees (to the extent permitted by law and regulation) to inform the Borrowers: 35.6.1 of the circumstances of any disclosure of Confidential Information made pursuant to Clause 35.2.2(e) (Disclosure of Confidential Information) except where such disclosure is made to any of the persons referred to in that Clause during the ordinary course of its supervisory or regulatory function; and 35.6.2 upon becoming aware that Confidential Information has been disclosed in breach of this Clause 35. 35.7 Continuing obligations The obligations in this Clause 35 are continuing and, in particular, shall survive and remain binding on each Finance Party for a period of 12 months from the earlier of: 35.7.1 the date on which all amounts payable by the Security Parties under or in connection with the Finance Documents have been paid in full and the Loan has been cancelled or otherwise ceases to be available; and 35.7.2 the date on which such Finance Party otherwise ceases to be a Finance Party. LONUVE\30137956.24 Page 145

 
36 Disclosure of Lender Details by Agent 36.1 Supply of Lender details to Borrowers The Agent shall provide to the Borrowers within seven Business Days of the last Business Day of each calendar month a list (which may be in electronic form) setting out the names of the Lenders as at that Business Day, their respective Commitments, the address and fax number (and the department or officer, if any, for whose attention any communication is to be made) of each Lender for any communication to be made or document to be delivered under or in connection with the Finance Documents, the electronic mail address and/or any other information required to enable the sending and receipt of information by electronic mail or other electronic means to and by each Lender to whom any communication under or in connection with the Finance Documents may be made by that means and the account details of each Lender for any payment to be distributed by the Agent to that Lender under the Finance Documents. 36.2 Supply of Lender details at Borrowers' direction 36.2.1 The Agent shall, at the request of the Borrowers, disclose the identity of the Lenders and the details of the Lenders' Commitments to any: (a) other Party or any other person if that disclosure is made to facilitate, in each case, a refinancing of the Financial Indebtedness arising under the Finance Documents or a material waiver or amendment of any term of any Finance Document; and (b) Security Party. 36.2.2 Subject to Clause 36.2.3, the Borrowers shall procure that the recipient of information disclosed pursuant to Clause 36.2.1 shall keep such information confidential and shall not disclose it to anyone and shall ensure that all such information is protected with security measures and a degree of care that would apply to the recipient's own confidential information. 36.2.3 The recipient may disclose such information to any of its officers, directors, employees, professional advisers, auditors and partners as it shall consider appropriate if any such person is informed in writing of its confidential nature, except that there shall be no such requirement to so inform if that person is subject to professional obligations to maintain the confidentiality of the information or is otherwise bound by duties of confidentiality in relation to the information. 36.3 Supply of Lender details to other Lenders 36.3.1 If a Lender (a "Disclosing Lender") indicates to the Agent that the Agent may do so, the Agent shall disclose that Lender's name and Commitment to any other Lender that is, or becomes, a Disclosing Lender. 36.3.2 The Agent shall, if so directed by the Requisite Lenders, request each Lender to indicate to it whether it is a Disclosing Lender. 36.4 Lender enquiry If any Lender believes that any entity is, or may be, a Lender and: 36.4.1 that entity ceases to have an Investment Grade Rating; or LONLlVE\30137956.24 Page 146

 
36.4.2 an Insolvency Event occurs in relation to that entity, the Agent shall, at the request of that Lender, indicate to that Lender the extent to which that entity has a Commitment. 36.5 Lender details definitions In this Clause 36: "Investment Grade Rating" means, in relation to an entity, a rating for its long­ term unsecured and non-credit-enhanced debt obligations of BBB- or higher by Standard & Poor's Rating Services or Fitch Ratings Ltd or Baa3 or higher by Moody's Investors Service Limited or a comparable rating from an internationally recognised credit rating agency. "Requisite Lenders" means a Lender or Lenders whose Commitments aggregate 15 per cent (or more) of the Total Commitments (or if the Total Commitments have been reduced to zero, aggregated 15 per cent (or more) of the Total Commitments immediately prior to that reduction). 37 Counterparts Each Finance Document may be executed in any number of counterparts, and this has the same effect as if the signatures on the counterparts were on a single copy of the Finance Document. 38 Joint and Several Liability 38.1 Nature of liability The representations, warranties, covenants, obligations and undertakings of the Borrowers contained in this Agreement shall be joint and several so that each Borrower shall be jointly and severally liable with all the Borrowers for all of the same and such liability shall not in any way be discharged, impaired or otherwise affected by: 38.1.1 any forbearance (whether as to payment or otherwise) or any time or other indulgence granted to any other Borrower or any other Security Party under or in connection with any Finance Document; 38.1.2 any amendment, variation, novation or replacement of any other Finance Document; 38.1.3 any failure of any Finance Document to be legal valid binding and enforceable in relation to any other Borrower or any other Security Party for any reason; 38.1.4 the winding-up or dissolution of any other Borrower or any other Security Party; 38.1.5 the release (whether in whole or in part) of, or the entering into of any compromise or composition with, any other Borrower or any other Security Party; or 38.1.6 any other act, omission, thing or circumstance which would or might, but for this provision, operate to discharge, impair or otherwise affect such liability. LONLIVE\30137956.24 Page 147

 
38.2 No rights as surety Until the Indebtedness has been unconditionally and irrevocably paid and discharged in full, each Borrower agrees that it shall not, by virtue of any payment made under this Agreement on account of the Indebtedness or by virtue of any enforcement by a Finance Party of its rights under this Agreement or by virtue of any relationship between, or transaction involving, the relevant Borrower and any other Borrower or any other Security Party: 38. 2.1 exercise any rights of subrogation in relation to any rights, security or moneys held or received or receivable by a Finance Party or any other person; or 38.2.2 exercise any right of contribution from any other Borrower or any other Security Party under any Finance Document; or 38.2.3 exercise any right of set-off or counterclaim against any other Borrower or any other Security Party; or 38.2.4 receive, claim or have the benefit of any payment, distribution, security or indemnity from any other Borrower or any other Security Party; or 38.2.5 unless so directed by the Agent (when the relevant Borrower will prove in accordance with such directions), claim as a creditor of any other Borrower or any other Security Party in competition with any Finance Party and each Borrower shall hold in trust for the Finance Parties and forthwith pay or transfer (as appropriate) to the Agent any such payment (including an amount equal to any such set-off), distribution or benefit of such security, indemnity or claim in fact received by it. LONUVE\30137956.24 Page 148

 
Section 12 Governing Law and Enforcement 39 Governing Law This Agreement and any non-contractual obligations arising out of or in connection with it are in all respects governed by and shall be interpreted in accordance with English Jaw. 40 Enforcement 40.1 Jurisdiction of English courts 40.1.1 The courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute relating to the existence, validity or termination of this Agreement or any non-contractual obligation arising out of or in connection with this Agreement) (a "Dispute"). Each Party agrees that the courts of England are the most appropriate and convenient courts to settle Disputes and accordingly no Party will argue to the contrary. 40.1.2 Notwithstanding Clause 40.1.1, no Finance Party shall be prevented from taking proceedings relating to a Dispute in any other courts with jurisdiction. To the extent allowed by law, any Finance Party may take concurrent proceedings in any number of jurisdictions. 40.2 Service of process 40.2.1 Without prejudice to any other mode of service allowed under any relevant law, each Borrower: (a) irrevocably appoints Teekay Shipping (UK) Ltd of 2"d Floor, 86 Jermyn Street, London SW1 Y 6JD, England as its agent for service of process in relation to any proceedings before the English courts in connection with any Finance Document; and (b) agrees that failure by a process agent to notify that Borrower of the process will not invalidate the proceedings concerned. 40.2.2 If any person appointed as an agent for service of process is unable for any reason to act as agent for service of process or terminates its appointment as agent for service of process, the relevant Borrower must immediately (and in any event within five days of such event taking place) appoint another agent on terms acceptable to the Agent. Failing this, the Agent may appoint another agent for this purpose. This Agreement has been entered into on the date stated at the beginning of this Agreement. LONLIVE\30137956.24 Page 149

 
Schedule 1 The Original Lenders Name of Original Lender Commitment (US$) China Development Bank 1,632,000,000 LONLlVE\30137956.24 Page 150

 
Schedule 2 Conditions Precedent and Subsequent Part I Initial Conditions Precedent 1 Security Parties 1.1 Constitutional documents Copies of the constitutional documents of each Security Party together with such other evidence as the Agent may reasonably require that each Security Party is duly incorporated or formed in its country of incorporation or formation and remains in existence with power to enter into, and perform its obligations under, the Relevant Documents to which it is or is to become a party. 1.2 Certificates of good standing A certificate of good standing in respect of each Security Party (if such a certificate can be obtained). 1.3 Board resolutions A copy of a resolution of the board of directors of each Security Party or its general partner: 1.3.1 approving the terms of, and the transactions contemplated by, the Relevant Documents to which it is a party and resolving that it execute those Relevant Documents; and 1.3.2 authorising a specified person or persons to execute those Relevant Documents (and all documents and notices to be signed and/or dispatched under those documents) on its behalf. 1.4 Shareholder resolutions If required by any legal advisor to the Agent, a copy of a resolution signed by all the holders of the issued shares (or sole member or general partners, as the case may be) in each Security Party (other than TGP), approving the terms of, and the transactions contemplated by, the Relevant Documents to which that Security Party is a party. 1.5 Other approvals If applicable, copies of all governmental and other consents, licences, approvals and authorisations as may be necessary to authorise the performance by each of the Security Parties of its obligations under the Relevant Documents to which it is or (as the case may be) will be a party, and the execution, validity and enforceability of such Relevant Documents. 1.6 Officer's certificates An original certificate of a duly authorised officer of each Security Party: 1.6.1 certifying that each copy document relating to it specified in this Part I of Schedule 2 is correct, complete and in full force and effect; 1.6.2 setting out the names of the directors, officers and shareholders (or members or general partners, as the case may be) of that Security LONUVE\30137956.24 Page 151

 
Party (other than the shareholders for TGP) and the proportion of shares held by each shareholder; and 1.6.3 confirming that borrowing or guaranteeing or securing, as appropriate, the Loan would not cause any borrowing, guarantee, security or similar limit binding on that Security Party to be exceeded. 1.7 Powers of attorney The original (and if required for the purpose of registering any of the Finance Documents under the laws of the relevant jurisdiction, notarially attested and (if required) legalised) power of attorney of each of the Security Parties under which the Relevant Documents to which it is or is to become a party are to be executed or transactions undertaken by that Security Party. 1.8 General partner approval The written approval of Teekay GP L.L.C. (being the general partner of TGP) approving the terms of the Guarantee to be granted by TGP. 2 Direct Agreement Parties and YLNG 2.1 Constitutional documents Copies of the constitutional documents of each Direct Agreement Party (other than the Builder) and YLNG. 2.2 Certificates of good standing A certificate of good standing in respect of each Direct Agreement Party (other than the Builder) and YLNG (if such a certificate can be obtained). 2.3 Board resolutions A copy of a resolution of the board of directors of each Direct Agreement Party (other than the Builder and Yamal Sponsor Guarantors) and YLNG: 2.3.1 approving the terms of, and the transactions contemplated by, (a) in the case of the Charterer, the Charters and the Direct Agreements to which it is a party and resolving that it execute the Charters and those Direct Agreements; and (b) in the case of YLNG, the YLNG Guarantees and resolving that it execute the YLNG Guarantees; 2.3.2 authorising a specified person or persons to execute those Direct Agreements, Charters and YLNG Guarantees (as applicable) (and all documents and notices to be signed and/or dispatched under those documents) on its behalf. 2.4 Builder's authority in respect of the Builder's authority to execute the Replacement Step-In Agreements and the Replacement Novation Side Letters, the relevant power or powers of attorney of the Builder. 2.5 Other approvals If applicable, copies of all governmental and other consents, licences, approvals and authorisations as may be necessary to authorise the performance by each of the Direct Agreement Parties and LONUVE\30137956.24 Page 152

 
YLNG of its obligations under the Direct Agreements, Charters and YLNG Guarantees to which it is or (as the case may be) will be a party, and the execution, validity and enforceability of such Direct Agreements, Charters and YLNG Guarantees. 2.6 Original counterparts An original counterpart of each Direct Agreement. 3 Security and related documents 3.1 Vessel documents Photocopies, certified as true, accurate and complete by an authorised representative of each Borrower, of: 3.1.1 the relevant Building Contract; 3.1.2 the relevant Refund Guarantee; 3.1.3 the relevant Charter; 3.1.4 the other Relevant Documents (other than the Finance Documents); and 3.1.5 evidence that each relevant counterparty to the Assigned Documents has given its written approval to the assignment by such Borrower of the relevant Assigned Documents pursuant to the Charter Assignment to which such Borrower is a party, to the extent that the prior consent of such counterparty has not been granted under the relevant Assigned Documents or otherwise provided. 3.2 Security Documents The Pre-Delivery Assignments, each Guarantee, the Borrower Pledge Agreements, the Charter Assignments, the Account Security Deeds, the Parent Pledge Agreement, the Manager's Undertakings and any other Credit Support Documents, together with all other documents required by any of them, including, without limitation, (i) all notices of assignment and/or charge and evidence that upon service those notices will be duly acknowledged by the recipients (other than those notices in respect of the Vessels' Insurances) and (ii) (pursuant to the Borrower Pledge Agreements and the Parent Pledge Agreement) all certificates of limited liability interest, proxy forms, letters of resignation and letters of undertaking. 3.3 No disputes The written confirmation of the Borrowers that there is no dispute under any of the Relevant Documents as between the parties to any such document. 3.4 Equity contribution 3.4.1 Evidence of full payment to the Builder of any part of the Contract Price of the Vessel under the Building Contract which is payable on or before the relevant Drawdown Date and which is not being financed by the Loan. LONLIVE\30137956.24 Page 153

 
3.4.2 Evidence that the equity contribution is, or will be, on or prior to the relevant Drawdown Date in place, and that the ratio of the aggregate amount drawn under the relevant Vessel Loan to such equity contribution does not and shall not following the making of the relevant Drawing exceed 80:20. 4 Legal opinions The following legal opinions, each addressed to the Agent, the Security Agent, the Swap Provider and the Lenders and capable of being relied upon by any persons who become Lenders pursuant to the primary syndication of the Loan or confirmation satisfactory to the Agent that such opinions will be given: 4.1 legal opinions of Stephenson Harwood, legal advisers to the Agent as to English and Hong Kong law substantially in the form distributed to the Lenders prior to signing this Agreement; 4.2 a legal opinion of Poles, Tublin, Stratakis & Gonzalez LLP, legal advisers to the Agent and as to the Republic of the Marshall Islands law; and 4.3 a legal opinion of Bermudan legal counsel as legal advisers to the Agent and as to Bermudan law. 5 Other documents and evidence 5.1 Drawdown Request A duly completed Drawdown Request. 5;2 Process agent Evidence that any process agent referred to in Clause 40.2 (Service of process) and any process agent appointed under any other Finance Document has accepted its appointment. 5.3 Other Authorisations A copy of any other Authorisation or other document, opinion or assurance which the Agent reasonably considers to be necessary (if it has notified the Borrowers accordingly) in connection with the entry into and performance of the transactions contemplated by any Relevant Document or for the validity and enforceability of any Relevant Document. 5.4 Financial statements A copy of each of the Original Financial Statements to the extent not publicly available online. 5.5 Fees The Fee Letter and evidence that the fees, costs and expenses then due from the Borrowers under Clause 11 (Fees) and Clause 16 (Costs and Expenses) have been paid or will be paid by the relevant Drawdown Date. 5.6 "Know your customer" documents Such documentation and other evidence as is reasonably requested by the Agent in order for the Lenders to comply with all necessary "know your customer" or similar identification procedures in relation to the transactions contemplated in the Finance Documents. 5. 7 Account Holder's confirmation The written confirmation of the Account Holder that the Accounts have been opened with the Account Holder and to LONLIVE\30137956.24 Page 154

 
its actual knowledge are free from Encumbrances other than as created by or pursuant to the Security Documents and rights of set off in favour of the Account Holder as account holder. LONUVE\30137956.24 Page 155

 
Part II Conditions Subsequent to initial Drawing 1 Acknowledgements of notices Acknowledgements of all notices of assignment and/or charge given pursuant to any Security Documents received by the Agent pursuant to Part I of this Schedule 2. 2 Registration of Parent Pledge Agreement Evidence that the prescribed particulars of the Parent Pledge Agreement have been delivered to the Hong Kong Companies Registry within one (1) Month from the date of the Parent Pledge Agreement. LONUVE\30137956.24 Page 156

 
Part III Conditions Precedent to Instalment Drawings 1 The receipt issued by the Builder confirming that the previous instalment(s) of the relevant Contract Price have been paid in full by the relevant Borrower in accordance with the terms of the relevant Building Contract. 2 The invoice issued by the Builder evidencing the obligation of such Borrower to pay the relevant instalment to the Builder under the relevant Building Contract on a date no later than the proposed Drawdown Date of the Drawing in question. 3 A copy of the certificate from the Pre-Approved Classification Society, countersigned by the Builder, certifying that the scheduled construction milestones under the relevant Building Contract have been completed. 4 Evidence of full payment to the Builder of any part of the Contract Price which is due and payable on or before the proposed Drawdown of the Drawing in question and which is not being financed by the Lenders. 5 Evidence that the equity contribution is, or will be, on or prior to the relevant Drawdown Date in place, and that the ratio of the aggregate amount drawn under the relevant Vessel Loan to such equity contribution does not and shall not following the making of the relevant Drawing exceed 80:20. 6 Such documents and evidence required by the Agent in determining the Total Project Cost of the relevant Vessel including, without limitation, proof issued by the relevant Builder for any additional costs and equipment added on that Vessel). LONLIVE\30137956.24 Page 157

 
-- ---- --------- Part IV Conditions Precedent to Drawing for Pre-delivery Expenses 1 In respect of supervision costs, there shall be provided: 1.1 a copy of the relevant Supervision Agreement; 1.2 copies of the invoices relating to such costs; and 1.3 a copy of the written receipt of the Supervisor confirming receipt of the amounts payable. 2 In respect of depot spares, there shall be provided: 2.1 copies of the applicable tender documents including, if available, any amendment evidencing the reduction of the budgeted amount to $5,500,000 per Vessel; 2.2 to the extent not set out in the applicable tender documents provided pursuant to paragraph 2.1 above, a list of the required depot spares; 2.3 no later than the earlier of (i) one Month after the last available purchase date and (ii) the Delivery Date of the final Vessel to be delivered, copies of the invoices relating to such depot spares; and 2.4 no later than one year from the Delivery Date of the final Vessel to be delivered, remittances or receipts evidencing the payment for such depot spares. 3 In respect of any other costs approved by the Agent as a Pre-Delivery Expense, there shall be provided: 3.1 underlying contracts; 3.2 invoices; and 3.3 remittances or receipts, provided that in respect of costs to be paid after the relevant Delivery Date, pro forma invoices are to be provided to and accepted by the Agent. LONI.IVE\30137956.24 Page 158

 
PartV Conditions Precedent to pre-position the Delivery Instalment 1 Officer's certificate A certificate signed by a duly authorised officer of each Security Party confirming that none of the documents and evidence delivered to the Agent pursuant to Clauses 4.1 (Initial conditions precedent) and 4.4 (Conditions subsequent) has been amended, modified or revoked in any way since its delivery to the Agent. 2 Vessel documents 2.1 Title transfer documents Agreed forms or drafts of the following documents: 2.1.1 the builder's certificate and/or bill of sale transferring title in the Vessel to such Borrower free of all encumbrances, maritime liens or other debts; 2.1.2 the protocol of delivery and acceptance evidencing the unconditional physical delivery of the Vessel by the Builder to such Borrower pursuant to the relevant Building Contract; 2.1.3 the commercial invoice to be issued by the Builder in respect of the final contract price of the Vessel; and 2.1.4 the declaration of warranty to be issued by the Builder to such Borrower pursuant to the relevant Building Contract; 2.2 Invoice The invoice issued by the Builder evidencing the obligation of such Borrower to pay the Delivery Instalment to the Builder under the relevant Building Contract on a date no later than the payment date specified in the relevant Payment Notice. 3 Equity contribution 3.1 Evidence of full payment to the Builder of any part of the Contract Price which is due and payable on or before the payment date specified in the relevant Payment Notice and which is not being financed by the Lenders. 3.2 Evidence that the equity contribution is, or will be, on or prior to the relevant Drawdown Date in place, and that the ratio of the aggregate amount drawn under the relevant Vessel Loan to such equity contribution does not and shall not following the making of the relevant Drawing exceed 80:20. 4 Security and related documents 4.1 Security Documents The relevant Mortgage and the relevant General Assignment, together with all other documents required by any of them, including, without limitation, the notices in relation to the Vessel's Insurances under the relevant General Assignment and all other notices of assignment and/or charge and evidence that those notices will be duly acknowledged by the recipients. LONUVE\30137956.24 Page 159

 
4.2 Mandates Such duly signed forms of mandate, and/or other evidence of the opening of the relevant Accounts, as the Security Agent may require. 4.3 Other Relevant Documents Copies of each of the Relevant Documents not otherwise comprised in the documents listed in Parts I to III of this Schedule 2 including but not limited to the Master Agreement and the Master Agreement Proceeds Charge. 4.4 Evidence (in such form and subject to such terms and conditions as the Agent may specify to the Builder's Bank in writing (electronically or otherwise) on or before the proposed Pre-position Date) that such amount will: 4.4.1 be held by the Builder's Bank to the order of the Agent; and 4.4.2 only be released to the Builder upon presentation to the Builder's Bank of a copy (transmitted by fax, email or otherwise) of the duly executed, dated and timed Builder's PDA, signed by a duly authorised officer, signatory, attorney-in-fact or other representative of the Builder, the relevant Borrower and the Agent, whose details shall be communicated to the Builder's Bank in writing (electronically or otherwise) on or before the proposed Pre­ position Date. 5 Other documents and evidence 5.1 Process agent Evidence that any process agent referred to in Clause 40.2 (Service of process) and any process agent appointed under any other Finance Document has accepted its appointment if it has not already done so. 5.2 Other Authorisations A copy of any other Authorisation or other document, opinion or assurance which the Agent reasonably considers to be necessary (if it has notified the Borrowers accordingly) in connection with the entry into and performance of the transactions contemplated by any Relevant Document or for the validity and enforceability of any Relevant Document. LONLlVE\30137956.24 Page 160

 
Part VI Delivery Conditions Precedent 1 Vessel documents Photocopies, certified as true, accurate and complete by an authorised representative of the relevant Borrower, of: 1.1 the builder's certificate and/or bill of sale transferring title in the Vessel to such Borrower free of all encumbrances, maritime liens or other debts; 1.2 the protocol of delivery and acceptance evidencing the unconditional physical delivery of the Vessel by the Builder to such Borrower pursuant to the relevant Building Contract; 1.3 the commercial invoice issued by the Builder in respect of the final contract price of the Vessel; 1.4 the declaration of warranty issued by the Builder to such Borrower pursuant to the relevant Building Contract; 1.5 the protocol of delivery and acceptance evidencing the unconditional delivery of the Vessel by such Borrower to the Charterer pursuant to the Charter; 1.6 the Management Agreements (if the Approved Manager is not part of the Teekay Group); 1.7 the Vessel's current SMC; 1.8 the ISM Company's current DOC; 1.9 the Vessel's current ISSC; 1.10 the Vessel's current IAPPC, in each case together with all addenda, amendments or supplements. 2 Evidence of Borrower's title Evidence that any prior registration of the Vessel in the ownership of the Builder and any Encumbrance registered against that ownership have been cancelled and evidence that on the relevant Delivery Date (i) the Vessel will be at least provisionally registered under the flag of the Commonwealth of the Bahamas in the ownership of the relevant Borrower and (ii) the relevant Mortgage will be capable of being registered against the Vessel with first priority. 3 Evidence of insurance Evidence that the Vessel is insured in the manner required by the relevant Security Documents and that letters of undertaking will be issued in the manner required by the Security Documents, together with (if required by the Agent) the written approval of the Insurances by an insurance adviser appointed by the Agent. 4 Confirmation of class An interim Certificate of Confirmation of Class for hull and machinery confirming that the Vessel is classed with the highest class applicable to vessels of her type with the Pre-Approved Classification Society or such other classification society as may be reasonably acceptable to the Agent. LONUVE\30137956.24 Page 161

 
5 Valuation A valuation of the Vessel addressed to the Agent from a broker acceptable to the Agent certifying the Market Value for the Vessel, acceptable to the Agent. 6 Legal opinions The following legal opinions, each addressed to the Agent, the Security Agent, the Swap Provider and the Lenders and capable of being relied upon by any persons who become Lenders pursuant to the primary syndication of the Loan or confirmation satisfactory to the Agent that such opinions will be given, in which case, such legal opinions shall be issued and delivered to the Agent as conditions subsequent under Schedule 2, Part VII: 6.1 a legal opinion of Stephenson Harwood, legal advisers to the Agent as to English law substantially in the form distributed to the Lenders prior to signing this Agreement; 6.2 a legal opinion of the following legal advisers to the Agent: 6.2.1 Poles, Tublin, Stratakis & Gonzalez, LLP as to the Republic of the Marshall Islands law; and 6.2.2 Higgs & Johnson as to the Commonwealth of the Bahamas law. 7 Assignment Acknowledgements Confirmation from the parties who shall sign the acknowledgements to be provided under Schedule 2, Part VII that these acknowledgements are in agreed form and will be provided promptly upon receipt of the relevant notifications. 8 Other Authorisations A copy of any other Authorisation or other document, opinion or assurance which the Agent reasonably considers to be necessary (if it has notified the Borrowers accordingly) in connection with the entry into and performance of the transactions contemplated by any Relevant Document or for the validity and enforceability of any Relevant Document. lONLIVE\30137956.24 Page 162

 
Part VII Delivery Conditions Subsequent 1 Evidence of Borrower's title Transcript of Register (or equivalent) issued by the Registrar of Ships (or equivalent official) of the flag stated in Preliminary (A) confirming that (a) the Vessel is permanently registered under that flag in the ownership of the relevant Borrower, (b) the relevant Mortgage has been registered with first priority against the Vessel and (c) there are no further registered Encumbrances against the Vessel. 2 Letters of undertaking Letters of undertaking in respect of the Insurances as required by the relevant Security Documents together with copies of the relevant policies or cover notes or entry certificates duly endorsed with the interest of the Finance Parties. 3 Acknowledgements of notices Acknowledgements of all notices of assignment and/or charge given pursuant to any Security Documents received by the Agent pursuant to Part VI of this Schedule 2. 4 Legal opinions The legal opinions of the following legal advisers to the Agent: 4.1 Stephenson Harwood as to English law; 4.2 Poles, Tublin, Stratakis & Gonzalez, LLP as to the Republic of the Marshall Islands law; and 4.3 Higgs & Johnson as to the Commonwealth of the Bahamas law. LONLIVE\30137956.24 Page 163

 
Schedule 3 Drawdown Request From: DSME Hull No. 2430 L.L.C., DSME Hull No. 2431 L.L.C., DSME Hull No. 2433 L.L.C., DSME Hull No. 2434 L.L.C. DSME Hull No. 2423 L.L.C. and DSME Hull No. 2425 L.L.C. To: China Development Bank Dated: Dear Sirs DSME Hull No. 2430 L,L,C., DSME Hull No. 2431 L.L.C., DSME Hull No. 2433 L.L.C., DSME Hull No. 2434 L.L.C. DSME Hull No. 2423 L.L.C. and DSME Hull No. 2425 L.L.C.­ US$1,632,000,000 Loan Agreement dated [ ] (the .. Agreement.. ) 1 We refer to the Agreement. This is a Drawdown Request. Terms defined in the Agreement have the same meaning in this Drawdown Request unless given a different meaning in this Drawdown Request. 2 We wish to make a Drawing in respect of the Vessel Loan relating to the Vessel below on the following terms: I Proposed Drawdown Date: [ (or, if that is not a Business Day, the next Business Day) Currency of Drawing: l Amount: [ Interest Period: Vessel: [ 3 We confirm that each condition specified in Clause 4.2 (Further conditions precedent) is satisfied on the date of this Drawdown Request. 4 The proceeds of the Drawing should be [credited to [ ]/[[paid]/[pre-positioned] in accordance with the provisions of the Building Contract in respect of the above Vessel [in][ towards] payment of the [ ] instalment of the Contract Price of the above Vessel]. 5 This Drawdown Request is irrevocable. Yours faithfully authorised signatory for DSME Hull No. 2430 L.L.C., DSME Hull No. 2431 L.L.C., DSME Hull No. 2433 L.L.C., DSME Hull No. 2434 L.L.C. DSME Hull No. 2423 L.L.C. and DSME Hull No. 2425 L.L.C. LONUVE\30137956.24 Page 164

 
Schedule 4 Repayment Schedule Vessel A Repayment Amount of Principal Instalment Instalment following Delivery (USD) 1 1,000,000 2 5,616,589 3 5,779,737 4 5,947,779 5 6,120,862 6 6,299,139 7 6,482,763 8 6,671,896 9 6,866,703 10 7,067,354 11 - 7,274,025 12 7,486,896 13 7,706,153 14 7,931,988 15 8,164,598 16 8,404,186 17 8,650,961 18 8,905,140 19 9,166,945 20 9,436,603 21 9,714,352 22 10,000,432 23 10,295,095 24 10,598,598 25 10,911,207 26 82,500,000 LONUVE\30137956.24 Page 165

 
Vessel B Repayment Principal Instalment Instalment following Delivery (USD) 1 1,000,000 2 5,596,013 3 5,758,568 4 5,925,999 5 6,098,453 6 6,276,081 7 6,459,038 8 6,647,483 9 6,841,582 10 7,041,503 11 7,247,422 12 7,459,519 13 7,677,979 14 7,902,993 15 8,134,757 16 8,373,473 17 8,619,352 18 8,872,607 19 9,133,459 20 9,402,137 21 9,678,875 22 9,963,916 23 10,257,507 24 10,559,907 25 10,871,378 26 82,200,000 LONUVE\30137956.24 Page 166

 
Vessel C Repayment Principal Instalment Instalment (USD) following Delivery 1 1,000,000 2 5,616,589 3 5,779,737 4 5,947,779 5 6,120,862 6 6,299,139 7 6,482,763 8 6,671,896 9 6,866,703 10 7,067,354 11 7,274,025 12 7,486,896 13 7,706,153 14 7,931,988 15 8,164,598 16 8,404,186 17 8,650,961 18 8,905,140 19 9,166,945 20 9,436,603 21 9,714,352 22 10,000,432 23 10,295,095 24 10,598,598 25 10,911,207 26 82,500,000 LONLlVE\30137956.24 Page 167

 
Vessel D Repayment Principal Instalment Instalment (USD) following Delivery 1 1,000,000 2 5,596,013 3 5,758,568 4 5,925,999 5 6,098,453 6 6,276,081 7 6,459,038 8 6,647,483 9 6,841,582 10 7,041,503 11 7,247,422 12 7,459,519 13 7,677,979 14 7,902,993 15 8,134,757 16 8,373,473 17 8,619,352 18 8,872,607 19 9,133,459 20 9,402,137 21 9,678,875 22 9,963,916 23 10,257,507 24 10,559,907 25 10,871,378 26 82,200,000 LONLIVE\30137956.24 Page 168

 
VesseiE Repayment Principal Instalment Instalment (USD) following Delivery 1 1,000,000 2 5,493,136 3 5,652,724 4 5,817,100 5 5,986,407 6 6,160,794 7 6,340,412 8 6,525,418 9 6,715,975 10 6,912,248 11 7,114,410 12 7,322,636 13 7,537,110 14 7,758,017 15 7,985,552 16 8,219,912 17 8,461,304 18 8,709,937 19 8,966,030 20 9,229,805 21 9,501,493 22 9,781,332 23 10,069,566 24 10,366,447 25 10,672,235 26 80,700,000 LONLIVE\30137956.24 Page 169

 
Vessel F Repayment Principal Instalment Instalment (USD) 1 1,000,000 2 5,410,834 3 5,568,049 4 5,729,981 5 5,896,771 6 6,068,564 7 6,245,511 8 6,427,766 9 6,615,490 10 6,808,844 11 7,008,000 12 7,213,130 13 7,424,414 14 7,642,037 15 7,866,188 16 8,097,064 17 8,334,866 18 8,579,802 19 8,832,086 20 9,091,939 21 9,359,587 22 9,635,265 23 9,919,213 24 10,211,680 25 10,512,920 26 79,500,000 LONUVE\30137956.24 Page 170

 
ScheduleS Form of Transfer Certificate To: China Development Bank as Agent From: [The Existing Lender] (the "Existing Lender") and [The New Lender] (the "New Lender") Dated: DSME Hull No. 2430 L.L.C., DSME Hull No. 2431 L.L.C., DSME Hull No. 2433 L.L.C., DSME Hull No. 2434 L.L.C., DSME Hull No. 2423 L.L.C. and DSME Hull No. 2425 L.L.C. US$1,632,000,000 Loan Agreement dated [ ] (the "Loan Agreement") 1 We refer to the Loan Agreement. This agreement (the "Agreement") shall take effect as a Transfer Certificate for the purposes of the Loan Agreement. Terms defined in the Loan Agreement have the same meaning in this Agreement unless given a different meaning in this Agreement. 2 We refer to Clause 23.5 (Procedure for transfer) of the Loan Agreement: 2.1 The Existing Lender and the New Lender agree to the Existing Lender transferring to the New Lender by novation and in accordance with Clause 23.5 (Procedure for transfer) all of the Existing Lender's rights and obligations under the Loan Agreement and the other Final]ce Documents which relate to that portion of the Existing Lender's Commitment(s) and participations in the Loan under the Loan Agreement as specified in the Schedule. 2.2 The proposed Transfer Date is [ ]. 2.3 The Facility Office and address, fax number and attention details for notices of the New Lender for the purposes of Clause 30.2 (Addresses) of the Loan Agreement are set out in the Schedule. 3 The New Lender expressly acknowledges the limitations on the Existing Lender's obligations set out in Clause 23.4.1(c) (Limitation of responsibility of Existing Lenders) of the Loan Agreement. 4 The New Lender confirms, for the benefit of the Agent and without liability to any Security Party, that it is: 4.1 [a Qualifying Lender other than a Treaty Lender;] 4.2 [a Treaty Lender;] 4.3 [not a Qualifying Lender]. [5] [The New Lender confirms that the person beneficially entitled to interest payable to that Lender in respect of an advance under a Finance Document is either: LONUVE\30137956;24 Page 171

 
5.1 a company resident in the United Kingdom for United Kingdom tax purposes; 5.2 a partnership each member of which is: 5.2.1 a company so resident in the United Kingdom; or 5.2.2 a company not so resident in the United Kingdom which carries on a trade in the United Kingdom through a permanent establishment and which brings into account in computing its chargeable profits (within the meaning of section 19 of the CTA) the whole of any share of interest payable in respect of that advance that falls to it by reason of Part 17 of the CTA; or 5.3 a company not so resident in the United Kingdom which carries on a trade in the United Kingdom through a permanent establishment and which brings into account interest payable in respect of that advance in computing the chargeable profits (within the meaning of section 19 of the CTA) of that company.] [5] [The New Lender confirms that it holds a passport under the HMRC DT Treaty Passport scheme (reference number [ ]) and is tax resident in [ ], so that interest payable to it by borrowers is generally subject to full exemption from UK withholding tax, and requests that the Agent notify the Borrowers that it wishes that scheme to apply to the Agreement.] [5/6] This Agreement may be executed in any number of counterparts and this has the same effect as if the signatures on the counterparts were on a single copy of this Agreement. [6/7] This Agreement and any non-contractual obligations arising out of or in connection with it are governed by English law. [7/8] This Agreement has been entered into on the date stated at the beginning of this Agreement. Note: The execution of this Transfer Certificate may not transfer a proportionate share of the Existing Lender's interest in any Encumbrance created or expressed to be created or evidenced by the Security Documents in all jurisdictions. It is the responsibility of the New Lender to ascertain whether any other documents or other formalities are required to perfect a transfer of such a share in any jurisdiction and, if so, to arrange for execution of those documents and completion of those formalities. LONUVE\30137956.24 Page 172

 
The Schedule Commitment/rights and obligations to be transferred [insert relevant details] [Facility Office address, fax number and attention details for notices and account details for payments,] [Existing Lender] [New Lender] By: By: This Agreement is accepted as a Transfer Certificate for the purposes of the Loan Agreement by the Agent and the Transfer Date is confirmed as [ ]. China Development Bank By: LONLIVE\30137956.24 Page 173

 
Schedule 6 Form of Assignment Agreement To: China Development Bank as Agent and DSME Hull No. 2430 L.L.C., DSME Hull No. 2431 L.L.C., DSME Hull No. 2433 L.L.C., DSME Hull No. 2434 L.LC. DSME Hull No. 2423 L.L.C. and DSME Hull No. 2425 L.L.C. as Borrowers, for and on behalf of each Security Party From: [the Existing Lender] (the "Existing Lender") and [the New Lender] (the "New Lender") Dated: DSME Hull No. 2430 L.L.C., DSME Hull No. 2431 L.L.C,, DSME Hull No. 2433 L.L.C., DSME Hull No. 2434 L.L.C. DSME Hull No. 2423 L.L.C. and DSME Hull No. 2425 L.L.C. - US$1,632,000,000 Loan Agreement dated [ ] (the "Loan Agreement") 1 We refer to the Loan Agreement. This is an Assignment Agreement. This agreement (the "Agreement") shall take effect as an Assignment Agreement for the purpose of the Loan Agreement. Terms defined in the Loan Agreement have the same meaning in this Agreement unless given a different meaning in this Agreement. 2 We refer to Clause 23.6 (Procedure for assignment) of the Loan Agreement: 2.1 The Existing Lender assigns absolutely to the New Lender all the rights of the Existing Lender under the Loan Agreement, the other Finance Documents and in respect of any Encumbrance created or expressed to be created or evidenced by the Security Documents which correspond to that portion of the Existing Lender's Commitment(s) and participations in the Loan under the Loan Agreement as specified in the Schedule. 2.2 The Existing Lender is released from all the obligations of the Existing Lender which correspond to that portion of the Existing Lender's Commitment(s) and participations in the Loan under the Loan Agreement specified in the Schedule. 2.3 The New Lender becomes a Party as a Lender and is bound by obligations equivalent to those from which the Existing Lender is released under paragraph (b). 3 The proposed Transfer Date is [ ]. 4 On the Transfer Date the New Lender becomes Party to the relevant Finance Documents as a Lender. 5 The Facility Office and address, fax number and attention details for notices of the New Lender for the purposes of Clause 30.2 (Addresses) of the Loan Agreement are set out in the Schedule. 6 The New Lender expressly acknowledges the limitations on the Existing Lender's obligations set out in Clause 23.4.3 (Limitation of responsibility of Existing Lenders) of the Loan Agreement. LONLIVE\30137956.24 Page 174

 
7 The New Lender confirms, for the benefit of the Agent and without liability to any Security Party, that it is: 7.1 [a Qualifying Lender (other than a Treaty Lender);] 7.2 [a Treaty Lender;] 7.3 [not a Qualifying Lender]. 8 [The New Lender confirms that the person beneficially entitled to interest payable to that Lender in respect of an advance under a Finance Document is either: 8.1 a company resident in the United Kingdom for United Kingdom tax · purposes; 8.2 a partnership each member of which is: 8.2.1 a company so resident in the United Kingdom; or 8.2.2 a company not so resident in the United Kingdom which carries on a trade in the United Kingdom through a permanent establishment and which brings into account in computing its chargeable profits (within the meaning of section 19 of the CTA) the whole of any share of interest payable in respect of that advance that falls to it by reason of Part 17 of the CTA; or 8.3 a company not so resident in the United Kingdom which carries on a trade in the United Kingdom through a permanent establishment and which brings into account interest payable in respect of that advance in computing the chargeable profits (within the meaning of section 19 of the CTA) of that company.] 9 [The New Lender confirms that it holds a passport under the HMRC DT Treaty Passport scheme (reference number [ ]) and is tax resident in [ ], so that interest payable to it by borrowers is generally subject to full exemption from UK withholding tax and hereby notifies the Borrowers that it wishes that scheme to apply to the Loan Agreement.] [9/10] This Agreement acts as notice to the Agent (on behalf of each Finance Party) and, upon delivery in accordance with Clause 23.7 (Copy of Transfer Certificate or Assignment Agreement to Borrowers), to the Borrowers (on behalf of each Security Party) of the assignment referred to in this Agreement. [10/11] This Agreement may be executed in any number of counterparts and this has the same effect as if the signatures on the counterparts were on a single copy of this Agreement. [11/12] This Agreement and any non-contractual obligations arising out of or in connection with it are in all respects governed by and shall be interpreted in accordance with English law. [12/13] This Agreement has been entered into on the date stated at the beginning of this Agreement. LONUVE\30137956.24 Page 175

 
Note: The execution of this Assignment Agreement may not transfer a proportionate share of the Existing Lender's interest in any Encumbrance created or expressed to be created or evidenced by the Security Documents in all jurisdictions. It is the responsibility of the New Lender to ascertain whether any other documents or other formalities are required to perfect a transfer of such a share in any jurisdiction and, if so, to arrange for execution of those documents and completion of those formalities. LONLIVE\30137956.24 Page 176

 
The Schedule Commitment/rights and obligations to be transferred by assignment, release and accession [insert relevant details] [Facility office address, fax number and attention details for notices and account details for payments] [Existing Lender] [New Lender] By: By: This Agreement is accepted as an Assignment Agreement for the purposes of the Loan Agreement by the Agent and the Transfer Date is confirmed as [ ]. Signature of this Agreement by the Agent constitutes confirmation by the Agent of receipt of notice of the assignment referred to in this Agreement, which notice the Agent receives on behalf of each Finance Party. China Development Bank By: LONLlVE\30137956.24 Page 177

 
Schedule 7 List of Assigned Documents The following documents in respect of each Vessel or each Borrower. 1 Supplemental construction agreement dated B July 2014 each made between (a) the relevant Borrower (as owner) and (b) the Charterer (as charterer). 2 Each Assignable Charter in respect of such Vessel. 3 Deed of guarantee dated B July 2014 and granted by (a) YLNG (as guarantor) in favour of (b) the relevant Borrower (as owner) (the "YLNG Guarantees"). 4 Charter undertaking dated B July 2014 and made between (a) the Owner (as owner), and (b) the Time Charterer (as charterer) (in the case of Vessel E and Vessel F only, as amended and restated on 27 January 2016 and 16 March 2016 respectively). 5 Yamal Sponsor Guarantees in relation to such Vessel. 6 Purchase option side letter dated B July 2014 and made between (a) the relevant Borrower (as owner), and (b) the Yamal Sponsor Guarantors (as charterer guarantors) (the "Purchase Option Side Letter"). 7 Cash waterfall side letter dated B July 2014 and made between (a) the relevant Borrower (as owner), and (b) the Charterer (as charterer). B Charter GTT side letter dated B July 2014 and made between (a) the relevant Borrower (as owner), and (b) the Charterer (as charterer). 9 Currency conversion letter dated 22 September 2016 and made between (a) each Borrower (each as an owner), and (b) the Charterer (as charterer) (the "Currency Conversion Letter"). 10 Management Agreement in respect of such Vessel. LONUVE\30137956.24 Page 178

 
Schedule 8 Form of Compliance Certificate To: China Development Bank as Agent From: [Borrowers][CLNG][TGP] Dated: Dear Sirs: [Insert names of Borrowers/CLNG/TGP] - US$1,6321000,000 Facility Agreement dated [Insert the date of the Facility Agreement] (the "Facility Agreement") 1. We refer to the Facility Agreement. This is a Compliance Certificate. Terms used in the Facility Agreement shall have the same meaning in this Compliance Certificate. 2. We confirm that: [Insert details of other covenants to be certified including] 3. [We confirm that no Default is continuing.] 4. We confirm that the most recent set of financial statements relating to us and delivered to you in accordance clause [19.1 of the Facility Agreement] fairly present our financial condition as at the date as at which those financial statements were drawn up. Signed: Authorised signatory of Authorised signatory of [Borrower/CLNG/TGP] [Borrower/CLNG/TGP] LONLIVE\30137956.24 Page 179

 
Signatures The Borrowers DSME Hull No. 2430 L.L.C. ) ) By: ) ) Address: c/o Teekay Shipping (Canada) Ltd ) Suite 2000, Bentall 5, 550 Burrard Street] ) Vancouver, B.C. ) David OsbOrne Canada, V6C 2K2 ) Attomey-in-Fact Fax no. : +1 604 681 3011 ) London EC2A 2HB Department/Officer: ) Renee Eng, Treasury Manager: ) and China LNG Shipping (Holdings) Limited ) Room 1904, 19/F, West Tower ) Shun Tak Centre ) 168- 200 Connaught Road Central ) Hong Kong ) Fax no: +852 2587 8371 ) Department/Officer: General Manager ) DSME Hull No. 2431 L.L.C. By: Address: cjo Teekay Shipping {Canada) Ltd ) Suite 2000, Bentall 5, 550 Burrard Street] ) Vancouver, B.C. ) Canada, V6C 2K2 ) oav\d Osborne Fax no.: + 1 604 681 3011 ) Attomey-\n-Fact Department/Officer: ) London EC2A 2HB Renee Eng, Treasury Manager: ) and China LNG Shipping (Holdings) Limited ) Room 1904, 19/F, West Tower ) Shun Tak Centre ) 168-200 Connaught Road Central ) Hong Kong ) Fax no: +852 2587 8371 ) Department/Officer: General Manager ) LONLIVE\30137956.24 Page 180

 
------------------------ DSME Hull No. 2433 L.L.C. ) ) By: ) ) Address: cjo Teekay Shipping (Canada) Ltd ) Suite 2000, Bentall 5, 550 Burrard Street] ) Vancouver, B.C. ) Canada, V6C 2K2 ) Fax no.: +1 604 681 3011 ) Department/Officer: ) Renee Eng, Treasury Manager: ) and China LNG Shipping (Holdings) Limited ) Room 1904, 19/F, West Tower ) Shun Tak Centre ) 168-200 Connaught Road Central ) Hong Kong ) Fax no: +852 2587 8371 ) Department/Officer: General Manager ) DSME Hull No. 2434 L.L.C. ) ) By: ) ) Address: c/o Teekay Shipping (Canada) Ltd ) Suite 2000, Bentall 5, 550 Burrard Street] ) Vancouver, B.C. ) Canada, V6C 2K2 ) Fax no.: +1 604 681 3011 ) David Osborne Department/Officer: ) Attorney-in-Fact Renee Eng, Treasury Manager: ) London EC2A 2HB and China LNG Shipping (Holdings) Limited ) Room 1904, 19/F, West Tower ) Shun Tak Centre ) 168-200 Connaught Road Central ) Hong Kong ) Fax no: +852 2587 8371 ) Department/Officer: General Manager ) LONUVE\30137956.24 Page 181

 
DSME Hull No. 2423 L.L.C. ) ) By: ) ) Address: c/o Teekay Shipping (Canada) Ltd ) ' DV{A~ Suite 2000, Bentall 5, 550 Burrard Street] ) Vancouver, B.C. ) David Osbornej Canada, V6C 2K2 ) Attorney-in-Fact Fax no.: + 1 604 681 3011 ) London EC2A 2HB Department/Officer: ) Renee Eng, Treasury Manager: ) and China LNG Shipping (Holdings) Limited ) Room 1904, 19/F, West Tower ) Shun Tak Centre ) 168-200 Connaught Road Central ) Hong Kong ) Fax no: +852 2587 8371 ) Department/Officer: General Manager ) DSME Hull No. 2425 L.L.C. ) ) By: ) ) Address: c/o Teekay Shipping (Canada) Ltd ) Suite 2000, Bentall 5, 550 Burrard Street] ) Vancouver, B.C. ) Canada, V6C 2K2 ) Fax no.: +1 604 681 3011 ) ·.~RJ((J;L Department/Officer: ) David Osborn& Renee Eng, Treasury Manager: ) Attorney-in-Fact . and London EC2A 21-1.&· China LNG Shipping (Holdings) Limited ) Room 1904, 19/F, West Tower ) Shun Tak Centre ) 168-200 Con naught Road Central ) Hong Kong ) Fax no: +852 2587 8371 ) Department/Officer: General Manager ) LONUVE\30137956.24 Page 182

 
The Arranger China Development Bank ) ) By: k fMwL( j ) Address: ) No. 1093 Shennan Zhong Road ) Futlan District, Shenzhen ) ·China ) Fax no.: +!!6"755,25987731 ) Departrhimt/Officer: Client Division r, ) COB SZ Branch ) Wu Hliide; Yi Lifu) Huang Xlngcheng ) Liu Yongyuan ) The Agent China Development Bank ) ) By: H pMvWrA. } } Address: } No. ~093 Shennan Zhong Road } Futlan District, ·sh·enzhem ) C~ina ) Eax no.: +86-755,25987731. } Dep_artme_nt/Offi~er: ~llent pivision I, ) CDB SZ Brilnth ) ~u Huide;Yi IJfu; Huang Xlngcheng ) Llu Yongyuan ) P_ag~ 183

 
The Security Agent China Development Bank ) ) ) ) Address: ) No. 1093 Shennan Zhong Road ) Futian District, Shenzhen ) China ) Fax no.: +86-755-25987731 ) Department/Officer: Client Division I, ) COB SZ Branch ) Wu Hulde; Yi Lifu; Huang Xingcheng ) Uu Yongyuan ) The Original Lenders China Development Bank ) ) ) The Swap Provider China Development Bank ) ) By: f--l,J '. ) ) Address: ) No. 1093 Shennan Zhong Road ) Futian District, Shenzhen ) China ) Fax no.: +86-755-25987731 ) Department/Officer: Client Division I, ) COB SZ Branch ) Wu Huide; Yi llfu; Huang Xlngcheng ) Llu Yongyuan ) LONUVE\30 137956.24 Page 184

 


EXHIBIT 8.1
LIST OF SUBSIDIARIES
The following is a list of Teekay LNG Partners L.P.’s subsidiaries as at December 31, 2018:
Name of subsidiary
State or Jurisdiction of Incorporation
Proportion of Ownership Interest
Teekay LNG Operating L.L.C.
Marshall Islands
100%
Teekay Nakilat Holdings Corporation
Marshall Islands
100%
Teekay Nakilat (III) Holdings Corporation
Marshall Islands
100%
Teekay LNG Bahrain Operations L.L.C.
Marshall Islands
100%
Teekay LNG Finance Corp.
Marshall Islands
100%
Teekay LNG Finco L.L.C.
Marshall Islands
100%
Teekay Luxembourg S.a.r.l.
Luxembourg
100%
Teekay LNG US GP L.L.C.
Marshall Islands
100%
Teekay Spain, S.L.
Spain
100%
Teekay II Iberia, S.L.
Spain
100%
Teekay Shipping Spain, S.L.
Spain
100%
Naviera Teekay Gas, S.L.
Spain
100%
Naviera Teekay Gas II, S.L.
Spain
100%
Naviera Teekay Gas III, S.L.
Spain
100%
Naviera Teekay Gas IV, S.L.
Spain
100%
Teekay Servicios Maritimos, S.L.
Spain
100%
Creole Spirit L.L.C.
Marshall Islands
100%
Oak Spirit L.L.C.
Marshall Islands
100%
DSME Hull No. 2411 L.L.C.
Marshall Islands
100%
DSME Hull No. 2461 L.L.C.
Marshall Islands
100%
H.H.I. Hull No. S856 L.L.C.
Marshall Islands
100%
H.H.I. Hull No. S857 L.L.C.
Marshall Islands
100%
African Spirit L.L.C.
Marshall Islands
100%
Asian Spirit L.L.C.
Marshall Islands
100%
European Spirit L.L.C.
Marshall Islands
100%
Alexander Spirit L.L.C.
Marshall Islands
100%
DSME Hull No. 2416 L.L.C.
Marshall Islands
99%
DSME Hull No. 2417 L.L.C.
Marshall Islands
99%
DMSE Option Vessel No.1 L.L.C.
Marshall Islands
99%
DMSE Option Vessel No.2 L.L.C.
Marshall Islands
99%
DMSE Option Vessel No.3 L.L.C.
Marshall Islands
99%
Arctic Spirit L.L.C.
Marshall Islands
99%
Polar Spirit L.L.C.
Marshall Islands
99%
Taizhou Hull No. WZL 0501 L.L.C.
Marshall Islands
99%
Taizhou Hull No. WZL 0502 L.L.C.
Marshall Islands
99%
Taizhou Hull No. WZL 0503 L.L.C.
Marshall Islands
99%
DHJS 2007-001 L.L.C.
Marshall Islands
99%
DHJS 2007-002 L.L.C.
Marshall Islands
99%
Zhonghua Hull No. 451 L.L.C.
Marshall Islands
99%
Wilforce L.L.C.
Marshall Islands
99%
Wilpride L.L.C.
Marshall Islands
99%
Teekay LNG Holdings L.P.
United States
99%
Teekay LNG Holdco L.L.C.
Marshall Islands
99%
Teekay Tangguh Borrower L.L.C.
Marshall Islands
99%
Teekay Tangguh Holdings Corporation
Marshall Islands
99%
Teekay Nakilat Corporation
Marshall Islands
70%
Al Areesh Inc.
Marshall Islands
70%
Al Daayen Inc.
Marshall Islands
70%
Al Marrouna Inc.
Marshall Islands
70%




Teekay Nakilat (II) Limited
United Kingdom
70%
Teekay Nakilat Replacement Purchaser L.L.C.
Marshall Islands
70%
Nakilat Holdco L.L.C.
Marshall Islands
70%
Al Areesh L.L.C.
Marshall Islands
70%
Al Daayen L.L.C.
Marshall Islands
70%
Al Marrouna L.L.C.
Marshall Islands
70%
Teekay BLT Corporation
Marshall Islands
69%
Tangguh Hiri Finance Limited
United Kingdom
69%
Tangguh Hiri Operating Limited
United Kingdom
69%
Tangguh Sago Finance Limited
United Kingdom
69%
Tangguh Sago Operating Limited
United Kingdom
69%
Teekay BLT Finance Corporation
Marshall Islands
69%
Teekay Gas Group Ltd.
Marshall Islands
100%
Teekay LNG Project Services L.L.C.
Marshall Islands
100%
Sonoma L.L.C.
Marshall Islands
99%
Teekay Multigas Pool L.L.C.
Marshall Islands
99%
SGPC 1 Pte. Ltd.
Singapore
99%
Teekay Multigas Malta Limited
Malta
99%
Teekay LNG Chartering L.L.C.
Marshall Islands
100%







EXHIBIT 12.1
CERTIFICATION
I, Mark Kremin, certify that:

1.
I have reviewed this Annual Report on Form 20-F of Teekay LNG Partners L.P. (the " Registrant" );
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4.
The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the board of directors of the Registrant’s general partner (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Dated: April 5, 2019
By:
 
/s/ Mark Kremin
 
 
 
Mark Kremin
 
 
 
President and Chief Executive Officer, Teekay Gas Group Ltd.






EXHIBIT 12.2
CERTIFICATION
I, Scott Gayton, certify that:

1.
I have reviewed this Annual Report on Form 20-F of Teekay LNG Partners L.P. (the " Registrant" );
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4.
The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the board of directors of the Registrant’s general partner (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Dated: April 5, 2019
By:
 
/s/ Scott Gayton
 
 
 
Scott Gayton
 
 
 
Chief Financial Officer, Teekay Gas Group Ltd.






EXHIBIT 13.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Teekay LNG Partners L.P. (the “ Partnership ” ) on Form 20-F for the year ended December 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “ Form 20-F ” ), the undersigned, who is carrying out the functions of chief executive officer for the Partnership pursuant to a Services Agreement, dated February 1, 2017, among the Partnership, Teekay LNG Operating L.L.C. and Teekay Gas Group Ltd., hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

(1)
The Form 20-F fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2)
The information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operations of the Partnership.
Dated: April 5, 2019

By:
/s/ Mark Kremin
 
 
Mark Kremin
 
 
President and Chief Executive Officer, Teekay Gas Group Ltd.
 





EXHIBIT 13.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Teekay LNG Partners L.P. (the “ Partnership ” ) on Form 20-F for the year ended December 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “ Form 20-F ” ), the undersigned, who is carrying out the functions of chief financial officer for the Partnership pursuant to a Services Agreement, dated February 1, 2017, among the Partnership, Teekay LNG Operating L.L.C. and Teekay Gas Group Ltd., hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

(1)
The Form 20-F fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2)
The information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operations of the Partnership.
Dated: April 5, 2019

By:
/s/ Scott Gayton
 
 
Scott Gayton
 
 
Chief Financial Officer, Teekay Gas Group Ltd.
 





EXHIBIT 15.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statement (No. 333-124647) on Form S-8; Registration Statements (Nos. 333-190783 and 333-225584) on Form F-3; and Registration Statement (No. 333-220967) on Form F-3ASR of Teekay LNG Partners L.P. (the “Partnership”) of our reports dated April 5, 2019, with respect to the consolidated balance sheets of the Partnership as of December 31, 2018 and 2017, and the related consolidated statements of income, comprehensive income, cash flows and changes in total equity for each of the years in the three‑year period ended December 31, 2018, and related notes, and the effectiveness of internal control over financial reporting as of December 31, 2018, which reports appear in the December 31, 2018 Annual Report on Form 20-F of the Partnership.
Our report refers to a change in accounting policies for revenue recognition as of January 1, 2018 due to the adoption of ASU 2014-09 - Revenue from Contracts with Customers , and the classification of restricted cash and final settlements on cross currency swap agreements on the statement of cash flows for 2018 and comparative periods due to the adoption of ASU 2016-18 - Statement of Cash Flows: Restricted Cash and ASU 2016-15 - Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments , respectively.

/s/ KPMG LLP
Chartered Professional Accountants
Vancouver, Canada
April 5, 2019