UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

TEEKAY LNG PARTNERS L.P.

(Exact name of Registrant as specified in its charter)

4^th Floor, Belvedere Building
69 Pitts Bay Road
Hamilton, HM 08 Bermuda
(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F þ Form 40- F o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1).

Yes o No þ

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7).

Yes o No þ

 

 

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES

REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009

INDEX

		PAGE
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Unaudited Consolidated Statements of Income (Loss) for the three months and nine months ended September 30, 2009 and 2008			3
Unaudited Consolidated Balance Sheets as at September 30, 2009 and December 31, 2008			4
Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008			5
Unaudited Consolidated Statement of Changes in Total Equity for the nine months ended September 30, 2009			6
Notes to the Unaudited Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3. Quantitative and Qualitative Disclosures about Market Risk			35
PART II: OTHER INFORMATION			37
SIGNATURES			43

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES (Note 1)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
		$				$				$				$
VOYAGE REVENUES (note 10)			79,783				77,514				235,580				225,411
OPERATING EXPENSES (note 10)
Voyage expenses			743				615				1,483				1,672
Vessel operating expenses			19,126				17,500				56,045				56,699
Depreciation and amortization			18,901				19,105				58,387				56,767
General and administrative			4,952				4,167				12,563				14,367
Restructuring charge (note 16)			393				—				3,053				—
Goodwill impairment (note 6)			—				3,648				—				3,648
Total operating expenses			44,115				45,035				131,531				133,153
Income from vessel operations			35,668				32,479				104,049				92,258
OTHER ITEMS
Interest expense (notes 5 and 8)			(13,396	)			(32,627	)			(46,630	)			(101,227	)
Interest income			3,375				14,711				10,858				45,678
Realized and unrealized loss on derivative instruments (note 11)			(33,882	)			(23,297	)			(41,476	)			(26,008	)
Foreign currency exchange (loss) gain (note 8)			(17,559	)			48,567				(19,510	)			14,647
Equity (loss) income			(2,499	)			278				11,507				(1,413	)
Other income (expense) — net (note 9)			61				207				239				1,211
Total other items			(63,900	)			7,839				(85,012	)			(67,112	)
Net (loss) income			(28,232	)			40,318				19,037				25,146
Non-controlling interest in net (loss) income			1,818				(5,571	)			22,700				(10,235	)
Dropdown Predecessor’s interest in net (loss) income			—				—				—				894
General Partner’s interest in net (loss) income			436				9,854				3,038				5,031
Limited partners’ interest in net (loss) income			(30,486	)			36,035				(6,701	)			29,456
Limited parnters’ interest in net (loss) income per (note 14):
• Common unit (basic and diluted)			(0.63	)			0.99				(0.16	)			0.37
• Subordinated unit (basic and diluted)			(0.63	)			0.99				(0.06	)			0.01
• Total unit (basic and diluted)			(0.63	)			0.99				(0.14	)			0.26
Weighted-average number of units outstanding:
• Common units (basic and diluted)			41,021,963				33,338,320				37,855,872				28,475,744
• Subordinated units (basic and diluted)			7,367,286				11,050,929				9,229,347				12,933,082
• Total units (basic and diluted)			48,389,249				44,389,249				47,085,219				41,408,826

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

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES (Note 1)

		As at				As at
		September 30,				December 31,
		2009				2008
		$				$
ASSETS
Current
Cash and cash equivalents			90,485				117,641
Restricted cash — current (note 5)			35,574				28,384
Accounts receivable			6,103				5,793
Prepaid expenses			8,795				5,329
Other current assets			2,336				7,266
Current portion of derivative assets (notes 2 and 11)			16,402				13,078
Current portion of net investments in direct financing leases (note 5)			11,855				—
Advances to affiliates (note 10h)			11,926				9,583
Total current assets			183,476				187,074
Restricted cash — long-term (note 5)			614,943				614,565
Vessels and equipment (note 8)
At cost, less accumulated depreciation of $147,623 (2008 — $121,233)			885,511				1,078,526
Vessels under capital leases, at cost, less accumulated depreciation of $130,412 (2008 — $106,975) (note 5)			908,040				928,795
Advances on newbuilding contracts (note 12)			56,421				200,557
Total vessels and equipment			1,849,972				2,207,878
Investment in and advances to joint venture (note 10f)			77,024				64,382
Net investments in direct financing leases (note 5)			407,394				—
Other assets			23,395				27,266
Derivative assets (notes 2 and 11)			55,574				154,248
Intangible assets — net (note 6)			134,958				141,805
Goodwill (note 6)			35,631				35,631
Total assets			3,382,367				3,432,849
LIABILITIES AND EQUITY
Current
Accounts payable (note 10a)			7,445				10,838
Accrued liabilities (note 10a)			33,175				24,071
Unearned revenue			14,165				9,705
Current portion of long-term debt (note 8)			66,558				76,801
Current obligations under capital lease (note 5)			44,739				147,616
Current portion of derivative liabilities (notes 2 and 11)			52,393				35,182
Advances from joint venture partners (note 7)			1,236				1,236
Advances from affiliates (note 10h)			99,387				73,064
Total current liabilities			319,098				378,513
Long-term debt (note 8)			1,340,462				1,305,810
Long-term obligations under capital lease (note 5)			779,626				669,725
Other long-term liabilities (note 5)			55,097				44,668
Derivative liabilities (notes 2 and 11)			130,853				225,420
Total liabilities			2,625,136				2,624,136
Commitments and contingencies (notes 5, 8, 11 and 12)
Equity
Non-controlling interest			6,510				2,862
Partners’ equity			750,721				805,851
Total equity			757,231				808,713
Total liabilities and total equity			3,382,367				3,432,849

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

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES (Note 1)

		Nine Months Ended
		September 30,
		2009				2008
		$				$
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
Net income			19,037				25,146
Non-cash items:
Unrealized loss on derivative instruments (note 11)			16,348				21,231
Depreciation and amortization			58,387				56,767
Goodwill impairment (note 6)			—				3,648
Foreign currency exchange loss (gain)			18,763				(14,252	)
Equity based compensation			277				276
Equity (income) loss			(11,507	)			1,413
Accrued interest and other — net			5,820				6,382
Change in non-cash working capital items related to operating activities			31,036				(428	)
Expenditures for drydocking			(5,456	)			(10,883	)
Net operating cash flow			132,705				89,300
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt			162,826				819,056
Debt issuance costs			—				(2,248	)
Scheduled repayments of long-term debt			(61,541	)			(32,184	)
Prepayments of long-term debt			(95,900	)			(321,000	)
Scheduled repayments of capital lease obligations and other long-term liabilities			(7,092	)			(6,766	)
Proceeds from follow-on offering net of offering costs of $3,305 (2008 — $6,179)			68,532				202,519
Advances to and from affiliates			17,954				3,974
Advances from joint venture partners			—				607
Decrease in restricted cash			1,390				2,032
Cash distributions paid			(85,196	)			(70,631	)
Excess of purchase price over the contributed basis of Teekay Nakilat (III) Holdings Corporation (note 10f)			—				(25,120	)
Excess of purchase price over the contributed basis of Teekay Tangguh Borrower LLC (note 10e)			(33,442	)			—
Distribution to Teekay Corporation for the purchase of Kenai LNG Carriers (note 10g)			—				(230,000	)
Equity distribution from Teekay Corporation			—				3,281
Net financing cash flow			(32,469	)			343,520
INVESTING ACTIVITIES
Advances to joint venture			(2,610	)			(262,721	)
Expenditures for vessels and equipment			(95,669	)			(115,020	)
Purchase of Teekay Nakilat (III) Holdings Corporation (note 10f)			—				(73,070	)
Purchase of Teekay Tangguh Borrower LLC (note 10e)			(35,646	)			—
Receipts from direct financing leases			6,533				—
Return of capital from Teekay BLT Corporation (note 10e)			—				(19,600	)
Receipt of Spanish re-investment tax credit (note 18)			—				5,431
Net investing cash flow			(127,392	)			(464,980	)
Decrease in cash and cash equivalents			(27,156	)			(32,160	)
Cash and cash equivalents, beginning of the period			117,641				91,891
Cash and cash equivalents, end of the period			90,485				59,731

Supplemental cash flow information (note 13)

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

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES (Note 1)

		TOTAL EQUITY
		Partners’ Equity																				Non-
																		General				controlling
		Common								Subordinated								Partner				Interest				Total
		Units				$				Units				$				$				$				$
Balance as at December 31, 2008			33,338				634,212				11,051				134,291				37,348				2,862				808,713
Net (loss) income and comprehensive (loss) income			—				(6,122	)			—				(579	)			3,038				22,700				19,037
Cash distributions			—				(63,668	)			—				(16,797	)			(4,731	)			—				(85,196	)
Proceeds from follow-on equity offering of units, net of offering costs of $3.3 million (note 3)			4,000				67,095				—				—				1,437				—				68,532
Equity based compensation			—				220				—				50				7				—				277
Conversion of subordinated units to common (note 14)			3,684				42,010				(3,684	)			(42,010	)			—				—				—
Loss on acquisition of interest rate swap (note 10k)			—				(1,278	)			—				(324	)			(36	)			—				(1,638	)
Purchase of Teekay Tangguh Borrower LLC from Teekay Corporation (notes 8 and 10e)			—				(22,777	)			—				(9,406	)			(1,259	)			(19,052	)			(52,494	)
Balance as at September 30, 2009			41,022				649,692				7,367				65,225				35,804				6,510				757,231

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

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES

1.		Basis of presentation
		The unaudited interim consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (or GAAP). These financial statements 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, the Dropdown Predecessor, as described below, and variable interest entities for which Teekay LNG Partners L.P. or its subsidiaries are the primary beneficiaries (see Note 12) (collectively, the Partnership). The preparation of 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 could differ from those estimates.
		Certain information and footnote disclosures required by GAAP for complete annual financial statements have been omitted and, therefore, these interim financial statements should be read in conjunction with the Partnership’s audited consolidated financial statements for the year ended December 31, 2008. In the opinion of management of Teekay GP L.L.C., the general partner of Teekay LNG Partners L.P. (or the General Partner), these interim consolidated financial statements reflect all adjustments, of a normal recurring nature, necessary to present fairly, in all material respects, the Partnership’s consolidated financial position, results of operations, and changes in total equity and cash flows for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of those for a full fiscal year. Significant intercompany balances and transactions have been eliminated upon consolidation. Certain of the comparative figures have been reclassified to conform to the presentation adopted in the current period.
		The Partnership has accounted for the acquisition of interests in vessels from Teekay Corporation as a transfer of a business between entities under common control. The method of accounting for such transfers is similar to the pooling of interests method of accounting. Under this method, the carrying amount of net assets recognized in the balance sheets of each combining entity are carried forward to the balance sheet of the combined entity, and no other assets or liabilities are recognized as a result of the combination. The excess of the proceeds paid, if any, by the Partnership over Teekay Corporation’s historical cost is accounted for as an equity distribution to Teekay Corporation. In addition, transfers of net assets between entities under common control are accounted for as if the transfer occurred from the date that the Partnership and the acquired vessels were both under the common control of Teekay Corporation and had begun operations. As a result, the Partnership’s financial statements prior to the date the interests in these vessels were actually acquired by the Partnership are retroactively adjusted to include the results of these vessels during the periods they were under common control of Teekay Corporation.
		On April 1, 2008, the Partnership acquired interests in two liquefied natural gas (or LNG) vessels (or the Kenai LNG Carriers) from Teekay Corporation and immediately chartered the vessels back to Teekay Corporation. These transactions were deemed to be business acquisitions between entities under common control. As a result, the Partnership’s statement of income and cash flows for the nine months ended September 30, 2008 reflect these two vessels, referred to herein as the Dropdown Predecessor, as if the Partnership had acquired them when each respective vessel began operations under the ownership of Teekay Corporation. The two Kenai LNG Carriers began operations under the ownership of Teekay Corporation on December 13 and 14, 2007, respectively. The effect of adjusting the Partnership’s financial statements to account for this common control exchange increased the Partnership’s net income by $0.9 million for the nine months ended September 30, 2008.
		The Partnership’s consolidated financial statements include the financial position, results of operations and cash flows of the Dropdown Predecessor. In the preparation of these consolidated financial statements, general and administrative expenses and interest expense were not identifiable as relating solely to the vessels. General and administrative expenses (consisting primarily of salaries and other employee related costs, office rent, legal and professional fees, and travel and entertainment) were allocated based on the Dropdown Predecessor’s proportionate share of Teekay Corporation’s total ship-operating (calendar) days for the period presented. In addition, if the Dropdown Predecessor was capitalized in part with non-interest bearing loans from Teekay Corporation and its subsidiaries, these intercompany loans were generally used to finance the acquisition of the vessels. Interest expense includes the allocation of interest to the Dropdown Predecessor from Teekay Corporation and its subsidiaries based upon the weighted-average outstanding balance of these intercompany loans and the weighted-average interest rate outstanding on Teekay Corporation’s loan facilities that were used to finance these intercompany loans. Management believes these allocations reasonably present the general and administrative expenses and interest expense of the Dropdown Predecessor.
		The Partnership evaluated events and transactions occurring after the balance sheet date and through the day the financial statements were issued. The date of issuance of the financial statements was December 7, 2009.
		Adoption of New Accounting Pronouncements
		In January 2009, the Partnership adopted an amendment to Financial Accounting Standards Board (FASB) ASC 805, Business Combinations. This amendment requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date. This amendment also requires the acquirer in a business combination achieved in stages to recognize the identifiable assets and liabilities, as well as the non-controlling interest in the acquiree, at the full fair values of the assets and liabilities as if they had occurred on the acquisition date. In addition, this amendment requires that all acquisition related costs be expensed as incurred, rather than capitalized as part of the purchase price, and those restructuring costs that an acquirer expected, but was not obligated to incur, be recognized separately from the business combination. The amendment applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Partnership’s adoption of this amendment did not have a material impact on the Partnership’s consolidated financial statements.

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)

		In January 2009, the Partnership adopted an amendment to FASB ASC 810, Consolidation, which requires us to make certain changes to the presentation of our financial statements. This amendment requires that non-controlling interests in subsidiaries held by parties other than the partners be identified, labeled and presented in the statement of financial position within equity, but separate from the partners’ equity. This amendment requires that the amount of consolidated net income (loss) attributable to the partners and to the non-controlling interest be clearly identified on the consolidated statements of income (loss). In addition, this amendment provides for consistency regarding changes in partners’ ownership including when a subsidiary is deconsolidated. Any retained non-controlling equity investment in the former subsidiary will be initially measured at fair value. Except for the presentation and disclosure provisions of this amendment, which were adopted retrospectively to the Partnership’s consolidated financial statements, this amendment was adopted prospectively.
		Consolidated net income attributable to the partners would have been different in the three and nine months ended September 30, 2009 had the amendment to FASB ASC 810 not been adopted. Losses attributable to the non-controlling interest that exceed the entities’ (Teekay Nakilat Corporation and Teekay BLT Corporation) equity capital would have been charged against the majority interest, as there was no obligation of the non-controlling interest to cover such losses. However, if future earnings do materialize, the majority interest should have been credited to the extent of such losses previously absorbed. Pro forma consolidated net income (loss) attributed to non-controlling interest and to the partners and pro forma income (loss) per unit had the amendment to FASB ASC 810 not been adopted are as follows:

		Three Months Ended				Nine Months Ended
		September 30, 2009				September 30, 2009
		$				$
Net (loss) income			(28,232	)			19,037
Pro forma non-controlling interest in net (loss) income			1,724				10,097
Pro forma partners’ interest in net (loss) income			(29,956	)			8,940
Pro forma net (loss) income per unit:
Common unit (basic and diluted)			(0.63	)			0.09
Subordinated unit (basic and diluted)			(0.63	)			0.24
Total unit (basic and diluted)			(0.63	)			0.12

		In January 2009, the Partnership adopted an amendment to FASB ASC 820 Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Non-financial assets and non-financial liabilities include all assets and liabilities other than those meeting the definition of a financial asset or financial liability. The Partnership’s adoption of this amendment did not have a material impact on the Partnership’s consolidated financial statements.
		In January 2009, the Partnership adopted an amendment to FASB ASC 815 Derivatives and Hedging, which requires expanded disclosures about a company’s derivative instruments and hedging activities, including increased qualitative, and credit-risk disclosures. See Note 11 of the notes to the consolidated financial statements.
		In January 2009, the Partnership adopted an amendment to FASB ASC 260, Earnings Per Share, which provides guidance on earnings-per-unit (or EPU) computations for all master limited partnerships (or MLPs) that distribute “available cash”, as defined in the respective partnership agreements, to limited partners, the general partner, and the holders of incentive distribution rights (or IDRs). MLPs will need to determine the amount of “available cash” at the end of the reporting period when calculating the period’s EPU. This amendment was applied retrospectively to all periods presented. See Note 14 of the notes to the consolidated financial statements.
		In January 2009, the Partnership adopted an amendment to FASB ASC 350, Intangibles — Goodwill and Other, which amends the factors that should be considered in developing renewal or extension of assumptions used to determine the useful life of a recognized intangible asset The adoption of the amendment did not have a material impact on the Partnership’s consolidated financial statements.
		In January 2009, the Partnership adopted an amendment to FASB ASC 323, Investments — Equity Method and Joint Ventures, which provides addresses the accounting for the acquisition of equity method investments, for changes in value and changes in ownership levels. The adoption of this amendment did not have a material impact on the Partnership’s consolidated financial statements.
		In April 2009, the Partnership adopted an amendment to FASB ASC 825, Financial Instruments, which requires disclosure of the fair value of financial instruments to be disclosed on a quarterly basis and that disclosures provide qualitative and quantitative information on fair value estimates for all financial instruments not measured on the balance sheet at fair value, when practicable, with the exception of certain financial instruments (see Note 2).
		In April 2009, the Partnership adopted an amendment to FASB ASC 855, Subsequent Events, which established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This amendment requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for selecting that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. This amendment is effective for interim and annual reporting periods ending after June 15, 2009. The adoption of this amendment did not have a material impact on the consolidated financial statements (see Note 19).

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)

		In June 2009, the FASB issued the FASB ASC effective for financial statements issued for interim and annual periods ending after September 15, 2009. The ASC identifies the source of GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (or SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date, the ASC superseded all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the ASC will become non-authoritative. The Partnership adopted the ASC on July 1, 2009 and incorporated it in the Partnership’s notes to the consolidated financial statements.
2.		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.
		Long-term debt — The fair values of the Partnership’s fixed-rate and variable-rate long-term debt are estimated using discounted cash flow analyses, based on rates currently available for debt with similar terms and remaining maturities.
		Advances to and from affiliates, joint venture partners and joint venture — The fair value of the Partnership’s advances to and from affiliates, joint venture partners and joint venture approximates their carrying amounts reported in the accompanying consolidated balance sheets.
		Interest rate swap agreements — The fair value of the Partnership’s interest rate swaps, used for economic hedging purposes, 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 and the current credit worthiness of both the Partnership and the swap counterparties.
		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 Toledo Spirit (see Note 10j). 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.
		The Partnership categorizes the fair value estimates by a 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:
		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 estimated fair value of the Partnership’s financial instruments and categorization using the fair value hierarchy is as follows:

						September 30, 2009								December 31, 2008
						Carrying				Fair				Carrying				Fair
		Fair Value				Amount				Value				Amount				Value
		Hierarchy				Asset				Asset				Asset				Asset
		Level				(Liability)				(Liability)				(Liability)				(Liability)
						$				$				$				$
Cash and cash equivalents and restricted cash			—				741,002				741,002				760,590				760,590
Advances to and from joint venture			—				1,400				1,400				(1,210	)			(1,210	)
Long-term debt (note 8)		Level 2					(1,407,020	)			(1,225,169	)			(1,382,611	)			(1,219,241	)
Advances to and from affiliates			—				(87,461	)			(87,461	)			(63,481	)			(63,481	)
Advances from joint venture partners (note 7)			—				(1,236	)			(1,236	)			(1,236	)			(1,236	)
Derivative instruments (note 11)
Interest rate swap agreements — assets (1)		Level 2					76,368				76,368				167,390				167,390
Interest rate swap agreements — liabilities (1)		Level 2					(180,609	)			(180,609	)			(243,448	)			(243,448	)
Other derivative		Level 3					(11,200	)			(11,200	)			(17,955	)			(17,955	)

The Partnership transacts all of its derivative instruments through financial institutions that are investment-grade rated at the time of the transaction and requires no collateral from these institutions.

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)

Changes in fair value during the nine months ended September 30, 2009 for assets and liabilities that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are as follows:

		Asset/(Liability)
		$
Fair value at December 31, 2008			(17,955	)
Total unrealized gains			6,755
Fair value at September 30, 2009			(11,200	)

The Partnership has determined that there are no non-financial assets or non-financial liabilities carried at fair value at September 30, 2009.

3.

Equity Offering

		On March 30, 2009, the Partnership completed a follow-on equity offering of 4.0 million common units at a price of $17.60 per unit, for gross proceeds of approximately $70.4 million. As a result of the offering, the Partnership raised gross equity proceeds of $71.8 million (including the General Partner’s 2% proportionate capital contribution). In the nine months ended September 30, 2009, the Partnership used the total net proceeds after deducting offering costs of $3.3 million from the equity offerings of approximately $68.5 million to prepay amounts outstanding on two of its revolving credit facilities.
4.		Segment Reporting
		The Partnership has two reportable segments: its liquefied gas segment and its Suezmax tanker segment. The Partnership’s liquefied gas segment consists of LNG and liquefied petroleum gas (or LPG) carriers subject to long-term, fixed-rate time-charters to international energy companies and Teekay Corporation (see Note 10g). As at September 30, 2009, the Partnership’s liquefied gas segment consisted of fifteen LNG carriers (including four LNG carriers that are accounted for under the equity method and two LPG carriers. The Partnership’s Suezmax tanker segment consists of eight 100%-owned Suezmax-class crude oil tankers operating on long-term, fixed-rate time-charter contracts to international energy companies. 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 audited consolidated financial statements for the year ended December 31, 2008.
		The following tables include results for these segments for the years presented in these financial statements.

		Three Months Ended September 30,
		2009												2008
		Liquefied				Suezmax								Liquefied				Suezmax
		Gas				Tanker								Gas				Tanker
		Segment				Segment				Total				Segment				Segment				Total
		$				$				$				$				$				$
Voyage revenues			61,894				17,889				79,783				57,668				19,846				77,514
Voyage expenses			465				278				743				189				426				615
Vessel operating expenses			12,760				6,366				19,126				10,776				6,724				17,500
Depreciation and amortization			13,989				4,912				18,901				14,310				4,795				19,105
General and administrative (1)			3,118				1,834				4,952				2,361				1,806				4,167
Restructuring charge			175				218				393				—				—				—
Goodwill impairment			—				—				—				—				3,648				3,648
Income from vessel operations			31,387				4,281				35,668				30,032				2,447				32,479

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)

		Nine Months Ended September 30,
		2009												2008
		Liquefied				Suezmax								Liquefied				Suezmax
		Gas				Tanker								Gas				Tanker
		Segment				Segment				Total				Segment				Segment				Total
		$				$				$				$				$				$
Voyage revenues			181,409				54,171				235,580				167,297				58,114				225,411
Voyage expenses			723				760				1,483				791				881				1,672
Vessel operating expenses			37,493				18,552				56,045				35,752				20,947				56,699
Depreciation and amortization			43,660				14,727				58,387				42,740				14,027				56,767
General and administrative (1)			7,650				4,913				12,563				7,871				6,496				14,367
Restructuring charge			1,357				1,696				3,053				—				—				—
Goodwill impairment			—				—				—				—				3,648				3,648
Income from vessel operations			90,526				13,523				104,049				80,143				12,115				92,258

A reconciliation of total segment assets to total assets presented in the consolidated balance sheets is as follows:

		September 30,				December 31,
		2009				2008
		$				$
Total assets of the liquefied gas segment			2,893,303				2,900,689
Total assets of the Suezmax tanker segment			381,345				396,131
Cash and cash equivalents			90,485				117,641
Accounts receivable, prepaid expenses and other current assets			17,234				18,388
Consolidated total assets			3,382,367				3,432,849

5.

Leases and Restricted Cash

Capital Lease Obligations

RasGas II LNG Carriers. As at September 30, 2009, the Partnership owned a 70% interest in Teekay Nakilat Corporation (or Teekay Nakilat), which is the lessee under 30-year capital lease arrangements relating to three LNG carriers (or the RasGas II LNG Carriers) that operate under time-charter contracts with Ras Laffan Liquefied Natural Gas Co. Limited (II), a joint venture between Qatar Petroleum and ExxonMobil RasGas Inc., a subsidiary of ExxonMobil Corporation. All amounts below relating to the RasGas II LNG Carriers capital leases include the Partnership’s joint venture partner’s 30% share.

Under the terms of the RasGas II LNG Carriers capital lease arrangements, the lessor claims tax depreciation on the capital expenditures it incurred to acquire these vessels. As is typical in these leasing arrangements, tax and change of law risks are assumed by the lessee. Lease payments under the lease arrangements are based on certain tax and financial assumptions at the commencement of the leases. If an assumption proves to be incorrect, the lessor is entitled to increase the lease payments to maintain its agreed after-tax margin. At inception of the leases the Partnership’s best estimate of the fair value of the guarantee liability was $18.6 million. During 2008 the Partnership agreed under the terms of its tax lease indemnification guarantee to increase its capital lease payments for the three LNG carriers to compensate the lessor for losses suffered as a result of changes in tax rates. The estimated increase in lease payments is approximately $8.1 million over the term of the lease, with a carrying value of $7.9 million as at September 30, 2009. The Partnership’s carrying amount of the remaining tax indemnification guarantee is $9.3 million. Both amounts are included as part of other long-term liabilities in the Partnership’s consolidated balance sheets. 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 2042. Although, there is no maximum potential amount of future payments, Teekay Nakilat may terminate the lease arrangements on a voluntary basis at any time. If the lease arrangements terminate, Teekay Nakilat will be required to pay termination sums to the lessor sufficient to repay the lessor’s investment in the vessels and to compensate it for the tax effect of the terminations, including recapture of any tax depreciation.

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)

At their inception, the weighted-average interest rate implicit in these leases was 5.2%. These capital leases are variable-rate capital leases. As at September 30, 2009, the commitments under these capital leases approximated $1,055.1 million, including imputed interest of $585.0 million, repayable as follows:

Year		Commitment
Remainder of 2009		$	6.0 million
2010		$	24.0 million
2011		$	24.0 million
2012		$	24.0 million
2013		$	24.0 million
Thereafter		$	953.1 million

Spanish-Flagged LNG Carrier. As at September 30, 2009, the Partnership was a party to a capital lease on one LNG carrier (the Madrid Spirit) which is structured as a “Spanish tax lease”. Under the terms of the Spanish tax lease for the Madrid Spirit, which includes the Partnership’s contractual right to full operation of the vessel pursuant to a bareboat charter, the Partnership will purchase the vessel at the end of the lease term in 2011. The purchase obligation has been fully funded with restricted cash deposits described below. At its inception, the interest rate implicit in the Spanish tax lease was 5.8%. As at September 30, 2009, the commitments under this capital lease, including the purchase obligation, approximated 117.4 million Euros ($171.8 million), including imputed interest of 10.2 million Euros ($14.9 million), repayable as follows:

Year		Commitment
Remainder of 2009		25.7 million Euros ($37.5 million)
2010		26.9 million Euros ($39.4 million)
2011		64.8 million Euros ($94.9 million)

Suezmax Tankers. As at September 30, 2009, the Partnership was a party to capital leases on five Suezmax tankers. Under the terms of the lease arrangements, which include the Partnership’s contractual right to full operation of the vessels pursuant to bareboat charters, the Partnership is required to purchase these vessels after the end of their respective lease terms for a fixed price. At the inception of these leases, the weighted-average interest rate implicit in these leases was 7.4%. These capital leases are variable-rate capital leases; however, any change in our lease payments resulting from changes in interest rates is offset by a corresponding change in the charter hire payments received by the Partnership. As at September 30, 2009, the remaining commitments under these capital leases, including the purchase obligations, approximated $227.6 million, including imputed interest of $30.2 million, repayable as follows:

Year		Commitment
Remainder of 2009		$	6.0 million
2010		$	23.7 million
2011		$	197.9 million

The Partnership’s capital leases do not contain financial or restrictive covenants other than those relating to operation and maintenance of the vessels.

Operating Lease Obligations

Teekay Tangguh Joint Venture. Effective August 10, 2009, the Partnership owns 99% of Teekay Tangguh Borrower LLC (or Teekay Tangguh), which in turn owns a 70% interest in Teekay BLT Corporation (or the Teekay Tangguh Joint Venture). Prior to the acquisition by the Partnership, Teekay Tangguh was considered a variable interest entity for the Partnership (see Notes 8 and 10e).

As at September 30, 2009, the Teekay Tangguh Joint Venture was a party to operating leases whereby it is the lessor and is leasing its two LNG carriers (or the Tangguh LNG Carriers) to a third party company (or Head Leases). The Teekay Tangguh Joint Venture is then leasing back the LNG carriers from the same third party company (or 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 third party company is entitled to increase the lease payments under the Sublease to maintain its agreed after-tax margin. The Teekay Tangguh Joint Venture’s carrying amount of this tax indemnification is $10.9 million and is included as part of other long-term liabilities in the accompanying 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 2034. 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 pay termination sums to the third party company sufficient to repay the third party company’s investment 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 Lease and the Sublease for each of the two Tangguh LNG Carriers commenced in November 2008 and March 2009, respectively.

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated

As at September 30, 2009, the total estimated future minimum rental payments to be received and paid under the lease contracts are as follows:

Year		Rental Receipts				Rental Payments
Remainder of 2009		$	7,226			$	6,268
2010		$	28,892			$	25,072
2011		$	28,875			$	25,072
2012		$	28,860			$	25,072
2013		$	28,843			$	25,072
Thereafter		$	332,563			$	382,458

Restricted Cash

Under the terms of the capital leases for the RasGas II LNG Carriers and the Spanish-flagged LNG carrier described above, the Partnership is required to have on deposit with financial institutions an amount of cash that, together with interest earned on the deposits, will equal the remaining amounts owing under the leases, including the obligations to purchase the Spanish-flagged LNG carrier at the end of the lease period. These cash deposits are restricted to being used for capital lease payments and have been fully funded primarily with term loans (see Note 8).

As at September 30, 2009 and December 31, 2008, the amount of restricted cash on deposit for the three RasGas II LNG Carriers was $480.4 million and $487.4 million, respectively. As at September 30, 2009 and December 31, 2008, the weighted-average interest rates earned on the deposits were 0.7% and 4.8%, respectively.

As at September 30, 2009 and December 31, 2008, the amount of restricted cash on deposit for the Spanish-Flagged LNG carrier was 108.6 million Euros ($159.1 million) and 104.7 million Euros ($146.2 million), respectively. As at September 30, 2009 and December 31, 2008, the weighted-average interest rates earned on these deposits were 5.0%.

The Partnership also maintains restricted cash deposits relating to certain term loans, which cash totaled 7.5 million Euros ($11.0 million) and 6.7 million Euros ($9.3 million) as at September 30, 2009 and December 31, 2008, respectively.

Net Investments in Direct Financing Leases

The Tangguh LNG Carriers commenced their time-charters with The Tangguh Production Sharing Contractors in January and May 2009, respectively. Both time-charters are accounted for as direct financing leases with 20 year terms and the following table lists the components of the net investments in direct financing leases:

		September 30,				December 31,
		2009				2008
		$				$
Total minimum lease payments to be received			749,390				—
Estimated residual value of leased property (unguaranteed)			194,497				—
Initial direct costs			628				—
Less unearned revenue			(525,266	)			—
Total			419,249				—
Less current portion			11,855				—
Total			407,394				—

As at September 30, 2009, minimum lease payments to be received by the Partnership under the Tangguh LNG Carrier leases in each of the next five succeeding fiscal years are approximately $9.8 million (remainder of 2009), $38.5 million (2010), $38.5 million (2011), $38.5 million (2012) and $38.5 million (2013). Both leases are scheduled to end in 2029.

6.

Intangible Assets and Goodwill

As at September 30, 2009 and December 31, 2008, intangible assets consisted of time-charter contracts with a weighted-average amortization period of 19.2 years.

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated

The carrying amount of intangible assets for the Partnership’s reportable segments is as follows:

		September 30, 2009												December 31, 2008
		Liquefied				Suezmax								Liquefied				Suezmax
		Gas				Tanker								Gas				Tanker
		Segment				Segment				Total				Segment				Segment				Total
		$				$				$				$				$				$
Gross carrying amount			179,813				2,739				182,552				179,813				2,739				182,552
Accumulated amortization			(45,673	)			(1,921	)			(47,594	)			(39,031	)			(1,716	)			(40,747	)
Net carrying amount			134,140				818				134,958				140,782				1,023				141,805

Amortization expense of intangible assets for the three and nine months ended September 30, 2009 and 2008 were $2.3 million, $6.8 million, $2.3 million and $6.8 million, respectively.

The carrying amount of goodwill as at September 30, 2009 and December 31, 2008 for the Partnership’s liquefied gas segment is $35.6 million. At September 30, 2008, the Partnership conducted an interim impairment review of its reporting units and it was determined that the fair value attributable to the Partnership’s Suezmax tanker segment was less than its carrying value. As a result, a goodwill impairment loss of $3.6 million was recognized in the Suezmax tanker reporting unit during the three and nine months ended September 30, 2008.

7.

Advances from Joint Venture Partners

		September 30,				December 31,
		2009				2008
		$				$
Advances from BLT LNG Tangguh Corporation (note 10e)			1,179				1,179
Advances from Qatar Gas Transport Company Ltd. (Nakilat)			57				57
			1,236				1,236

		Advances from joint venture partners are non-interest bearing, unsecured and have no fixed payment terms. The Partnership did not incur interest expense from the advances during the three and nine months ended September 30, 2009 and 2008.
8.		Long-Term Debt

		September 30,				December 31,
		2009				2008
		$				$
U.S. Dollar-denominated Revolving Credit Facilities due through 2018			218,000				215,000
U.S. Dollar-denominated Term Loans due through 2019			402,830				421,517
U.S. Dollar-denominated Term Loans due through 2021			345,179				314,606	(1)
U.S. Dollar-denominated Unsecured Loan			1,144				1,144	(1)
U.S. Dollar-denominated Unsecured Demand Loan			15,085				16,200
Euro-denominated Term Loans due through 2023			424,782				414,144
Total			1,407,020				1,382,611
Less current portion			66,558				37,355
Less current portion (variable interest entity)			—				39,446	(1)
Total			1,340,462				1,305,810

As at September 30, 2009, the Partnership had three long-term revolving credit facilities available, which, as at such date, provided for borrowings of up to $568.7 million, of which $350.7 million was undrawn. Interest payments are based on LIBOR plus margins. The amount available under the revolving credit facilities reduces by $10.5 million (remainder of 2009), $31.6 million (2010), $32.2 million (2011), $32.9 million (2012), $33.7 million (2013) and $427.8 million (thereafter). All the revolving credit facilities may be used by the Partnership to fund general partnership purposes and to fund cash distributions. The Partnership is required to repay all borrowings used to fund cash distributions within 12 months of their being drawn, from a source other than further borrowings. The revolving credit facilities are collateralized by first-priority mortgages granted on seven of the Partnership’s vessels, together with other related security, and include a guarantee from the Partnership or its subsidiaries of all outstanding amounts.

The Partnership has a U.S. Dollar-denominated term loan outstanding, which, as at September 30, 2009, totaled $402.8 million, of which $234.6 million bears interest at a fixed rate of 5.39% and requires quarterly payments. The remaining $168.2 million bears interest based on LIBOR plus a margin and will require bullet repayments of approximately $56.0 million per vessel due at maturity in 2018 and 2019. The term loan is collateralized by first-priority mortgages on three vessels, together with certain other related security and certain guarantees from the Partnership.

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated

The Partnership owns a 69% interest in the Teekay Tangguh Joint Venture. The Teekay Tangguh Joint Venture has a U.S. Dollar-denominated term loan outstanding, which, as at September 30, 2009, totaled $345.2 million and the margins ranged between 0.30% and 0.625%. Interest payments on the loan are based on LIBOR plus margins. Following delivery of the Tangguh LNG Carriers in November 2008 and March 2009, interest payments on one tranche under the loan facility are based on LIBOR plus 0.30%, while interest payments on the second tranche are based on LIBOR plus 0.625%. Commencing three months after delivery of each vessel, one tranche (total value of $324.5 million) reduces in quarterly payments while the other tranche (total value of up to $190.0 million) correspondingly is drawn up with a final $95.0 million bullet payment per vessel due twelve years and three months from each vessel delivery date. As at September 30, 2009, this loan facility is collateralized by first-priority mortgages on the vessels to which the loan relates, together with certain other security and is guaranteed by the Partnership.

The Partnership has a U.S. Dollar-denominated demand loan outstanding owing to Teekay Nakilat’s joint venture partner, which, as at September 30, 2009, totaled $15.1 million, including accrued interest. Interest payments on this loan, which are based on a fixed interest rate of 4.84%, commenced in February 2008. The loan is repayable on demand no earlier than February 27, 2027.

The Partnership has two Euro-denominated term loans outstanding, which as at September 30, 2009 totaled 290.1 million Euros ($424.8 million). These loans were used to make restricted cash deposits that fully fund payments under capital leases for the LNG carriers the Madrid Spirit and the Catalunya Spirit (see Note 5). Interest payments are based on EURIBOR plus a margin. The term loans have varying maturities through 2023 and monthly payments that reduce over time. The term loans are collateralized by first-priority mortgages on the vessels to which the loans relate, together with certain other related security and guarantees from one of the Partnership’s subsidiaries.

Subsequent to September 30, 2009, the Partnership entered into a new $122.0 million credit facility that will be secured by the Skaugen LPG Carriers and Skaugen Multigas Carriers. The facility amount is equal to the lower of $122.0 million and 60% of the purchase price of each vessel. The facility will mature, with respect to each vessel, seven years after each vessels’ first drawdown date. The Partnership expects to draw on this facility to repay a portion of the amount we borrowed to purchase the Skaugen LPG Carrier delivered in April 2009 and the Skaugen LPG Carrier that delivered in November 2009 (see Note 19). The Partnership will use the remaining available funds from the facility to assist in purchasing, or facilitate the purchase of, the third Skaugen LPG Carrier and the two Skaugen Multigas Carriers upon delivery of each vessel.

The weighted-average effective interest rate for the Partnership’s long-term debt outstanding at September 30, 2009 and December 31, 2008 were 1.7% and 3.6%, 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 11). At September 30, 2009, the margins on the Partnership’s long-term debt ranged from 0.3% to 0.8%.

All Euro-denominated term loans are revalued at the end of each period using the then-prevailing Euro/U.S. Dollar exchange rate. Due primarily to this revaluation, the Partnership recognized foreign exchange gains (losses) of ($17.6) million, $48.6 million, ($19.5) million and $14.6 million for the three and nine months ended September 30, 2009 and 2008, respectively.

The aggregate annual long-term debt principal repayments required for periods subsequent to September 30, 2009 are $17.7 million (remainder of 2009), $65.2 million (2010), $290.2 million (2011), $68.3 million (2012), $68.8 million (2013) and $896.8 million (thereafter).

Certain loan agreements require that minimum levels of tangible net worth and aggregate liquidity be maintained, provide for a maximum level of leverage, and require one of the Partnership’s subsidiaries to maintain restricted cash deposits. The Partnership’s ship-owning subsidiaries may not, among other things, pay dividends or distributions if the Partnership is in default under its term loans or revolving credit facilities.

9.

Other Income (Expense) — Net

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
		$				$				$				$
Income tax recovery			144				336				443				248
Miscellaneous (expense) income			(83	)			(129	)			(204	)			963
Other income (expense) — net			61				207				239				1,211

10.

Related Party Transactions

a) The Partnership and certain of its operating subsidiaries have entered into services agreements with certain subsidiaries of Teekay Corporation pursuant to which the Teekay Corporation subsidiaries provide the Partnership with administrative, crew training, advisory, technical and strategic consulting services. During the three and nine months ended September 30, 2009 and 2008, the Partnership incurred $2.5 million, $7.4 million, $1.9 million and $5.7 million, respectively, for these services. In addition, as a component of the services agreements, the Teekay Corporation subsidiaries provide the Partnership with all usual and customary crew management services in respect of its vessels. For the three and nine months ended September 30, 2009 and 2008, the Partnership incurred $8.0 million, $20.0 million, $4.7 million and $14.0 million, respectively, for crewing and manning costs, of which $2.2 million and $3.7 million was payable to the subsidiaries of Teekay Corporation as at September 30, 2009 and December 31, 2008, respectively, and is included as part of accounts payable and accrued liabilities in the Partnership’s consolidated balance sheets.

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated

On March 31, 2009, a subsidiary of Teekay Corporation paid $3.0 million to the Partnership for the right to provide certain ship management services to certain of the Partnership’s vessels. This amount is deferred and amortized on a straight-line basis until 2012.

During the nine months ended September 30, 2008, $0.5 million of general and administrative expenses attributable to the operations of the Kenai LNG Carriers was incurred by Teekay Corporation and has been allocated to the Partnership as part of the results of the Dropdown Predecessor.

During the nine months ended September 30, 2008, $3.1 million of interest expense attributable to the operations of the Kenai LNG Carriers was incurred by Teekay Corporation and has been allocated to the Partnership as part of the results of the Dropdown Predecessor.

b) The Partnership reimburses the General Partner for all expenses incurred by the General Partner or its affiliates that are necessary or appropriate for the conduct of the Partnership’s business. During the three and nine months ended September 30, 2009 and 2008, the Partnership incurred $0.4 million, $0.7 million, $0.2 million and $0.6 million, respectively, of these costs.

c) The Partnership was a party to an agreement with Teekay Corporation pursuant to which Teekay Corporation provided the Partnership with off-hire insurance for certain of its LNG carriers. During the three and nine months ended September 30, 2009 and 2008, the Partnership incurred $nil, $0.5 million, $0.6 million and $1.6 million, respectively, of these costs. The Partnership did not renew this off-hire insurance with Teekay Corporation, which expired during the second quarter of 2009. The Partnership currently obtains third-party off-hire insurance for certain of its LNG carriers.

d) In connection with the Partnership’s initial public offering in May 2005, the Partnership entered into an omnibus agreement with Teekay Corporation, the General Partner and other related parties governing, among other things, when the Partnership and Teekay Corporation may compete with each other and certain rights of first offer on LNG carriers and Suezmax tankers. In December 2006, the omnibus agreement was amended in connection with the initial public offering of Teekay Offshore Partners L.P. (or Teekay Offshore). As amended, the agreement governs, among other things, when the Partnership, Teekay Corporation and Teekay Offshore may compete with each other and certain rights of first offer on LNG carriers, oil tankers, shuttle tankers, floating storage and offtake units and floating production, storage and offloading units.

e) On November 1, 2006, the Partnership agreed to acquire from Teekay Corporation its 70% interest in the Teekay Tangguh Joint Venture, which owns the two Tangguh LNG Carriers and the related 20-year, fixed-rate time-charters to service the Tangguh LNG project in Indonesia. The customer under the charters for the Tangguh LNG Carriers is The Tangguh Production Sharing Contractors, a consortium led by BP Berau Ltd., a subsidiary of BP plc. The Partnership has operational responsibility for the vessels. The remaining 30% interest in the Teekay Tangguh Joint Venture is held by BLT LNG Tangguh Corporation, a subsidiary of PT Berlian Laju Tanker Tbk.

On August 10, 2009, the Partnership acquired 99% of Teekay Corporation’s 70% ownership interest in the Teekay Tangguh Joint Venture for a purchase price of $69.1 million (net of assumed debt). This transaction was concluded between two entities under common control and, thus, the assets acquired were recorded at historical book value. The excess of the purchase price over the book value of the assets was accounted for as an equity distribution to Teekay Corporation. The remaining 30% interest in the Teekay Tangguh Joint Venture is held by BLT LNG Tangguh Corporation. For the period November 1, 2006 to August 9, 2009, the Partnership consolidated Teekay Tangguh as it was considered a variable interest entity whereby the Partnership was the primary beneficiary (see Note 12).

During the nine months ended September 30, 2008, the Teekay Tangguh Joint Venture repaid $19.6 million of its contributed capital to one of its joint venture partners, Teekay Corporation. Another $8.4 million was repaid during the remainder of 2008 to the other joint venture partner BLT LNG Tangguh Corporation.

f) On November 1, 2006, the Partnership agreed to acquire from Teekay Corporation its 100% interest in Teekay Nakilat (III) Holdings Corporation (or Teekay Nakilat (III)) which in turn owns 40% of Teekay Nakilat (III) Corporation (or the RasGas 3 Joint Venture). RasGas 3 Joint Venture owns four LNG carriers (or the RasGas 3 LNG Carriers) and related 25-year, fixed-rate time-charters (with options to extend up to an additional 10 years) to service the expansion of a LNG project in Qatar. The customer is Ras Laffan Liquefied Natural Gas Co. Limited (3), a joint venture company between Qatar Petroleum and a subsidiary of ExxonMobil Corporation. The delivered cost of the four double-hulled RasGas 3 LNG Carriers of 217,000 cubic meters each was approximately $1.0 billion, excluding capitalized interest, of which the Partnership was responsible for 40% upon its acquisition of Teekay Corporation’s interest in the joint venture. The four vessels delivered between May and July 2008.

On May 6, 2008, the Partnership acquired Teekay Corporation’s 100% ownership interest in Teekay Nakilat (III) in exchange for a non-interest bearing and unsecured promissory note. The purchase price (net of assumed debt) of $110.2 million has been paid by the Partnership. This transaction was concluded between two entities under common control and, thus, the assets acquired were recorded at historical book value. The excess of the purchase price over the book value of the assets was accounted for as an equity distribution to Teekay Corporation. The remaining 60% interest in the RasGas 3 Joint Venture is held by QGTC Nakilat (1643-6) Holdings Corporation (or QGTC 3). The Partnership has operational responsibility for the vessels in this project, although QGTC 3 may assume operational responsibility beginning 10 years following delivery of the vessels. For the period November 1, 2006 to May 5, 2008, the Partnership consolidated Teekay Nakilat (III) as it was considered a variable interest entity whereby the Partnership was the primary beneficiary (see Note 12).

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated

On December 31, 2008 Teekay Nakilat (III) and QGTC 3 novated a term loan of such parties to the RasGas 3 Joint Venture relating to the RasGas 3 LNG Carries along with the related accrued interest and deferred debt issuance costs. As a result of this transaction the Partnership’s long-term debt and accrued liabilities have decreased by $871.3 million and other assets decreased by $4.1 million. This transaction was offset by a decrease in the Partnership’s advances to the RasGas 3 Joint Venture. Also on December 31, 2008, Teekay Nakilat (III) and QGTC 3 novated their interest rate swap agreements to the RasGas 3 Joint Venture for no consideration. As a result, the RasGas 3 Joint Venture assumed all the rights, liabilities and obligations of Teekay Nakilat (III) and QGTC 3 under the terms of the original term loan and the interest rate swap agreements.

g) In April 2008, the Partnership acquired the two 1993-built Kenai LNG Carriers from Teekay Corporation for $230.0 million. The Partnership financed the acquisition with borrowings under one of its revolving credit facilities. The Partnership chartered the vessels back to Teekay Corporation at a fixed rate for a period of ten years (plus options exercisable by Teekay Corporation to extend up to an additional fifteen years). During the three and nine months ended September 30, 2009 and 2008, the Partnership recognized revenues of $9.8 million, $29.9 million, $10.3 million and $19.4 million, respectively, from these charters. See Note 1 regarding the Dropdown Predecessor.

h) As at September 30, 2009 and December 31, 2008, non-interest bearing advances to affiliates totaled $11.9 million and $9.6 million, respectively, and non-interest bearing advances from affiliates totaled $99.4 million and $73.1 million, respectively. These advances are unsecured and have no fixed repayment terms.

i) In July 2008, Teekay Corporation signed contracts for the purchase from subsidiaries of I.M. Skaugen ASA (or Skaugen) of two technically advanced 12,000-cubic meter newbuilding Multigas ships (or the Skaugen Multigas Carriers) capable of carrying LNG, LPG or ethylene. The Partnership agreed to acquire these vessels from Teekay Corporation upon delivery. The vessels are expected to deliver in 2011 for a total cost of approximately $94 million. Each vessel is scheduled to commence service under 15-year fixed-rate charters to Skaugen.

j) The Partnership’s Suezmax tanker, the Toledo Spirit, which was delivered in July 2005, 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 remaining term of the time-charter contract is 16 years, although the charterer has the right to terminate the time-charter in July 2018. The Partnership has entered into an agreement with Teekay Corporation under which Teekay Corporation pays the Partnership any amounts payable to the charterer as a result of spot rates being below the fixed rate, and the Partnership pays Teekay Corporation any amounts payable to the Partnership as a result of spot rates being in excess of the fixed rate. The amounts payable to or receivable from Teekay Corporation are settled at the end of the year.

k) In June 2009, Teekay Corporation novated an interest rate swap, with a notional amount of $30.0 million, to the Partnership for no consideration. The transaction was concluded between related parties and thus the interest rate swap was recorded at its carrying value. The excess of the liabilities assumed over the consideration received amounting to $1.6 million was charged to equity.

11.

Derivative Instruments

The Partnership uses derivative instruments in accordance with its overall risk management policy. The Partnership has not designated these derivative instruments as hedges for accounting purposes.

At September 30, 2009, the fair value of the derivative liability relating to the agreement between the Partnership and Teekay Corporation for the Toledo Spirit time-charter contract was $11.2 million. Realized and unrealized gains (losses) relating to this agreement have been reflected in realized and unrealized gain (loss) on derivative instruments in the Partnership’s statements of income (loss). Unrealized gains of $0.7 million and unrealized losses of $11.3 million relating to this agreement for the three and nine months ended September 30, 2008, respectively, were reclassified from voyage revenues to realized and unrealized gain (loss) on derivative instruments for comparative purposes.

The Partnership enters into interest rate swaps which either exchange a receipt of floating interest for a payment of fixed interest or a payment of floating interest for a receipt of fixed interest to reduce the Partnership’s exposure to interest rate variability on its outstanding floating-rate debt and floating-rate restricted cash deposits. The Partnership has not, for accounting purposes, designated its interest rate swaps as cash flow hedges of its USD LIBOR denominated borrowings or restricted cash deposits. The unrealized net gain or loss on the Partnership’s interest rate swaps has been reported as realized and unrealized gain (loss) on derivative instruments in the consolidated statements of income (loss). The realized and unrealized gains (losses) of ($24.0) million and ($14.7) million relating to interest rate swaps for the three and nine months ended September 30, 2008, respectively, were reclassified from interest expense — ($44.0) million and ($40.5) million, respectively, and interest income — $20.0 million and $25.8 million, respectively, to realized and unrealized gain (loss) on derivative instruments for comparative purposes.

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated

The realized and unrealized gain (losses) relating to interest rate swaps and the Toledo Spirit time-charter derivative contract are as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
		$				$				$				$
Realized losses relating to:
Interest rate swaps			(10,491	)			(2,071	)			(25,128	)			(4,777	)
Unrealized gains (losses) relating to:
Interest rate swaps			(24,491	)			(21,918	)			(23,103	)			(9,953	)
Toledo Spirit time-charter derivative contract			1,100				692				6,755				(11,278	)
			(23,391	)			(21,226	)			(16,348	)			(21,231	)
Total realized and unrealized losses on derivative instruments			(33,882	)			(23,297	)			(41,476	)			(26,008	)

As at September 30, 2009, the Partnership was committed to the following interest rate swap agreements:

										Fair Value /				Weighted-
										Carrying Amount				Average				Fixed
		Interest				Principal				of Asset				Remaining				Interest
		Rate				Amount				(Liability)(5)				Term				Rate
		Index				$				$				(years)				(%)(1)
LIBOR-Based Debt:
U.S. Dollar-denominated interest rate swaps(2)		LIBOR					460,480				(62,138	)			27.3				4.9
U.S. Dollar-denominated interest rate swaps(2)		LIBOR					222,401				(48,940	)			9.5				6.2
U.S. Dollar-denominated interest rate swaps		LIBOR					30,000				(3,536	)			8.2				4.9
U.S. Dollar-denominated interest rate swaps		LIBOR					100,000				(16,336	)			7.3				5.3
U.S. Dollar-denominated interest rate swaps(3)		LIBOR					243,750				(35,395	)			19.3				5.2
LIBOR-Based Restricted Cash Deposit:
U.S. Dollar-denominated interest rate swaps(2)		LIBOR					474,567				76,368				27.3				4.8
EURIBOR-Based Debt:
Euro-denominated interest rate swaps(4)		EURIBOR					424,782				(14,264	)			14.7				3.8
							1,955,980				(104,241	)

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 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.

12.

Commitments and Contingencies

a) The Partnership consolidates certain variable interest entities (or VIEs). In general, a variable interest entity is a corporation, partnership, limited-liability company, trust or any other legal structure used to conduct activities or hold assets that either (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (2) has a group of equity owners that are unable to make significant decisions about its activities, or (3) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations. If a party with an ownership, contractual or other financial interest in the VIE (a variable interest holder) is obligated to absorb a majority of the risk of loss from the VIE’s activities, is entitled to receive a majority of the VIE’s residual returns (if no party absorbs a majority of the VIE’s losses), or both, then this party consolidates the VIE.

TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Cont’d)
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated

The Partnership consolidated Teekay Tangguh and Teekay Nakilat (III) in its consolidated financial statements effective November 1, 2006, as both entities became VIEs and the Partnership became their primary beneficiary on that date upon the Partnership’s agreement to acquire all of Teekay Corporation’s interests in these entities (see Notes 10e and 10f). The Partnership has also consolidated the Skaugen Multigas Carriers that it has agreed to acquire from Teekay Corporation as the Skaugen Multigas Carriers became VIEs and the Partnership became a primary beneficiary when Teekay Corporation purchased the newbuildings on July 28, 2008 (see Note 10i). Upon the Partnership’s acquisition of Teekay Nakilat (III) on May 6, 2008 and of Teekay Tangguh on August 10, 2009, Teekay Nakilat (III) and Teekay Tangguh were no longer VIEs. The assets and liabilities of the Skaugen Multigas Carriers are reflected in the Partnership’s financial statements at historical cost as the Partnership and the VIE are under common control.

The following table summarizes the balance sheet of Skaugen Multigas Carriers as at September 30, 2009 and the combined balance sheets of Teekay Tangguh and Skaugen Multigas Carriers as at December 31, 2008:

		September 30,				December 31,
		2009				2008
		$				$
ASSETS
Cash and cash equivalents			—				22,939
Other current assets			—				6,140
Vessels and equipment
At cost, less accumulated depreciation of $nil (2008 — $620)			—				208,841
Advances on newbuilding contracts			56,421				200,557
Total vessels and equipment			56,421				409,398
Other assets			—				7,449
Total assets			56,421				445,926
LIABILITIES AND EQUITY
Accounts payable			—				60
Accrued liabilities and other current liabilities (1)			—				26,495
Accrued liabilities and other current liabilities			—				24,135
Advances from affiliates and joint venture partner			56,421				50,391
Long-term debt (1)			—				113,611
Long-term debt			—				162,693
Other long-term liabilities			—				85,551
Total liabilities			56,421				462,936
Total equity			—				(17,010	)
Total liabilities and total equity			56,421				445,926