Teekay Corporation Reports First Quarter 2011 Results
Highlights
• First quarter 2011 cash flow from vessel operations of $136.4 million.
• First quarter 2011 adjusted net loss attributable to stockholders of Teekay of $27.9 million, or $0.39 per share (excluding
specific items which decreased GAAP net income by $1.8 million, or $0.02 per share).
• Completed sale of remaining 49 percent interest in Teekay Offshore Operating L.P. to Teekay Offshore Partners for
$390 million; Teekay Offshore increased cash distribution by 5.3 percent.
• Agreed to sell 33 percent interest in four Angola LNG carrier newbuildings to Teekay LNG Partners upon their
respective deliveries in 2011 and early 2012.
• Entered into joint venture agreement with Odebrecht to jointly pursue FPSO business in Brazil.
• Ordered newbuilding FPSO conditional on finalizing a long-term charter contract in the North Sea.
• Total consolidated liquidity of $2.2 billion as at March 31, 2011, of which $1.1 billion at Teekay Parent.
• As of May 11, 2011, 2.5 million ($82 million) of Teekay Corporation shares repurchased under existing $200 million
authorization (1.1 million shares or $38 million since February 23, 2011).
“During the first quarter and second quarter to date we have seen strong business development activity across all of our businesses, led by our offshore business,” commented Peter Evensen, Teekay Corporation’s President and Chief Executive Officer. “Based on the recent high pace of offshore project tendering and asset acquisition opportunities, we remain optimistic about the prospects of our offshore business and are actively pursuing several opportunities in the North Sea and Brazil offshore markets. Earlier this week, we signed a conditional contact with Samsung to construct a newbuilding FPSO, subject to finalizing an operating contract with a major oil and gas company for a new North Sea FPSO project. In Brazil, we recently entered into a joint venture agreement with Brazil-based Odebrecht to jointly pursue FPSO opportunities in the growing Brazilian offshore market.”
“We have also seen a pick-up in the global LNG trade with several new projects scheduled to come on-line in the next few years after a quiet period following the global financial crisis,” Mr. Evensen continued. “The devastating earthquake and tsunami in Japan has resulted in a renewed global focus on LNG and an increase in LNG carrier spot rates, which has helped us to secure new short-term charter contracts on our two smaller LNG carriers, the Arctic Spirit and Polar Spirit, at attractive rates. While all our other gas carriers are chartered-out on long-term fixed-rate contracts, we believe that a tighter LNG spot vessel supply-demand balance will lead to an increase in LNG contract opportunities.”
“Finally, in our conventional tanker business, we realized a slight improvement in average spot tanker rates in the first quarter compared to the previous quarter, due primarily to the short-term rate spikes that occurred in late February at the onset of the conflict in Libya. However, based on the projected tanker supply growth, we continue to expect that 2011 will be a challenging year for spot tanker rates. We believe that a period of weak spot tanker rates in the near-term will be a positive for the longer-term balance of tanker supply and demand. In anticipation of this near-term weakness, Teekay has reduced its spot tanker exposure significantly over the past two years and additional in-chartered vessels are scheduled to redeliver over the next 18 months, further reducing our spot tanker exposure and our cash flow breakeven level.”
Mr. Evensen added, “I am also pleased to note that we continue to return capital to shareholders, making steady progress under our share repurchase program. Since November 2010, we have repurchased over $82 million of our shares under our existing $200 million authorization, of which approximately $38 million has occurred since the end of February 2011.”
Recent Offshore Business Developments
Teekay recently entered into a joint venture agreement with Odebrecht Oil & Gas S.A. (a member of the Odebrecht group) to jointly pursue FPSO projects in Brazil. Teekay is currently working with Odebrecht on potential project opportunities and intends for Odebrecht to be a 50 percent partner in the Tiro Sidon FPSO project. Odebrecht is a well-established Brazilbased company that operates in the engineering and construction, petrochemical, bioenergy, energy, oil and gas, real estate and environmental engineering sectors, with over 120,000 employees and a presence in over 20 countries.
In addition, Teekay has signed a Letter of Intent with a major oil and gas company to provide a new harsh weather FPSO which will operate in the North Sea. Over the past several months, the Company has been involved in the front-end engineering and design (FEED) study for this project and is currently working torwards finalizing a contract with the customer. In connection with this project, Teekay recently signed a conditional contract with Samsung Heavy Industries (Samsung) to construct a newbuilding FPSO unit.
Teekay Offshore Partners L.P.
Teekay Offshore is an international provider of marine transportation, oil production and storage services to the offshore oil industry through its fleet of 36 shuttle tankers (including five chartered-in vessels and one committed newbuilding under construction), two floating, production, storage and offloading (FPSO) units, five floating storage and offtake (FSO) units and 11 conventional oil tankers. Teekay Offshore also has the right to participate in certain other FPSO and vessel opportunities. As at March 31, 2011, Teekay Parent owned a 36.9 percent interest in Teekay Offshore (including the 2 percent sole general partner interest).
Cash flow from vessel operations from Teekay Offshore increased to $92.0 million in the first quarter of 2011, from $89.1 million in the same period of the prior year. This increase was primarily due to the acquisition of the Amundsen Spirit, the Nansen Spirit and the Cidade de Rio das Ostras FPSO unit on October 1, 2010, and lower time-charter hire expenses resulting from the redelivery of two in-chartered vessels to their owners. This was partially offset by lower revenue resulting from fewer revenue days from vessels operating under contracts of affreightment and $3.9 million of restructuring charges incurred during the quarter in connection with the sale of a FSO unit and a redelivered vessel.
On March 8, 2011, Teekay Offshore acquired from Teekay the remaining 49 percent interest in Teekay Offshore Operating L.P. (OPCO) for $390 million. Teekay Offshore financed the acquisition through a combination of $175 million in cash (less $15 million in distributions made by OPCO to Teekay between December 31, 2010 and the date of acquisition), and the remainder in the form of the issuance of 7.6 million common units and associated General Partner interest to Teekay in a private placement.
For the first quarter of 2011, Teekay Offshore increased its quarterly distribution by 5.3 percent, to $0.50 per unit. As a result, the cash distribution received by Teekay Parent based on its common unit ownership and general partnership interest in Teekay Offshore totaled $13.4 million for the first quarter of 2011, as detailed in Appendix D to this release.
Teekay LNG Partners L.P.
Teekay LNG provides liquefied natural gas (LNG), liquefied petroleum gas (LPG) and crude oil marine transportation services under long-term, fixed-rate time-charter contracts with major energy and utility companies through its current fleet of 17 LNG carriers, two LPG carriers and 11 conventional tankers. In addition, Teekay LNG has agreed to acquire one newbuilding LPG carrier from a subsidiary of IM Skaugen (Skaugen) in 2011, two newbuilding LPG/Multigas carriers from Teekay Parent in 2011 and a 33 percent interest in four newbuilding LNG carriers from Teekay Parent in 2011 through early 2012, upon their respective delivery dates. Teekay Parent currently owns a 43.6 percent interest in Teekay LNG (including the 2 percent sole general partner interest).
Cash flow from vessel operations from Teekay LNG during the first quarter of 2011, increased to $67.1 million from $62.8 million in the same period of the prior year. This increase was primarily due to the acquisition of two Suezmax tankers and one Handymax tanker from Teekay in the first quarter of 2010 and fewer off-hire days in the first quarter of 2011 compared to the same period of the prior year, partially offset by the sale of the Dania Spirit LPG carrier in November 2010.
In March 2011, Teekay LNG agreed to acquire Teekay Parent’s 33 percent interest in four LNG newbuildings upon their respective delivery dates in 2011 and early 2012. The vessels will each be chartered-out to the Angola LNG Project, a consortium which includes subsidiaries of Chevron, Sonangol, BP, Total and ENI, for a period of 20 years concurrent with their respective deliveries.
In April 2011, Teekay LNG completed a public offering of 4.3 million common units, which provided net proceeds to the partnership of approximately $162 million (including 551,800 common units issued upon the partial exercise of the underwriter’s overallotment option and the general partner’s proportionate capital contribution). The net proceeds from the offering were used to repay a portion of the partnership’s revolving credit facilities, which may be redrawn in the future to fund the equity component of the partnership’s purchase of the 33 percent interest in the four Angola LNG carrier newbuildings, as well as fund potential acquisition opportunities.
For the first quarter of 2011, Teekay LNG’s quarterly distribution was $0.63 per unit. As a result, the cash distribution received by Teekay Parent based on its common unit ownership and general partnership interest in Teekay LNG totaled $19.1 million for the first quarter of 2011 as detailed in Appendix D to this release.
Teekay Tankers Ltd.
Teekay Tankers currently owns a fleet of nine Aframax tankers and six Suezmax tankers. In addition, Teekay Tankers owns a 50 percent interest in a VLCC newbuilding and has invested $115 million in 3-year first priority mortgage loans secured by two VLCC newbuildings which yield an average of 10 percent per annum. Nine of the 15 vessels are currently employed on fixed-rate time charters, generally ranging from one to three years in initial duration, with the remaining vessels trading in Teekay’s spot tanker pools. Based on the existing fleet employment profile, Teekay Tankers has fixed-rate coverage of approximately 60 percent for the remaining three quarters of fiscal 2011. Teekay Parent currently owns a 26.0 percent interest in Teekay Tankers (including 100 percent of the outstanding Class B common shares, which together with its current ownership of Class A common shares, provides Teekay voting control of Teekay Tankers).
Cash flow from vessel operations from Teekay Tankers increased to $18.9 million in the first quarter of 2011, from $16.1 million in the same period of the prior year, primarily due to an increase in Teekay Tankers’ average fleet size and the interest income from its investment in the VLCC mortgage loans. This was partially offset by lower average realized tanker rates for its time-charter and spot fleets during the first quarter of 2011, compared to the same period of the prior year. In February 2011, Teekay Tankers completed an equity offering of 9.9 million Class A common shares (including 1.3 million shares issued upon the full exercise of the underwriters’ overallotment option), raising net proceeds of approximately $107 million. Proceeds were used to repay amounts drawn under Teekay Tankers’ revolving credit facility, which may be redrawn to fund future vessel acquisitions.
On May 12, 2011, Teekay Tankers declared a first quarter 2010 dividend of $0.25 per share which will be paid on May 27, 2011 to all shareholders of record on May 20, 2011. As a result, based on its ownership of Teekay Tankers Class A and Class B shares, the dividend to be paid to Teekay Parent will total $4.0 million for the first quarter of 2011 as detailed in Appendix D to this release.
Teekay Parent
In addition to its equity ownership interests in Teekay Offshore, Teekay LNG and Teekay Tankers, Teekay Parent directly owns a substantial fleet of vessels. As at May 1, 2011, this included 17 conventional tankers and three FPSO units. In addition, Teekay Parent currently has under construction or conversion one FPSO unit, two Aframax shuttle tankers, two LPG/Multigas carriers, and a 33 percent interest in four newbuilding LNG carriers. In addition, as at May 1, 2011, Teekay Parent had 29 chartered-in conventional tankers (including nine vessels owned by its subsidiaries), two chartered-in LNG carriers owned by Teekay LNG and two chartered-in shuttle tankers owned by Teekay Offshore.
For the first quarter of 2011, Teekay Parent’s negative cash flow from vessel operations was $41.5 million, compared to positive cash flow from vessel operations of $35.7 million in the same period of the prior year. The decrease in cash flow is primarily due to the sale of vessels, including the Cidade de Rio das Ostras FPSO unit to Teekay Offshore in October 2010, two Suezmax tankers and one Handymax Product tanker to Teekay LNG in March 2010, three Suezmax tankers and two Aframax tankers to Teekay Tankers during 2010, a non-recurring $30 million retroactive component of revenue recognized in the first quarter of 2010 related to the signing of the Foinaven FPSO contract amendment, a one-time pension retirement payment to Teekay’s former President and Chief Executive Officer in the first quarter of 2011, and a decrease in average realized spot tanker rates for the first quarter of 2011 compared to the first quarter of 2010.
On February 22, 2011, Teekay Parent invested $70 million in a 3-year first priority mortgage loan secured by a 2011-built Very Large Crude Carrier (VLCC) owned by an Asia-based shipping company. The loan earns interest at a rate of 9 percent per annum.
On March 8, 2011, Teekay Parent sold its remaining 49 percent interest in OPCO to Teekay Offshore for a combination of $175 million in cash (less $15 million in distributions made by OPCO to Teekay between December 31, 2010 and the date of acquisition) and 7.6 million common units and associated General Partner interest in Teekay Offshore in a private placement. In March 2011, Teekay Parent agreed to sell its 33 percent interest in the four Angola newbuilding LNG carriers to Teekay LNG upon their respective deliveries in 2011 through early 2012.
In April 2011, Teekay Parent entered into short-term fixed-rate contracts for the Arctic Spirit and Polar Spirit, which are chartered-in from Teekay LNG. Initial contract durations are for six and four months, respectively, and the Arctic Spirit contract includes two one-year options to extend at the charterer’s option.
Tanker Market
While average crude tanker freight rates improved slightly in the first quarter of 2011, they remained generally weak due primarily to an oversupply of vessels relative to demand. Rising bunker costs throughout the course of the first quarter also had a negative impact on tanker earnings. However, a number of factors led to a gradual improvement in tanker rates during the course of the quarter. In the Atlantic, severe ice conditions in the Baltic coupled with disruption to Libyan oil supply as a result of political unrest, led to volatility in European crude tanker rates, particularly in February. The decline in Libyan production also prompted OPEC to increase crude oil production, adding to tanker tonne-mile demand. In the Pacific, the devastating earthquake in Japan on March 11th led to an increase in fuel and crude oil imports for power generation, which provided support to Pacific Aframax rates in March and April.
The world tanker fleet grew by 6.5 million deadweight tonnes (mdwt), or 1.4 percent, during the first quarter of 2011 compared to 5.2 mdwt, or 1.2 percent, in the same period last year. There has been a notable increase in charterer discrimination against first generation double-hull tankers with a small number of early 1990s-built vessels sold for scrap in the early part of this year. In combination with the current weakness in spot tanker rates, the rising trend in scrap steel prices may lead to an increase in scrapping later in 2011.
According to the International Energy Agency (IEA), global oil demand is expected to reach 89.4 million barrels per day (mb/d) in 2011, an increase of 1.4 mb/d, or 1.6 percent, from 2010 as global GDP is projected to grow by 4.4 percent in 2011. Growth in global oil demand in 2011 is expected to arise entirely from non-OECD countries, in particular China where oil demand grew by 10 percent year-on-year in the first quarter of 2011.
About Teekay
Teekay Corporation transports approximately 10 percent of the world’s seaborne oil, has built a significant presence in the liquefied natural gas shipping sector through its publicly-listed subsidiary, Teekay LNG Partners L.P. (NYSE: TGP), is further growing its operations in the offshore oil production, storage and transportation sector through its publicly-listed subsidiary, Teekay Offshore Partners L.P. (NYSE: TOO), and continues to expand its conventional tanker business through its publiclylisted subsidiary, Teekay Tankers Ltd. (NYSE: TNK). With a fleet of approximately 150 vessels, offices in 16 countries and approximately 6,400 seagoing and shore-based employees, Teekay provides a comprehensive set of marine services to the world’s leading oil and gas companies, helping them seamlessly link their upstream energy production to their downstream processing operations. Teekay’s reputation for safety, quality and innovation has earned it a position with its customers as The Marine Midstream Company.
Teekay’s common stock is listed on the New York Stock Exchange where it trades under the symbol “TK”.
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(1) Adjusted net income (loss) attributable to stockholders of Teekay is a non-GAAP financial measure. Please refer to Appendix A to this release for a reconciliation of this non-GAAP measure as used in this release to the most directly comparable financial measure under United States generally accepted accounting principles (GAAP).
(2) Net revenues represents revenues less voyage expenses, which comprise all expenses relating to certain voyages, including bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions. Net revenues is a non-GAAP financial measure used by certain investors to measure the financial performance of shipping companies. Please see the Company’s web site at www.teekay.com for a reconciliation of this non-GAAP measure as used in this release to the most directly comparable financial measure under GAAP.
Teekay Corporation