Teekay Corporation (Teekay or the Company) reported the Company’s results for the quarter ended March 31, 2018.
- Reported consolidated GAAP net loss attributable to shareholders of Teekay of $20.6 million, or $0.21 per share, and consolidated adjusted net loss attributable to shareholders of Teekay(1) of $18.3 million, or $0.19 per share, in the first quarter of 2018.
- Generated GAAP consolidated income from vessel operations of $18.5 million and consolidated total cash flow from vessel operations(1) of $168.4 million in the first quarter of 2018.
- Since the beginning of 2018, Teekay LNG has taken delivery of four LNG carriers, all on long-term charter contracts, and one mid-sized LPG carrier.
- Since the beginning of 2018, Teekay Offshore’s Petrojarl I FPSO and two remaining East Coast Canada shuttle tankers commenced their respective charter contracts.
- As of March 31, 2018, Teekay consolidated and Teekay Parent total liquidity of approximately $1 billion and $480 million, respectively.
These results include the Company’s two publicly-listed consolidated subsidiaries Teekay LNG Partners L.P. (Teekay LNG) and Teekay Tankers Ltd. (Teekay Tankers) and one equity-accounted investment in publicly-listed Teekay Offshore Partners L.P. (Teekay Offshore) (collectively, the Daughter Entities), and all remaining subsidiaries and equity-accounted investments of the Company.
|Three Months Ended|
|March 31,||December 31,||March 31,|
| (in thousands of U.S. dollars, except per
|TEEKAY CORPORATION CONSOLIDATED|
|GAAP FINANCIAL COMPARISON|
|Income from vessel operations||18,505||66,655||81,605|
|Equity income (loss)||27,117||(971||)||10,347|
|Net loss attributable to shareholders of Teekay||(20,555||)||(25,286||)||(45,256||)|
|Loss per share attributable to shareholders of Teekay||(0.21||)||(0.29||)||(0.53||)|
|NON-GAAP FINANCIAL COMPARISON|
|Total Cash Flow from Vessel Operations(CFVO)(1)(2)||168,364||183,586||274,976|
|Adjusted Net Loss attributable to shareholders of Teekay(1)||(18,324||)||(9,500||)||(35,671||)|
|Adjusted Loss per share attributable to shareholders of Teekay(1)||(0.19||)||(0.11||)||(0.41||)|
|NON-GAAP FINANCIAL COMPARISON|
|Teekay Parent Adjusted Cash Flow from Vessel Operations(1)||13,222||15,781||(8,609||)|
|Total Teekay Parent Free Cash Flow(1)||(3,212||)||(721||)||(20,971||)|
|(1)||These are non-GAAP financial measures. Please refer to “Definitions and Non-GAAP Financial Measures” and the Appendices to this release for definitions of these terms and reconciliations of these non-GAAP financial measures as used in this release to the most directly comparable financial measures under United States generally accepted accounting principles (GAAP).|
|(2)||Total cash flow from vessel operations has reduced in the first quarter of 2018 and the fourth quarter of 2017 primarily as a result of the deconsolidation of Teekay Offshore on September 25, 2017, which Teekay now accounts for using the equity method.|
“On a consolidated basis, Teekay’s financial results improved in the first quarter of 2018, compared to the same period of the prior year, primarily driven by higher cash flows from Teekay Parent’s directly-owned FPSO units that have upside exposure to oil prices and production, and the delivery and contract start-up of several growth projects across the group, partially offset by weaker crude tanker rates,” commented Kenneth Hvid, President and Chief Executive Officer.
“Having focused on the execution and financing of our sizeable Teekay Group project portfolio over the past two years, we are now starting to see these projects deliver and generate cash flow,” Mr. Hvid added. “We believe that our LNG and offshore businesses are at a positive inflection point and we remain encouraged by the improving fundamentals in our tanker business as we approach 2019.”
“In Teekay LNG, over the past seven months, we have taken delivery of seven LNG carriers, all on long-term charters,” commented Mr. Hvid. “We believe Teekay LNG is in the early innings of a multi-year cash flow ramp-up with an additional 11 LNG carriers and a regasification facility scheduled to start-up through early-2020, which we expect will also allow us to naturally delever our balance sheet. From a macro perspective, the long-term LNG fundamentals continue to be very strong, with anticipated LNG demand growth of approximately 25 percent by 2020 and approximately 70 percent by 2030.”
“In Teekay Offshore, with the recent start-up of the Petrojarl I FPSO and the third East Coast Canada shuttle tanker newbuilding, we have now completed all our near-term offshore growth projects, which we expect will also allow Teekay Offshore to naturally delever its balance sheet,” commented Mr. Hvid. “Looking ahead, Teekay Offshore has ordered four innovative LNG-powered shuttle tankers as part of its fleet renewal program to meet the needs of its North Sea customer base. From a macro perspective, global deepwater oil production is expected to grow by approximately 25 percent by 2025.”
“Teekay Tankers continues to take prudent steps to further strengthen its balance sheet and liquidity position, most recently signing a term sheet for a sale-leaseback financing, which is expected to increase its liquidity by approximately $36 million. In addition, Teekay Tankers eliminated its minimum quarterly dividend to preserve liquidity in this weak tanker market but maintained the variable portion of its dividend policy linked to earnings,” commented Mr. Hvid. “While tanker rates are expected to remain weak in the near-term, we are anticipating a gradual improvement in fleet utilization and tanker rates from late-2018. With significant operating leverage, we believe Teekay Tankers has considerable upside from a cash flow and valuation perspective as the tanker market strengthens.”
“At Teekay Parent, we are experiencing growing adjusted cash flow from vessel operations driven by recently renewed contracts on the Banff and Hummingbird Spirit FPSO units and the redelivery of our last in-chartered LNG carriers and conventional tankers,” commented Mr. Hvid. “Teekay Parent continues to strengthen its balance sheet with the equity and convertible bond offerings completed earlier this year and our remaining FPSO units now on better contracts, which opens up strategic options for these assets.”
Mr. Hvid added, “Overall, we believe the Teekay Group is well-positioned to benefit from a broad energy recovery.”
Summary of Results
Teekay Corporation Consolidated
The Company’s consolidated results during the quarter ended March 31, 2018, compared to the same period of the prior year, were positively impacted primarily by higher cash flows from the Banff and Hummingbird FPSO units due to the commencement of oil price-linked production tariffs in those charter contracts on August 1, 2017 and October 1, 2017, respectively, and higher income and cash flows from Teekay LNG as a result of the deliveries of 10 liquefied natural gas (LNG) and mid-sized liquefied petroleum gas (LPG) newbuilding carriers between February 2017 and February 2018.
These increases were partially offset primarily by lower income and cash flows in Teekay Tankers, as a result of lower average spot tanker rates and the expiry of time-charter out contracts for various vessels, which vessels have subsequently traded in the spot tanker market at lower average realized rates.
Teekay Parent Adjusted Cash Flow from Vessel Operations, which includes distributions and dividends paid to Teekay Parent from the Daughter Entities in the following quarter and cash flow attributable to assets directly-owned by, or chartered-in to, Teekay Parent, less Teekay Parent’s corporate general and administrative expenses, was $13.2 million for the quarter ended March 31, 2018 compared to negative $8.6 million for the same period of the prior year. This significant improvement was primarily due to higher revenues from the Banff and Hummingbird Spirit FPSO units due to contractual production tariffs linked to oil prices which commenced in the latter half of 2017, the commencement of charter contracts for the Polar Spirit and Arctic Spirit LNG carriers in the second and third quarters of 2017, respectively, which vessels were in-chartered from Teekay LNG until March 2018 and April 2018, respectively, and as a result of the adoption of the new revenue standard, the recognition of $2.0 million of additional annual incentive revenue related to the Foinaven FPSO which is normally recognized annually in the fourth quarter. These increases were partially offset by a reduction in cash distributions from Teekay Offshore as a result of the strategic partnership with Brookfield Business Partners L.P. together with its institutional partners (collectively, Brookfield) and the elimination of the minimum dividend payment from Teekay Tankers commencing with the first quarter of 2018 (the variable portion of Teekay Tankers’ dividend policy remains intact).
Total Teekay Parent Free Cash Flow, includes Teekay Parent Adjusted Cash Flow from Vessel Operations, less net interest expense and dry-dock expenditures, was negative $3.2 million during the first quarter of 2018, compared to negative $21.0 million for the same period of the prior year for the reasons mentioned above, and from no interest income earned for the three months ended March 31, 2018 on a $200 million loan to Teekay Offshore which Teekay Parent sold to Brookfield in the third quarter of 2017. Please refer to Appendix D of this release for additional information about Teekay Parent Free Cash Flow.
Summary Results of Daughter Entities
Teekay LNG’s results increased during the quarter ended March 31, 2018, compared to the same quarter of the prior year, primarily due to the delivery of 10 LNG and mid-sized LPG newbuilding carriers between February 2017 and February 2018 and the commencement of short-term charter contracts for certain of the vessels in Teekay LNG’s 52 percent-owned joint venture with Marubeni Corporation. These increases were partially offset by the sale of a conventional tanker and an LPG carrier in the first quarter of 2018, lower rates earned in 2018 on two conventional tankers upon the expiration of their fixed-rate charter contracts in 2017, and lower rates earned in 2018 on six LPG carriers upon the termination of their previous charter contracts. Please refer to Teekay LNG’s first quarter 2018 earnings release for additional information on the financial results for this entity.
Teekay Tankers’ results decreased during the quarter ended March 31, 2018, compared to the same period of the prior year, primarily due to lower average spot tanker rates and the expiry of time-charter out contracts for various vessels, which have subsequently traded on spot voyages at lower average realized rates in the first quarter of 2018 compared to the same period of the prior year. Please refer to Teekay Tankers’ first quarter 2018 earnings release for additional information on the financial results for this entity.
Teekay Offshore’s results increased during the quarter ended March 31, 2018, compared to the same period of the prior year, primarily due to the contract start-up of the Randgrid FSO, the Pioneiro de Libra FPSO and the Beothuk Spirit and Norse Spirit shuttle tankers in the fourth quarter of 2017 and first quarter of 2018. These increases were offset by lower earnings from the Teekay Offshore’s towage fleet reflecting the challenging towage markets and non-recurring repair and maintenance expenses in the first quarter of 2018 relating to two redelivered shuttle tankers. Please refer to Teekay Offshore’s first quarter 2018 earnings release for additional information on the financial results for this entity.
Summary of Recent Events
Growth Projects Update
In January 2018, Teekay LNG’s 50 percent-owned joint venture with China LNG Shipping (Holdings) Limited (China LNG) took delivery of its first ARC7 LNG carrier newbuilding, the Eduard Toll, which immediately commenced its 28-year charter contract with Yamal LNG project.
In January 2018, Teekay LNG’s 30 percent-owned joint venture with China LNG and CETS (an affiliate of China National Offshore Oil Corporation (CNOOC)) took delivery of one LNG carrier newbuilding, the Pan Americas, which immediately commenced its 20-year charter contract with Royal Dutch Shell (Shell).
In February and May 2018, Teekay LNG took delivery of two M-Type, Electronically Controlled, Gas Injection (MEGI) LNG carrier newbuildings, the Magdala and Myrina, both of which immediately commenced their respective charter contracts with Shell ranging between six and eight years in duration, plus extension options.
In March 2018, Teekay LNG’s 50 percent-owned joint venture with Exmar NV (the Exmar LPG Joint Venture) took delivery of its seventh mid-size LPG carrier newbuilding, the Kapellen, which is currently trading in the spot market.
In March 2018, upon the scheduled redelivery from Teekay, Teekay LNG re-chartered the Polar Spirit to an Asian-based energy company for a period of approximately three months and then subsequently secured forward employment beginning in July 2018 for nine months with a subsidiary of Petroliam Nasional Berhad (Petronas). In addition, Teekay LNG secured a four-year charter contract for the Arctic Spirit, also with a subsidiary of Petronas, which commenced immediately upon redelivery from Teekay in May 2018.
In May 2018, Teekay LNG agreed to a six-month charter extension of the Torben Spirit MEGI LNG carrier to a major energy company out to December 2018.
Teekay Nakilat Capital Lease
Teekay LNG owns a 70 percent interest in Teekay Nakilat Corporation (the Teekay Nakilat Joint Venture), which wholly owns a subsidiary which was the lessee under three separate 30-year capital lease arrangements for three LNG carriers (the RasGas II LNG Carriers). Under the terms of these leases, the lessor claimed tax depreciation on the capital expenditures incurred to acquire these vessels and paid the lessee an upfront benefit in the amount of $60.9 million at the lease inception. As is typical in these leasing arrangements, tax and change of law risks were assumed by the lessee, in this case the Teekay Nakilat Joint Venture. Lease payments under the lease arrangements were based on certain tax and financial assumptions at the commencement of the leases in 2006 and subsequently adjusted to maintain the lessor’s agreed after-tax margin. On December 22, 2014, the Teekay Nakilat Joint Venture terminated the leases of the RasGas II LNG Carriers; however, it remained obligated to the lessor for changes in tax treatment.
The UK taxing authority (HMRC) has challenged the use by third parties of similar lease structures in the UK courts. One of those challenges was eventually decided in favor of HMRC, with the lessor and lessee choosing not to appeal further. This case concluded that capital allowances are not available to lessors. On the basis of this conclusion, HMRC is now asking lessees on other leases, including the Teekay Nakilat Joint Venture, to accept that capital allowances are not available to their lessors. Under the terms of the lease, the lessor is entitled to make a determination that additional rentals are due, even where a court has not made a determination on whether capital allowances are available or where discussions are otherwise ongoing with HMRC on the matter (such that additional rental paid may be rebated in due course if the final tax position is not as determined by the lessor). The Teekay Nakilat Joint Venture received initial indications from the lessor in April 2018, which were confirmed on May 10, 2018, that the lessor made a determination that additional rentals are due under the leases. As a result, the Teekay Nakilat Joint Venture has recognized an additional tax indemnification guarantee of $53.0 million for a total liability of $65.6 million (46.9 million GBP) as at March 31, 2018, of which $3.0 million and $50.0 million is included in Teekay Corporation’s results for the three months ended March 31, 2018 and December 31, 2017, respectively. The Teekay Nakilat Joint Venture is in discussions with HMRC in relation to the correct tax treatment to be applied to the leases and with the lessor regarding the timing and amount of this potential liability for additional rentals.
In May 2018, Teekay LNG refinanced an outstanding debt facility of $58 million maturing in 2018 and secured by five mid-sized LPG carriers with a new $90 million long-term debt facility maturing in 2024 and secured by seven mid-sized LPG carriers.
Maintaining Balance Sheet Strength
In April 2018, Teekay Tankers signed a term sheet for a sale-leaseback financing transaction relating to seven modern conventional tankers, including three Suezmax tankers, two Aframax tankers and two LR2 product tankers. The transaction is structured as 10- to 12-year bareboat charters at an average rate of approximately $7,200 per day with attractive purchase options for all seven vessels throughout the lease term after year three. Upon expected completion, the sale-leaseback transaction will provide funds to refinance Teekay Tankers’ only 2018 balloon debt maturity and is expected to increase Teekay Tankers’ liquidity by approximately $36 million.
In addition, in May 2018, Teekay Tankers eliminated its minimum quarterly dividend of $0.03 per share with the variable portion of Teekay Tankers’ dividend remaining intact, which is based on paying out 30 to 50 percent of its adjusted net income.
In the first quarter of 2018, Teekay Tankers secured time charter-in contracts for two Aframax vessels, with an average rate of approximately $11,900 per day, and firm periods of 45 days to six months. One of the contracts includes a 50/50 profit sharing agreement with the option to extend for six months at a higher rate and the other contract has a maximum period of approximately four months and will be used to support Teekay Tankers’ full service lightering operations.
Growth Projects Update
In May 2018, the Petrojarl I FPSO successfully achieved first oil and commenced its five-year charter contract with a consortium led by Queiroz Galvão Exploração e Produção SA (QGEP) on the Atlanta oil field, which is the Petrojarl I FPSO’s tenth field over its lifetime. The Petrojarl I FPSO is expected to generate annualized cash flow from vessel operations of approximately $25 million(1) for the first 18 months, increasing to annualized cash flow from vessel operations of approximately $55 million(1) during the remaining 42 months of the charter contract, plus additional potential upside from oil price tariffs.
In late-2017 and March 2018, Teekay Offshore took delivery of its last two of three East Coast of Canada shuttle tanker newbuildings, the Norse Spirit and Dorset Spirit, which commenced their respective long-term charter contracts in January and May 2018, respectively, with a group of companies that includes Canada Hibernia Holding Corporation, Chevron Canada, Exxon Mobil, Husky Energy, Mosbacher Operating Ltd., Murphy Oil, Nalcor Energy, Statoil and Suncor Energy. The Norse Spirit and Dorset Spirit replaced existing owned and in-chartered vessels servicing the East Coast of Canada, both of which have been repositioned to the North Sea to operate in the Partnership’s contract of affreightment (CoA) portfolio.
In February 2018, Teekay Offshore took delivery of the last of four state-of-the-art SX-157 Ulstein Design ultra-long distance towing and offshore installation newbuildings, the ALP Keeper, constructed by Niigata Shipbuilding & Repair in Japan.
Recontracting of FPSO units
In April 2018, Teekay Offshore signed the previously-announced contract extension with Premier Oil to extend the employment of the Voyageur Spirit FPSO on the Huntington field to at least April 2019. The new contract, which took effect in April 2018, will include a lower fixed charter rate component plus a component based on oil production and oil price.
ALP Contract Award
In February 2018, ALP Maritime, Teekay Offshore’s towage subsidiary, was awarded a contract to provide five vessels to perform mobilization and field installation services for the FPSO Kaombo Norte. The contract commenced in mid-March 2018 and is expected to require approximately 330 vessel equivalent days to service the project.
In March 2018, Teekay Offshore refinanced its existing $250 million debt facility secured by its three East Coast Canada shuttle tankers with a new five-year $266 million debt facility.
In March 2018, Teekay Offshore entered into an 18-month $125 million unsecured revolving credit facility, of which $25 million is being provided by Teekay Parent and $100 million is being provided by Brookfield. The $125 million facility was undrawn as at March 31, 2018.
Teekay Offshore has reached an agreement in principle with the lenders of the Arendal Spirit UMS debt facility to extend the mandatory principal repayment date by one year to September 2019 in exchange for a partial principal repayment in September 2018.
(1) Excludes the impact of any potential liquidated damages relating to project delays and non-cash revenues.
As at March 31, 2018, Teekay Parent had total liquidity of approximately $478.8 million (consisting of $244.2 million of cash and cash equivalents and $234.6 million of undrawn revolving credit facilities) and, on a consolidated basis, Teekay had consolidated total liquidity (excluding Teekay Offshore) of approximately $1.0 billion (consisting of $489.2 million of cash and cash equivalents and $553.7 million of undrawn revolving credit facilities).