Teekay Corporation reported results for the fourth quarter and year ended December 31, 2020.
These results include the Company’s two publicly-listed consolidated subsidiaries, Teekay LNG Partners L.P. (Teekay LNG) (NYSE:TGP) and Teekay Tankers Ltd. (Teekay Tankers) (NYSE:TNK), and all remaining subsidiaries and equity-accounted investments.
“In the fourth quarter of 2020, we recorded another consolidated adjusted profit with Teekay Parent and Teekay LNG reporting stronger adjusted results, while Teekay Tankers’ results reflected the recent weakness in the tanker market,” commented Kenneth Hvid, Teekay’s President and CEO. “Despite an unprecedented year marked by continuous volatility across energy markets, our gas business reported its highest ever adjusted net income in 2020, supported by the stable cash flows from its diversified portfolio of long-term contracts, and our tanker business reported its best year ever from a free cash flow perspective, as its spot exposure enabled it to benefit from an extraordinary surge of demand for tankers in the first half of 2020. In 2020, we reported consolidated adjusted net income of $83 million, or $0.82 per share, compared to the prior year’s adjusted net loss of $19 million, or $0.19 per share, and we increased our total adjusted EBITDA to $1.1 billion, up nearly 15 percent over the prior year.”
“We also continued to prioritize balance sheet strength and made significant progress in that effort,” continued Mr. Hvid. “In 2020, we reduced our consolidated net debt by approximately $890 million(1), or over 20 percent, and increased our consolidated total liquidity position to $1.0 billion as of year end.”
Mr. Hvid added, “Teekay LNG announced today that it plans to increase its common unit distributions by 15 percent, to $1.15 per common unit per annum, commencing with the first quarter’s distribution to be paid in May 2021. This increase will add to Teekay Parent’s free cash flows and represents the third consecutive year of double-digit increases in Teekay LNG’s distribution to common unitholders. Importantly, given Teekay LNG’s strong earnings and industry-leading backlog of long-term contracts, we believe the increased distribution is well-covered, which allows Teekay LNG to provide an attractive distribution to investors while continuing to delever its balance sheet.”
Mr. Hvid concluded, “All of the accomplishments during the past year would not have been possible without the dedication and perseverance of all our seafarers and onshore colleagues as we have so far successfully navigated through the unique challenges of the COVID-19 pandemic.”
(1) Including the proceeds from asset sales and the upfront amount received in April 2020 in relation to the new Foinaven FPSO charter contract.
Summary of Results
Teekay Corporation Consolidated
The Company’s consolidated results during the fourth quarter of 2020 decreased compared to the same period of the prior year, primarily due to lower earnings from Teekay Tankers as a result of lower average spot tanker rates and a higher number of scheduled drydockings during the fourth quarter of 2020, as well as the cessation of production of the Petrojarl Banff (Banff) FPSO unit in June 2020 due to the decommissioning of the Banff oil field. These decreases were partially offset by higher earnings from Teekay LNG due to the delivery of newbuildings and lower interest expense across Teekay due to both debt reduction over the past year and lower interest rates.
In addition, consolidated GAAP net loss during the fourth quarter of 2020, compared to the same period of the prior year, was impacted by an increase in asset write-downs and an increase in freight tax accruals, including adjustments relating to prior periods (as discussed in the Summary Results for Daughter Entities section).
Total Teekay Parent Free Cash Flow(1) was $0.4 million during the fourth quarter of 2020, compared to $4.9 million for the same period of the prior year, primarily due to the decommissioning of the Banff oil field beginning in June 2020 and the associated decommissioning costs incurred during the fourth quarter of 2020, as well as lower cash flows from third-party management services. These items were partially offset by higher distributions received from Teekay LNG as a result of Teekay LNG’s 32 percent increase in its quarterly cash distributions commencing in May 2020 and the newly-issued Teekay LNG common units Teekay Parent received as consideration for the Teekay LNG incentive distribution rights (IDR) transaction completed in May 2020, the elimination of the operating losses on the Foinaven FPSO unit as a result of the commencement of the new bareboat contract in the first quarter of 2020, and lower interest and corporate general and administrative expenses in the fourth quarter of 2020.
Please refer to Appendix D of this release for additional information about Teekay Parent’s Free Cash Flow(1).
(1) This is a non-GAAP financial measure. Please refer to “Definitions and Non-GAAP Financial Measures” and the Appendices to this release for a definition of this term and a reconciliation of this non-GAAP financial measure as used in this release to the most directly comparable financial measures under GAAP.
Summary Results of Daughter Entities
Teekay LNG’s GAAP net income, adjusted net income(1) and total adjusted EBITDA(1) for the fourth quarter of 2020, compared to the same quarter of the prior year, were positively impacted by the delivery of LNG carrier newbuildings, the commencement of terminal use payments for the 30 percent-owned Bahrain LNG Terminal in one of Teekay LNG’s joint ventures and higher liquefied petroleum gas (LPG) rates. These increases were partially offset by more scheduled drydockings during the fourth quarter of 2020, lower charter rates earned by certain LNG carriers and, in addition, the increases in Teekay LNG’s non-GAAP adjusted net income(1) were partially offset by the sales of two LNG carriers in January 2020. Teekay LNG’s GAAP net income and adjusted net income(1) were further positively impacted by lower net interest expense in the fourth quarter of 2020 primarily as a result of debt repayments over the past year.
In addition, compared to the same period of the prior year, Teekay LNG’s GAAP net income in the fourth quarter of 2020 was negatively impacted by asset write-downs relating to four wholly-owned multi-gas carriers for $6 million and four 50 percent-owned LPG carriers for $17 million in the fourth quarter of 2020, a $14.3 million gain recognized in the fourth quarter of 2019 upon the derecognition of two LNG carriers as they were reclassified as sales-type leases, and lower unrealized gains on non-designated derivative instruments in the fourth quarter of 2020 compared to the fourth quarter of 2019.
Please refer to Teekay LNG’s fourth quarter 2020 earnings release for additional information on the financial results for this entity.
Teekay Tankers’ GAAP net loss, adjusted net loss(1) and total adjusted EBITDA(1) for the fourth quarter of 2020, compared to the fourth quarter of 2019, were negatively impacted primarily by lower average spot tanker rates and a higher number of scheduled drydockings during the fourth quarter of 2020, as well as the sale of four Suezmax tankers during December 2019 and the first quarter of 2020 and the sale of the non-US portion of the ship-to-ship support services and LNG terminal management business in the second quarter of 2020. These decreases were partially offset by lower vessel operating expenses and interest expense in the fourth quarter of 2020, compared to the same period of the prior year. GAAP net loss for the fourth quarter of 2020 was also negatively impacted by an $18.1 million freight tax accrual adjustment, of which $10.5 million relates to 2020 and is included in non-GAAP adjusted net loss. In addition, Teekay Tankers’ GAAP net loss in the fourth quarter of 2020 reflects an $18.7 million increase in write-down of assets compared to the fourth quarter of 2019.
Crude spot tanker rate weakness persisted into the fourth quarter of 2020 as a result of OPEC+ production cuts related to reduced oil demand during the COVID-19 pandemic, as well as the return of ships to the global spot trading fleet from the unwinding of floating storage. Teekay Tankers was able to partially mitigate the impact of these weaker spot rates by employing 20 percent of its fleet on fixed-rate charters during the fourth quarter of 2020 at an average rate of $35,700 per day. The weakness in spot tanker rates has continued into the first quarter of 2021, with rates for Suezmax tankers and Aframax / LR2 tankers so far averaging slightly above levels reported in the fourth quarter of 2020. Tanker demand is expected to improve later in 2021 as vaccination programs are implemented worldwide, at which time the OPEC+ group is expected to return oil supply to the market. Low tanker fleet growth should further help facilitate an improvement in the tanker market, particularly if tanker scrapping increases over the coming months.
Please refer to Teekay Tankers’ fourth quarter 2020 earnings release for additional information on the financial results for this entity.
(1) This is a non GAAP financial measure. Please refer to “Definitions and Non-GAAP Financial Measures” and the Appendices to this release for a definition of this term and a reconciliation of this non-GAAP financial measure as used in this release to the most directly comparable financial measures under GAAP.
Summary of Recent Events
Since reporting earnings in mid-November 2020, Teekay Parent has repurchased $5.0 million in principal amount of its existing 9.25 percent Secured Senior Notes for total consideration of $4.8 million at an average all-in price of 95.00. To-date, Teekay Parent has repurchased $12.8 million in principal amount of its existing 5 percent Convertible Senior Notes for total consideration of $10.5 million at an average all-in price of 81.55, and $6.6 million in principal amount of its existing 9.25 percent Secured Senior Notes for total consideration of $6.2 million at an average all-in price of 94.33.
In October 2020, the charterer of the 52 percent-owned LNG carrier, Marib Spirit, exercised its options to extend the current charter by 14 months at a higher charter rate, extending the vessel’s charter coverage to early-2022.
In December 2020, Teekay LNG’s 52 percent-owned joint venture with Marubeni Corporation (the MALT Joint Venture) secured a two-year, fixed-rate charter contract, with a one-year option, for the Methane Spirit, which is expected to commence after its current charter contract ends in March 2021.
In December 2020, Teekay LNG’s 50 percent-owned joint venture with Exmar NV (the Exmar LPG Joint Venture) successfully refinanced its $254 million revolving credit facility and term loan by entering into a new revolving credit facility in the amount of $310 million maturing in December 2023.
On February 8, 2021, Teekay LNG’s 70 percent-owned joint venture with PT Berlian Laju Tanker (the Tangguh Joint Venture), refinanced its $191.5 million term loan which was scheduled to mature in 2021, by entering into a new $191.5 million term loan maturing in February 2026.
In November 2020, Teekay Tankers declared options to purchase two of its Suezmax vessels that are currently on long-term sale-leaseback financings for approximately $57 million, with expected delivery to Teekay Tankers in May 2021. Teekay Tankers intends to fund the purchase price with existing liquidity and potentially a new long-term debt facility.
In December 2020, Teekay Tankers entered into a seven-year in-charter agreement (plus extension and purchase options) for one eco-Aframax newbuilding vessel at an attractive rate of $18,700 per day, with expected delivery in late-2022.
In February 2021, Teekay Tankers entered into an agreement to sell two unencumbered 2008-built Aframax tankers for total gross proceeds of $32 million, with expected delivery to the buyer in March 2021.
As at December 31, 2020, Teekay Parent had total liquidity of approximately $173.4 million (consisting of $44.8 million of cash and cash equivalents, and $128.6 million of undrawn capacity from a revolving credit facility). On a consolidated basis, as at December 31 2020, Teekay had consolidated total liquidity of approximately $1.0 billion (consisting of $348.8 million of cash and cash equivalents and $658.8 million of undrawn capacity from its credit facilities).