Teekay Corporation reported results for the fourth quarter and year ended December 31, 2021.
“Our adjusted results in the fourth quarter of 2021 came in better than the previous quarter mainly due to a modest improvement in crude spot tanker rates during the quarter,” commented Kenneth Hvid, Teekay’s President and CEO.
“In mid-January 2022, we successfully completed the sale of Teekay LNG to Stonepeak, bringing in gross proceeds of approximately $641 million for Teekay Parent. Upon closing the sale, we expeditiously eliminated approximately $330 million of mostly high-cost debt. Teekay Parent is now largely debt free, with a net cash position of over $300 million, a significant economic position in Teekay Tankers, and a profitable asset-light marine services business in Australia with the potential for further growth.”
“With many leading indicators pointing towards a tanker market recovery, we opportunistically invested $10 million of our cash balance to further build our position in Teekay Tankers, acquiring additional common shares through open market purchases at an average price of $11.03 per share. With these purchases, we have now increased our economic ownership in Teekay Tankers to over 31%.”
“Looking ahead, we stand to benefit from the strong operating franchise and industry-leading capabilities developed over our nearly 50-year history, as well as significant financial strength and liquidity following the sale of our gas business. In a landscape characterized by both positive tanker sector fundamentals and a growing demand for new transportation solutions to enable a shift to a lower carbon world, we believe Teekay is well-positioned to patiently and selectively pursue a range of attractive future investment alternatives that leverage our core competencies and institutional knowledge to create long-term shareholder value.”
Summary of Results
Teekay Corporation Consolidated
The Company’s adjusted net income attributable to shareholders of Teekay(1) for the fourth quarter of 2021, compared to the same quarter of the prior year, was positively impacted by higher earnings from Teekay Tankers as a result of higher average spot tanker rates and full service lightering revenues, and fewer scheduled drydockings in the fourth quarter of 2021, compared to the fourth quarter of 2020.
In addition, consolidated GAAP net loss attributable to shareholders of Teekay decreased during the fourth quarter of 2021, compared to the same quarter of the prior year, mainly due to: a net expense of $4.3 million relating to the write-downs and loss on sale of vessels in Teekay Tankers recorded in the fourth quarter of 2021, compared to a
$24.3 million write-down of assets that was recorded in the fourth quarter of 2020 by Teekay Tankers; and a decrease in income tax expense in the fourth quarter of 2021, primarily due to higher freight tax accruals in the fourth quarter of 2020; partially offset by an $11.6 million write-down of Teekay Tankers’ investment in the High-Q equity-accounted joint venture in the fourth quarter of 2021; and a $6.1 million increase in the estimated costs relating to the decommissioning and recycling of the Petrojarl Foinaven FPSO unit.
Summary Results of Daughter Entities
Teekay LNG’s GAAP net income and adjusted net income(1) for the fourth quarter of 2021, compared to the same quarter of the prior year, were negatively impacted primarily by an increase in off-hire days relating to unscheduled repairs in the fourth quarter of 2021, partially offset by lower interest expense in the fourth quarter of 2021 as a result of debt reduction and lower interest rates compared to the fourth quarter of 2020.
In addition, compared to the same quarter of the prior year, Teekay LNG’s GAAP net income for the fourth quarter of 2021 was also negatively impacted by an increase in general and administrative expenses, restructuring charges related to the transaction with Stonepeak, and an increase in write-downs primarily relating to Teekay LNG’s joint ventures due to a $30 million write-down of Teekay LNG’s investment in its 50%-owned LNG joint venture with Exmar NV (the Excalibur Joint Venture) in the fourth quarter of 2021, compared to asset write-downs relating to four 50%-owned liquefied petroleum gas (LPG) carriers for $17 million and four wholly-owned multi-gas carriers for $6 million in the fourth quarter of 2020, partially offset by higher unrealized gains on non-designated derivative instruments and cross-currency swaps in the fourth quarter of 2021.
The presentation of certain information in these consolidated financial statements reflects that the Teekay Gas Business is a discontinued operation of the Company, and comparative balances relating to the three months ended September 30, 2021, and the three months and year ended December 31, 2020, have been recast as a result. Please refer to the Important Notice to Reader section of this release for additional information.
Teekay Tankers’ GAAP net loss and adjusted net loss(1) in the fourth quarter of 2021, compared to the same quarter of the prior year, were positively impacted primarily due to higher average spot tanker rates and full service lightering revenues, a lower number of scheduled drydockings, and lower accrued freight taxes in the fourth quarter of 2021. These decreases were partially offset by the expiration of certain fixed-rate time charter contracts at higher rates during 2021.
In addition, GAAP net loss in the fourth quarter of 2021 included an $11.6 million equity loss relating to the write- down of Teekay Tankers’ equity-accounted investment in the High-Q joint venture (which owns one 2013-built VLCC vessel), and a net expense of $4.3 million relating to the write-downs and loss on sale of vessels, compared to a
$24.3 million write-down of assets recorded in the fourth quarter of 2020.
Spot tanker rates in the fourth quarter of 2021 improved due to recovering global crude oil trade; however, spot tanker rates remained well below historic averages due to ongoing OPEC+ production cuts related to the COVID-19 pandemic, the emergence of the COVID-19 Omicron variant, and higher bunker fuel prices, which have continued to weigh on crude spot tanker rates in early 2022.
Although the near-term outlook is uncertain mainly due to COVID-19 and geopolitical tension, Teekay Tankers believes that many of the leading indicators for a tanker market recovery continue to improve. Growing oil demand is expected to surpass pre-COVID levels this year, while OPEC+ and non-OPEC crude oil production continues to increase, and global inventories continue to decline. There are also positive tanker supply fundamentals, including a small orderbook, particularly from the second half of this year, limited new vessel orders, and increased scrapping.
Please refer to Teekay Tankers’ fourth quarter and annual 2021 earnings release for additional information on the financial results for this entity.
Summary of Recent Events
Sale of Teekay LNG
On January 13, 2022, investment vehicles managed by Stonepeak acquired Teekay LNG. As part of the acquisition, Teekay Parent sold all of its ownership interest in Teekay LNG, including approximately 36.0 million Teekay LNG common units, and Teekay GP L.L.C., Teekay LNG’s general partner (equivalent to approximately 1.6 million Teekay LNG common units), for $17.00 per common unit or common unit equivalent in cash, and transferred to Teekay LNG various management services companies that provide the operations for Teekay LNG and certain of its joint ventures under existing management services contracts. As consideration, Teekay received total gross cash proceeds of approximately $641 million.
In late-December 2021, Teekay Parent terminated its undrawn $150 million equity margin revolving credit facility, which was secured by Teekay Parent’s Teekay LNG common units and Teekay Tankers Class A common shares.
On January 14, 2022, Teekay Parent redeemed all of its outstanding 9.25% Senior Secured Notes due in November 2022 (the 2022 Notes) under the related indenture at a price of 102.313% of the $243.4 million principal amount for a total cost of $249.0 million in cash (excluding accrued interest).
On February 10, 2022, Teekay Parent completed a tender offering for its 5.0% Convertible Senior Notes due in January 2023 (the 2023 Notes), acquiring $85.0 million of the $112.2 million principal amount at a price of 102.0% of par for a total cost of $86.7 million in cash (excluding accrued interest). Following the tender offer, there remains outstanding $27.2 million in aggregate principal of the 2023 Notes.
Acquisition of Teekay Tankers Shares
Between December 6, 2021 and February 3, 2022, Teekay Parent acquired 906,429 TNK Class A common shares through open market purchases at an average price of $11.03 per share for approximately $10 million. These purchases have increased Teekay Parent’s economic ownership in Teekay Tankers from 28.6% to 31.3% and its voting interest from 53.9% to 55.6%.
In February 2022, Spirit Energy, the charterer of the Sevan Hummingbird FPSO unit, provided a formal notice of termination of the FPSO charter contract, indicating an expected cessation of production on March 31, 2022 and a charter termination date of May 16, 2022. In conjunction with Spirit Energy, Teekay is currently planning for the decommissioning of the unit from the Chestnut field.
In April 2021, BP plc announced its decision to suspend production from the Foinaven oil fields and permanently remove the Petrojarl Foinaven FPSO unit from the site. In February 2022, BP plc provided formal redelivery notice, indicating an expected redelivery date of August 3, 2022, after which Teekay intends to green-recycle the unit.
In December 2021, Teekay Tankers sold a 2004-built Aframax for gross proceeds of $13 million. In January 2022, Teekay Tankers entered into agreements to sell a 2004-built Aframax and a 2004-built Suezmax for total gross proceeds of approximately $29 million; one of the vessel sales was completed in February 2022 with the remaining vessel sale expected to be completed in March or April of 2022.
In December 2021 and February 2022, Teekay Tankers signed term sheets to refinance 13 vessels with new, low- cost sale-leaseback financings. The refinancings, which remain subject to final documentation and other customary closing conditions, are expected to be completed in the first and second quarters of 2022 and to increase Teekay Tankers’ liquidity position by approximately $75 million. In January 2022, Teekay Tankers chartered-out one Aframax for $18,000 per day for a 12-month period.