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Teekay Corporation Reports First Quarter Loss of $45 million

Teekay Corporation (Teekay or the Company) (NYSE:TK) today reported the Company’s results for the quarter ended March 31, 2017. These results include the Company’s three publicly-listed subsidiaries (Teekay Offshore Partners L.P. (Teekay Offshore) (NYSE:TOO), Teekay LNG Partners L.P. (Teekay LNG) (NYSE:TGP), and Teekay Tankers Ltd. (Teekay Tankers) (NYSE:TNK)) (collectively, the Daughter Entities), all of which are consolidated in the Company’s financial statements, and all remaining subsidiaries of the Company. The Company, together with its subsidiaries other than the Daughter Entities, is referred to in this release as Teekay Parent.

CEO Commentary

“While our consolidated results declined from the fourth quarter of 2016, Teekay’s offshore and tanker business performed slightly better than our expectations in the first quarter of 2017, driven by higher cash flow generated by our shuttle tanker, FPSO and conventional tanker fleets, while our gas business performed as expected,” commented Kenneth Hvid, President and Chief Executive Officer of Teekay Corporation.

“Since reporting earnings in February 2017, the Teekay Group has successfully secured multiple contracts and made an opportunistic investment in an LPG carrier newbuilding,” commented Mr. Hvid. “Teekay Parent finalized the previously-announced contract amendment to extend the firm period of the Hummingbird Spirit FPSO charter until September 2020 and secured a new, one-year charter contract for the Polar Spirit LNG carrier; Teekay Offshore secured two additional shuttle tanker contracts of affreightment in the North Sea, concluded a five-year FSO contract extension, and entered into a customer-funded front-end engineering and design (FEED) study for the Varg FPSO in the North Sea; and Teekay LNG acquired a 50 percent interest in a mid-size LPG carrier newbuilding through its joint venture with Exmar.”

“Project execution at Teekay LNG and Teekay Offshore also continues to be a primary focus,” commented Mr. Hvid. “During the past three months, Teekay LNG has completed or is nearing completion of approximately $640 million(1) of new, long-term financings for its growth projects, with the remainder of the required financings on track to be completed in the second half of 2017. In late-March 2017, Teekay Offshore took delivery of its largest current project, the jointly-owned Libra FPSO, which is scheduled to commence operations in late-June or early-July 2017 on a 12-year charter contract with an international consortium, led by Petrobras. As mentioned previously, Teekay Offshore has experienced delays and additional costs on the Gina Krog FSO and Petrojarl I FPSO projects. Teekay Offshore is in active discussions with the charterers, shipyards, and lenders of both projects to deliver these units into operation as soon as possible. The Gina Krog FSO is now scheduled to commence operations in the third quarter of 2017 and the Petrojarl 1 FPSO is expected to commence operations in early-2018.”

Mr. Hvid added, “With respect to the Arendal Spirit UMS, Teekay Offshore had recently been notified by the charterer, Petrobras, of its termination of the charter contract on this unit. Teekay Offshore is disputing the termination and reviewing its legal options, while at the same time actively marketing the unit for alternative employment.”

Teekay Corporation Consolidated

The Company’s consolidated results decreased during the quarter ended March 31, 2017, compared to the same period of the prior year, primarily due to lower revenues from Teekay Parent related to a new contract in place for the Hummingbird Spirit FPSO at a lower fixed charter rate that took effect on July 1, 2016 and lower tariff revenue for the Foinaven FPSO; lower income and cash flows in Teekay LNG, mainly as a result of the sales of two conventional tankers in 2016 and lower income from Teekay LNG’s Exmar LPG joint venture; lower income and cash flows in Teekay Offshore due to the redelivery of the Petrojarl Varg (Varg) FPSO in July 2016 and non-payment of charter hire by the charterer of the Arendal Spirit UMS since early-November 2016 related to an operational review by the charterer; and a reduction in income and cash flows in Teekay Tankers due to lower spot tanker rates.

These decreases were partially offset by higher income and cash flows from Teekay LNG as a result of the deliveries of three MEGI LNG carrier newbuildings in 2016 and 2017, the Creole Spirit, Oak Spirit and Torben Spirit, which commenced their respective charter contracts.

Teekay Parent

Teekay Parent GPCO Cash Flow, which includes distributions and dividends paid to Teekay Parent from Teekay’s publicly-listed subsidiaries in the following quarter, less Teekay Parent’s corporate general and administrative expenses, was $4.7 million for the quarter ended March 31, 2017, compared to $6.9 million for the same period of the prior year. This decrease was primarily due to a reduction in the cash dividend received from Teekay Tankers as a result of lower spot tanker rates in the first quarter of 2017 compared to the first quarter of 2016.

Teekay Parent OPCO Cash Flow, which includes cash flow attributable to assets directly-owned by, or chartered-in to, Teekay Parent, net of interest expense and dry-dock expenditures, decreased to negative $25.7 million for the three months ended March 31, 2017, from negative $20.7 million for the same period of the prior year. The decrease was primarily due to the sale of the Shoshone Spirit VLCC in the fourth quarter of 2016, the new contract in place for the Hummingbird Spirit FPSO at a lower fixed charter rate, and lower average spot tanker rates, partially offset by higher revenues from the Banff FPSO in the first quarter of 2017.

Total Teekay Parent Free Cash Flow, which is the total of Teekay Parent GPCO Cash Flow and Teekay Parent OPCO Cash Flow, was negative $21.0 million during the first quarter of 2017, compared to negative $13.8 million for the same period of the prior year. Please refer to Appendix D of this release for additional information about Teekay Parent Free Cash Flow.

Summary Results of Daughter Entities

Teekay LNG Partners

Teekay LNG’s results decreased during the quarter ended March 31, 2017, compared to the same period of the prior year, primarily due to lower revenues from four vessels in Teekay LNG’s 52 percent-owned LNG joint venture with Marubeni Corporation as a result of the continued closure of LNG operations in Yemen and lower spot rates earned on the redeployment of two LNG carriers, lower revenues from Teekay LNG’s 50 percent-owned joint venture with Exmar due to a reduction in mid-sized LPG carrier spot rates and fleet changes, charter rate deferrals for six LPG carriers on charter to I.M. Skaugen S.E. (Skaugen) and the sales of three conventional tankers in 2016 and 2017. These decreases were partially offset by, among other things, the deliveries of the Creole Spirit and Oak Spirit MEGI LNG carrier newbuildings, which commenced their five-year charter contracts with Cheniere Energy in February and August 2016, respectively, and the delivery of the Torben Spirit MEGI LNG carrier newbuilding, which commenced its charter contract in early-March 2017. Please refer to Teekay LNG’s first quarter of 2017 earnings release for additional information on the financial results for this entity.

Teekay Offshore Partners

Teekay Offshore’s results decreased during the quarter ended March 31, 2017, compared to the same period of the prior year, primarily due to the redelivery of the Varg FPSO (which left its field at the end of July 2016), the redelivery of a shuttle tanker upon completion of its time-charter-out contract, which is now operating in the contract of affreightment (CoA) fleet in the North Sea, non-payment of charter hire for the Arendal Spirit UMS since early-November 2016, lower towage fleet utilization and the sale-leaseback transactions on two conventional tankers in 2016. These decreases were partially offset by higher shuttle tanker CoA fleet utilization, lower operating expenses in Teekay Offshore’s FPSO fleet and the delivery of a towage newbuilding in September 2016. Please refer to Teekay Offshore’s first quarter of 2017 earnings release for additional information on the financial results for this entity.

Teekay Tankers

Teekay Tankers’ results decreased during the quarter ended March 31, 2017, compared to the same period of the prior year, primarily due to lower average spot tanker rates in the first quarter of 2017 compared to the same period of the prior year.

Although Teekay Tankers recorded stronger average spot tanker rates in its Aframax and LR2 Product tanker fleets and similar Suezmax tanker spot tanker rates in the first quarter of 2017 compared to the fourth quarter 2016, the tanker market experienced downward pressure over the course of the first quarter due to heavy refinery maintenance, OPEC supply cuts and higher tanker fleet growth. However, changing trade patterns due to OPEC production cuts have provided support for mid-sized spot tanker rates, as a decline in Middle Eastern oil exports resulted in an increase in ton-mile intensive Atlantic Basin to Asia oil movements.

Please refer to Teekay Tankers’ first quarter of 2017 earnings release for additional information on the financial results for this entity.

Summary of Recent Events

Teekay Parent

In April 2017, Teekay Parent finalized the previous-announced contract amendment with Centrica Energy to extend the firm period of the Hummingbird Spirit FPSO contract until September 30, 2020. The contract amendment is expected to take effect in October 2017.

In March 2017, Teekay Parent secured a one-year charter contract for the Polar Spirit LNG carrier, which is in-chartered from Teekay LNG until April 2018, with a major energy company, which commenced in April 2017.

Teekay LNG

In May 2017, Teekay LNG’s 52 percent-owned joint venture with Marubeni Corporation (MALT LNG Joint Venture) signed an 18-month charter contract (plus a one-year extension option) with a major Japanese utility company, which is scheduled to commence in the fourth quarter of 2018. This charter contract will be serviced by one of the MALT LNG Joint Venture’s existing vessels currently trading in the short-term market.

In April 2017, Teekay LNG’s 50 percent-owned joint venture with Exmar (Exmar LPG Joint Venture) agreed to acquire an existing mid-size LPG carrier newbuilding, which is scheduled to deliver in mid-2018. The acquisition is consistent with the Exmar LPG Joint Venture’s strategy of fleet renewal to preserve its market share and CoA franchise with its customers in both the ammonia and LPG trades. The remaining installment payments on the vessel are expected to be financed by the Exmar LPG Joint Venture’s existing liquidity and the joint venture expects to secure long-term financing for the vessel prior to delivery.

On April 20, 2017, in lieu of receiving cash on a portion of the charter hire on six LPG carriers on charter with Skaugen, Teekay LNG took over Skaugen’s 35 percent ownership interest in a 2003-built LPG carrier, the Norgas Sonoma. As part of this transaction, Teekay LNG also acquired the remaining 65 percent ownership in this vessel from the other shareholders for a total purchase price of approximately $13 million (including Skaugen’s 35 percent ownership interest that was transferred to Teekay LNG). The vessel is currently trading in the Norgas pool. Giving pro forma effect for this transaction, Skaugen owed Teekay LNG approximately $8.3 million in outstanding charter hire and accrued interest thereon as of March 31, 2017.

In April 2017, Teekay LNG commenced charter extension and deferral negotiations with Awilco LNG regarding two modern LNG vessels chartered to Awilco LNG, which include purchase obligations for Awilco LNG to acquire the vessels in November 2017 and September 2018. These negotiations are expected to conclude in the second quarter of 2017.

Teekay Offshore

In May 2017, Teekay Offshore concluded a five-year contract extension, plus extension options, for the Falcon Spirit FSO unit, commencing June 1, 2017. Since 2009, the Falcon Spirit FSO unit has been operating on the Al Rayyan field located offshore Qatar.

In late-April 2017, Logitel Offshore Norway AS, a subsidiary of Teekay Offshore, was notified by the charterer, Petroleo Brasileiro S.A. (Petrobras), of its termination of the charter contract for the Arendal Spirit UMS. Teekay Offshore is disputing the termination and is reviewing its legal options, including its ability to collect amounts under the contract. Teekay Offshore is also in discussions with the lenders of the Arendal Spirit debt facility.

In March 2017, Teekay Offshore finalized the previously-announced five-year shuttle tanker CoA, plus extension options, with a consortium of oil companies to service a development located in the U.K. Central North Sea. This CoA is expected to commence during the first quarter of 2018 and is expected to require the use of up to approximately 0.6 shuttle tanker equivalents per annum. In addition, in April 2017, Teekay Offshore was awarded a new three-year shuttle tanker CoA to service a development in the U.K. North Sea. This CoA is expected to commence during the third quarter of 2017 and is also expected to require the use of up to approximately 0.6 shuttle tanker equivalents per annum.

In March 2017, Teekay Offshore entered into a six-month customer-funded front-end engineering and design (FEED) study agreement for the Varg FPSO unit with Alpha Petroleum Resources Limited, which is backed by private equity firm Petroleum Equity, for the development of the Cheviot field, formerly known as the Emerald field, located in the U.K. North Sea. The purpose of the FEED is to define the modifications required for the Varg FPSO and to negotiate the terms of a potential FPSO lease and operate contract for the development of the Cheviot field.

Teekay Tankers

In April 2017, Teekay Tankers signed a term sheet for a $153 million, 12-year sale-leaseback financing relating to four of its modern Suezmax tankers. The transaction, once completed, is expected to further strengthen Teekay Tankers’ balance sheet and increase its liquidity position by approximately $30 million. The transaction, which is subject to final lessor approval and customary closing conditions, is expected to be completed in mid-2017.

In March 2017, Teekay Tankers agreed to sell a 1999-built Aframax tanker, the Kyeema Spirit, to a third party for proceeds of approximately $7.5 million, which is scheduled to deliver in the second quarter of 2017.

Since February 2017, Teekay Tankers entered into a time charter-out contract for one Suezmax tanker at a rate of approximately $21,000 per day and a firm period of one year, plus an extension option, which commenced in early-April 2017.

Liquidity

As at March 31, 2017, Teekay Parent had total liquidity of $192.3 million (consisting of $119.2 million of cash and cash equivalents and $73.1 million of undrawn revolving credit facilities) and, on a consolidated basis, Teekay Corporation had total liquidity of approximately $890.3 million (consisting of $541.4 million of cash and cash equivalents and $348.9 million of undrawn revolving credit facilities). Giving pro-forma effect to Teekay Parent’s $200 million corporate revolving credit facility amendment completed in early-April 2017, Teekay Parent’s total liquidity would have been approximately $242.0 million as of March 31, 2017 and, on a consolidated basis, Teekay Corporation’s consolidated liquidity at March 31, 2017 would have been approximately $940.0 million.

Full Report

Source: Teekay Corporation

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