Improving Lng And Crude Tanker Macro Fundamentals Boost Teekay Corporation
Teekay Corporation reported results for the fourth quarter and fiscal year 2018. 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 its equity-accounted investment in publicly-listed Teekay Offshore Partners L.P. (Teekay Offshore) (NYSE:TOO), which was deconsolidated as of September 25, 2017 (collectively, the Daughter Entities) and all remaining subsidiaries and equity-accounted investments. Teekay, together with its subsidiaries other than the Daughter Entities, is referred to in this release as Teekay Parent. Please refer to the fourth quarter and annual 2018 earnings releases of Teekay LNG, Teekay Tankers and Teekay Offshore, which are available on Teekay’s website at www.teekay.com, for additional information on their respective results.
|Three Months Ended||Year Ended|
|December 31,||September 30,||December 31,||December 31,||December 31,|
|(in thousands of U.S. dollars, except per share amounts)||(unaudited)||(unaudited)||(unaudited)||(unaudited)||(unaudited)|
|TEEKAY CORPORATION CONSOLIDATED|
|GAAP FINANCIAL COMPARISON|
|Income from vessel operations||88,811||55,082||66,655||164,319||6,700|
|Equity income (loss)||19,356||13,744||(971||)||61,054||(37,344||)|
|Net loss attributable to shareholders in Teekay||(18,353||)||(12,005||)||(25,286||)||(79,237||)||(163,276||)|
|Loss per share attributable to shareholders of Teekay||(0.18||)||(0.12||)||(0.29||)||(0.79||)||(1.89||)|
|NON-GAAP FINANCIAL COMPARISON|
|Total Cash Flow from Vessel Operations (CFVO)(1)(2)||246,675||196,397||183,586||775,633||951,118|
|Adjusted Net Loss attributable to shareholders|
|Adjusted Net Loss per share attributable to|
|shareholders of Teekay(1)||(0.02||)||(0.11||)||(0.11||)||(0.53||)||(1.38||)|
|NON-GAAP FINANCIAL COMPARISON|
|Teekay Parent Adjusted Cash Flow from Vessel
|Total Teekay Parent Free Cash Flow(1)||(11,000||)||4,841||(721||)||(8,573||)||(53,152||)|
(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) For the period up to September 25, 2017, Teekay Offshore was consolidated in the Company’s financial statements. As a result of Teekay Offshore’s transaction with Brookfield Business Partners L.P., together with its institutional partners (collectively Brookfield) on September 25, 2017, the Company deconsolidated Teekay Offshore as of that date. Teekay Offshore is accounted for as an equity-accounted investment, commencing September 25, 2017.
As a reminder, when making year-over-year comparisons of Teekay’s consolidated results, it is important to account for the deconsolidation of Teekay Offshore as of September 25, 2017 and the adoption of the new revenue accounting standard as of January 1, 2018. Please refer to the “Important Notice to Reader” section of this release and footnote (1) of the summary consolidated statement of loss included in this release for further details on the deconsolidation and the 2018 adoption of new revenue accounting standards.
“In the fourth quarter of 2018, our total CFVO increased by approximately $50 million, or 25 percent, compared to the prior quarter, primarily driven by the contract start-up of various growth projects across the Teekay Group, certain LNG vessels commencing new contracts at firm rates, and higher spot tanker rates,” commented Kenneth Hvid, Teekay’s President and Chief Executive Officer. “The fourth quarter results also included our minority portion of Teekay Offshore’s previously-announced positive settlement with Petrobras. In addition, our consolidated and Teekay Parent cash flows this quarter would have been higher by approximately $8 million were it not for the unplanned shutdown of the Foinaven FPSO and the previously-guided shutdown of the Banff FPSO. I am pleased to report that both FPSO units were back up and running as of early-January 2019 and early-November 2018, respectively.”
“Since the beginning of 2018, the Teekay Group has continued to build financial strength and grow its cash flows while also benefiting from improving LNG and crude tanker macro fundamentals, all of which supports greater long-term value creation,” Mr. Hvid continued.
“We took advantage of multi-year highs in the LNG spot tanker shipping market by securing new charters at higher rates for the few vessels Teekay LNG has trading in the short-term market and we expect the LNG spot shipping market to be relatively strong through to the end of 2019 and into 2020,” commented Mr. Hvid. “As announced last quarter, Teekay LNG will increase its quarterly cash distributions by 36 percent commencing in the first quarter of 2019. While Teekay LNG’s balanced capital allocation strategy results in a more moderate distribution increase in the near-term, we believe that this approach will enable Teekay LNG to delever its balance sheet faster and thus, maximize equity value for all of Teekay LNG’s unitholders over the long-term. In addition, in the fourth quarter, Teekay LNG announced a common unit repurchase program and we believe that opportunistic repurchases by Teekay LNG will create further value. We are committed to creating long-term value for all unitholders, while also maximizing the benefits to Teekay Parent through the incentive distribution rights structure.”
“Teekay Tankers benefitted from fourth quarter crude spot tanker rates reaching three-year highs,” commented Mr. Hvid. “This strength continued into early-2019 with Teekay Tankers securing first quarter to-date crude spot tanker rates that are higher than the fourth quarter. While rates have recently softened from these levels, we believe we are at the beginning of a more sustained recovery that is expected to increase Teekay Tankers’ cash flows and asset values. Teekay Tankers has completed various financing initiatives and have signed a term sheet for an additional sale-leaseback transaction, which have or are expected to strengthen its liquidity position and extend its debt maturity profile. With significant operating leverage, we believe Teekay Tankers is well-positioned to benefit from a forecasted strengthening global tanker market in the second half of 2019 and into 2020.”
“In addition to benefitting from the value creation taking place at its daughter entities, Teekay Parent is also benefitting from a delevering balance sheet and higher cash flows. Teekay Parent adjusted CFVO has increased by $51 million in 2018 compared to 2017, driven primarily by higher cash flows generated by our directly-owned FPSO units, which have upside exposure to oil prices and production.”
Mr. Hvid continued, “Since the beginning of 2018, Teekay Parent has used a portion of the capital raised in January 2018 to repay all of its secured debt and reduced its 2020 unsecured bond balance by approximately $95 million, including the repurchase of $42.4 million of our unsecured bonds at an all-in average price of 97.27 since the beginning of December 2018. Looking ahead, one our key priorities will be to refinance our 2020 bond maturity with a smaller bond, which is in line with our strategy of strengthening our financial foundation.”
Summary of Results
Teekay Corporation Consolidated
The Company’s consolidated results during the quarter ended December 31, 2018, compared to the same period of the prior year, were positively impacted by an increase in revenue from the Hummingbird Spirit FPSO unit due to higher production and higher contractual production tariffs linked to oil prices, higher income and cash flows from Teekay LNG as a result of the deliveries of 12 liquefied natural gas (LNG) carrier newbuildings between October 2017 and December 2018, higher income and cash flows in Teekay Tankers as a result of higher average spot tanker rates, and higher equity income relating to Teekay Offshore’s $96 million positive settlement with Petrobras.
These increases were partially offset by lower cash flows for the Banff and Foinaven FPSO units due to unplanned shutdowns for both units in the fourth quarter of 2018, higher interest expense in Teekay Tankers as a result of recent sale-leaseback transactions, lower income and cash flows from Teekay LNG’s seven multi-gas carriers upon the termination of their previous charter contracts in early 2018, and higher general and administrative expense in the fourth quarter of 2018, a portion of which is non-recurring.
Teekay Parent Adjusted Cash Flow from Vessel Operations(1), which includes distributions and dividends paid to Teekay Parent from the Daughter Entities in the following quarter and cash flow from vessel operations attributable to assets directly-owned by, or chartered-in to, Teekay Parent, less Teekay Parent’s corporate general and administrative expenses, was $3.1 million for the quarter ended December 31, 2018 compared to $15.8 million for the same period of the prior year. This decrease was primarily due to: lower revenues from the Banff and Foinaven FPSO units in the fourth quarter of 2018 due to their unplanned shutdowns, and, as a result of the adoption of the new revenue accounting standard, the recognition of approximately $6 million of additional annual incentive revenue related to the Foinaven FPSO unit in the first three quarters of 2018, which in 2017 was recognized in the fourth quarter; the elimination of the minimum dividend payment from Teekay Tankers commencing with the first quarter of 2018; the elimination of common unit distributions from Teekay Offshore commencing with the fourth quarter of 2018; and higher general and administrative expense in the fourth quarter of 2018, a portion of which is non-recurring. These decreases were partially offset by an increase in revenue from the Hummingbird Spirit FPSO unit due to higher production and higher contractual production tariffs linked to oil prices.
Total Teekay Parent Free Cash Flow(1), which includes Teekay Parent Adjusted Cash Flow from Vessel Operations(1), less net interest expense, was negative $11.0 million during the fourth quarter of 2018, compared to negative $0.7 million for the same period of the prior year, primarily for the reasons mentioned above and lower net interest expense due to the repurchase of a portion of Teekay Parent’s 2020 bonds during 2018. Please refer to Appendix D of this release for additional information about Teekay Parent Free Cash Flow.
(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 GAAP.
Summary Results of Daughter Entities
Teekay LNG’s total CFVO increased in the three months ended December 31, 2018, compared to the same quarter of the prior year, as a result of the deliveries of 12 LNG carrier newbuildings in Teekay LNG’s consolidated fleet and equity-accounted joint ventures between October 2017 and December 2018; and the Magellan Spirit chartered-in from Teekay LNG’s 52 percent-owned joint venture with Marubeni Corporation commencing in September 2018. These increases were partially offset by: lower cash flows from seven multi-gas carriers following the termination of their previous charter contracts in early 2018; the sales of the Teide Spirit, African Spirit and European Spirit conventional tankers during 2018; an increase in off-hire days for certain of Teekay LNG’s vessels due to repairs; and an increase in general and administrative expenses. Please refer to Teekay LNG’s fourth quarter 2018 earnings release for additional information on the financial results for this entity.
Teekay Tankers’ total CFVO increased in the fourth quarter of 2018 compared to the same period of the prior year as a result of higher average spot tanker rates and the acquisition of Tanker Investments Ltd. (or TIL) in late-November 2017. This was partially offset by costs associated with sale-leaseback transactions relating to ten tankers. Please refer to Teekay Tankers’ fourth quarter 2018 earnings release for additional information on the financial results for this entity.
Summary of Recent Events
In December 2018, Teekay Parent closed its previously-announced sale of its 43.5 percent interest in Magnora ASA (formerly named Sevan Marine ASA ) for total consideration of approximately $28 million, which resulted in the Company recording an accounting gain of approximately $15.3 million in the fourth quarter of 2018.
Since the beginning of December 2018, Teekay Parent repurchased $42.4 million of its 8.5 percent senior unsecured notes due in January 2020 (2020 Bond) for total consideration of $41.3 million for an average price of 97.27 percent of the principal amount, which is below the current trading price and the make-whole price for the 2020 Bonds. As of today, the remaining outstanding balance of Teekay Parent’s 2020 Bond is approximately $498 million.
In December 2018, Teekay Parent extended its equity margin revolver, which is secured by all the Company’s Teekay LNG and Teekay Offshore common units and Teekay Tankers Class A common shares, by two years out to December 2020.
The Torben Spirit LNG carrier commenced its minimum 3-year charter on January 1, 2019 at a charter rate in excess of $100,000 per day for the duration of the contract.
In December 2018, Teekay LNG took delivery of one M-Type, Electronically Controlled, Gas Injection (MEGI) LNG carrier newbuilding, the Sean Spirit, which immediately commenced its seven-year charter contract with BP Gas Marketing Limited.
In January 2019, Teekay LNG’s 20 percent-owned joint venture with China LNG Shipping (Holdings) Limited, CETS Investment Management (HK) Co. Ltd. (an affiliate of China National Offshore Oil Corporation) and BW LNG Investments Pte. Ltd., took delivery of one LNG carrier newbuilding, the Pan Africa, which immediately commenced its 20-year charter contract with Royal Dutch Shell.
In January 2019, Teekay LNG took delivery of one MEGI LNG carrier newbuilding, the Yamal Spirit, which immediately commenced its 15-year charter with Yamal Trade Pte Ltd. Concurrently with the delivery, Teekay LNG entered into a $159 million, 15-year sale-leaseback financing arrangement with a lessor which added approximately $30 million of liquidity to Teekay LNG.
In January 2019, the Todelo Spirit, a Suezmax tanker that was chartered-in by Teekay LNG under a capital lease from the charterer, was sold to a third party. Upon the sale of the vessel, Teekay LNG’s charter contract for this vessel was terminated and the remaining capital lease obligation was extinguished. During 2018, Teekay LNG completed similar transactions for three other Suezmax tankers, the Teide Spirit in February 2018, the African Spirit in October 2018, and the European Spirit in November 2018.
In November 2018, Teekay Tankers completed a sale-leaseback transaction relating to four vessels and a loan to finance working capital for the Company’s revenue sharing agreement (RSA) pool management operations, which when fully drawn, will contribute a total of $40 million of additional liquidity after the repayment of outstanding debt related to the four vessels
In February 2019, Teekay Tankers signed a term sheet for a sale-leaseback transaction relating to two Suezmax tankers. The transaction, once completed, is expected to further increase Teekay Tankers’ liquidity position by approximately $25 million after the repayment of outstanding debt related to these vessels. The transaction, which remains subject to final lessor approval and customary closing conditions, is expected to be completed in the first quarter of 2019.
Since November 2018, Teekay Tankers entered into time charter-in contracts for 2.5 Aframax/LR2 vessel equivalents for periods ranging 1 to 2 years with extension options. The new time charter-in contracts have a weighted average daily rate of $17,600.
In January 2019, Teekay Offshore secured a contract extension with Petrobras to extend the employment of the Piranema Spirit FPSO unit on the Brazilian field. The contract extension commenced in February 2019 for a period of three years but includes customer termination rights with 10 months’ advance notice.
In October 2018, Teekay Offshore entered into a settlement agreement with Petrobras with respect to various disputes relating to the previously-terminated charter contracts of the HiLoad DP unit and Arendal Spirit unit for maintenance and safety (UMS). As part of the settlement agreement, Petrobras agreed to pay a total amount of $96 million to Teekay Offshore, $55 million of which was received in the fourth quarter of 2018. The remaining $41 million is to be paid in two separate instalments of $22 million and $19 million by the end of 2020 and 2021, respectively, subject to certain potential offsets.
In addition, in October 2018, Teekay Offshore, through separate subsidiaries, entered into a further settlement agreement with Petrobras with regards to a dispute relating to the charter of the Piranema Spirit FPSO unit. Pursuant to the settlement agreement, Teekay Offshore has agreed to a reduction in the charter rate for the FPSO unit totaling approximately $11 million, which was credited to Petrobras in the fourth quarter of 2018. This amount was accrued in Teekay Offshore’s financial statements in prior periods, primarily in 2016 and 2017.
As at December 31, 2018, Teekay Parent had total liquidity of approximately $333.4 million (consisting of $220.2 million of cash and cash equivalents and $113.2 million of undrawn revolving credit facilities) and, on a consolidated basis, Teekay had consolidated total liquidity of approximately $724.7 million (consisting of $424.2 million of cash and cash equivalents and $300.5 million of undrawn revolving credit facilities).Full Report