Thursday, 19 September 2019 | 07:24
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Tankers and LNG Carriers Boost Teekay Corporation’s Results During Second Quarter

Friday, 02 August 2019 | 00:00

Teekay Corporation yesterday reported results for the quarter ended June 30, 2019. 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) (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 second quarter 2019 earnings releases of Teekay LNG and Teekay Tankers, which are available on Teekay’s website at www.teekay.com, for additional information on their respective results.

(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).

CEO Commentary

“In the second quarter of 2019, our total adjusted EBITDA increased by $32 million, or 20%, from the same period of the prior year, primarily driven by the delivery of various growth projects at Teekay LNG, higher charter rates on certain LNG carriers, higher spot tanker rates and lower general and administrative (G&A) expenses,” commented Kenneth Hvid, Teekay's President and Chief Executive Officer. “Looking ahead, although we expect continued cash flow growth from our gas business, our third quarter results are expected to be weaker primarily as a result of scheduled maintenance for two of our FPSO units and lower spot tanker rates partly due to seasonal factors. However, looking to the fourth quarter, we expect our FPSO units to be back up to normal capacity and the tanker market fundamentals continue to support a stronger tanker market in the latter part of 2019 and into 2020.”

“Teekay LNG continues to report cash flow growth driven by newbuilding deliveries and higher charter rates on certain LNG carriers and is executing its balanced capital allocation plan, which currently prioritizes delevering while opportunistically repurchasing common units below its intrinsic value.”

“Teekay Tankers experienced seasonally weaker spot tanker rates compared to the first quarter; however, tanker rates were significantly higher when compared to the same period of the prior year, reflecting tightening tanker market fundamentals, which continue to support a tanker market recovery that should increase both cash flows and asset values.”

“Teekay Parent reported slightly better than expected overall results for its FPSO units as a result of higher production and oil prices for the Banff and Hummingbird Spirit FPSO units, partially offset by lower production and higher operating expenses on the Foinaven FPSO unit. In addition, Teekay Parent also reduced its gross debt by $223 million from last quarter with the completion of its bond refinancing and divestment of its remaining interests in Teekay Offshore in May 2019.”

Mr. Hvid continued, “We have also reduced our G&A expenses at the consolidated and Teekay Parent level, which are down in the second quarter of this year by 15% and 30%, respectively, compared to the same period of the prior year. In closing, we look forward to presenting at our Teekay Group Investor Day on October 2, 2019 in New York where we will cover the strategy, financial position and market outlook for the Teekay Group.”

Summary of Results

Teekay Corporation Consolidated

The Company’s consolidated results during the quarter ended June 30, 2019, compared to the same period of the prior year, were positively impacted primarily by higher earnings in Teekay LNG due to the delivery and contract start-up of several newbuildings during the past year as well as higher revenues earned from certain existing LNG carriers and multi-gas vessels, and higher earnings in Teekay Tankers primarily as a result of an increase in average spot tanker rates.

These increases were partially offset primarily by lower revenues from Teekay Parent’s three directly-owned floating production, storage and offloading (FPSO) units in the second quarter of 2019, compared to the same period of the prior year, as a result of lower oil production and average oil prices, higher unplanned shutdowns, and lower revenues recognized in the second quarter of 2019 due to timing differences resulting from the adoption of the new lease accounting standards effective January 1, 2019, as well as higher vessel operating costs as a result of the timing of repair and maintenance activities.

In addition, GAAP net loss was positively impacted in the three months ended June 30, 2019, compared to the same quarter of the prior year, by a decrease of $32.8 million in asset impairments, which decrease was partially offset by various items, including a loss of $10.7 million related to the repurchase of Teekay’s 8.5% senior notes due 2020 (the 2020 Notes), a loss of $7.8 million on the sale of Teekay Parent’s remaining investment in Teekay Offshore, an increase in foreign exchange losses, and an increase in realized and unrealized losses on non-designated derivative instruments.

Teekay Parent

Total Teekay Parent Free Cash Flow(1) was negative $6.4 million during the second quarter of 2019, compared to positive $0.8 million for the same period of the prior year primarily due to: lower revenues for the Foinaven FPSO unit due to lower production and higher unplanned maintenance in the second quarter of 2019, higher operational expenses in preparation for a scheduled maintenance shutdown in the third quarter of 2019, and, as a result of the adoption of the new lease accounting standard in 2019, a deferral in 2019 of the recognition of approximately $2 million of additional incentive revenue related to the Foinaven FPSO unit which would have been recognized in the second quarter of 2019 under the accounting standard in effect in 2018; lower revenues from the Hummingbird Spirit FPSO unit due to lower contractual production tariffs linked to oil prices in the second quarter of 2019 compared to the same period in the prior year; and lower cash distributions from Teekay Offshore as its distributions were reduced to zero in January 2019. These decreases were partially offset by a 36% increase in Teekay LNG's quarterly distribution in the first quarter of 2019, lower corporate general and administrative expenses incurred in 2019, and lower interest expense due to the repurchase of 2020 Notes over the past year and the 2020 Note refinancing completed in May 2019. Please refer to Appendix D of this release for additional information about Teekay Parent’s Free Cash Flow.

(1) This is a non-GAAP financial measures. 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 United States GAAP.

Summary Results of Daughter Entities

Teekay LNG

Teekay LNG's net income and total adjusted EBITDA for the three months ended June 30, 2019, compared to the same quarter of the prior year, were positively impacted by: the deliveries of five wholly-owned LNG carrier newbuildings (the Myrina, Megara, Bahrain Spirit, Sean Spirit and Yamal Spirit) between May 2018 and January 2019; higher earnings from the Torben Spirit LNG carrier upon redeployment in December 2018 at a higher charter rate; higher spot revenues for seven multi-gas carriers during the second quarter of 2019; lower vessel operating expenses due to the timing of expenditures; and the deliveries of two joint venture LNG carrier newbuildings between July 2018 and January 2019 and two joint venture ARC7 LNG carrier newbuildings between September 2018 and June 2019.

These increases were partially offset by an increase in off-hire days in the second quarter of 2019 for certain LNG carriers for repairs and a scheduled dry docking, the sales of the European Spirit, African Spirit and Toledo Spirit conventional tankers between October 2018 and January 2019, and scheduled dry dockings and planned maintenance on certain vessels in one of Teekay LNG’s joint ventures.

In addition, GAAP net income was positively impacted in the three months ended June 30, 2019, compared to the same quarter of the prior year, by various items, including a decrease in the write-down of vessels, which was partially offset by increases in unrealized losses on non-designated derivative instruments.

Please refer to Teekay LNG’s second quarter 2019 earnings release for additional information on the financial results for this entity.

Teekay Tankers

Teekay Tankers’ net income and total adjusted EBITDA for the three months ended June 30, 2019 increased compared to the same period of the prior year, primarily due to higher average spot tanker rates, which increase was partially offset by more scheduled dry dockings and higher interest expense associated with three sale-leaseback transactions that were completed between September 2018 and May 2019.

In addition, GAAP net income was negatively impacted by unrealized losses on non-designated derivative instruments in the second quarter of 2019 compared to gains on non-designated derivative instruments in the second quarter of 2018.

Please refer to Teekay Tankers’ second quarter 2019 earnings release for additional information on the financial results for this entity.

Summary of Recent Events

Teekay Parent

In late-April 2019, Teekay Parent agreed to sell to Brookfield Business Partners L.P., together with its institutional partners (collectively Brookfield), all of the Company's remaining interests in Teekay Offshore, which included the Company's 49% general partner interest, common units, warrants, and an outstanding $25 million loan from Teekay Parent to Teekay Offshore, for total cash proceeds of $100 million. The transaction closed on May 8, 2019.

In May 2019, Teekay Parent completed a private offering for $250 million in aggregate principal amount of 9.25% senior secured notes due November 2022 (the Notes). The Notes are guaranteed on a senior secured basis by certain of Teekay's subsidiaries and will initially be secured by first-priority liens on two of Teekay Parent’s FPSO units, the Petrojarl Banff and Hummingbird Spirit, a pledge of the equity interests of the Teekay subsidiary that owns all of Teekay's common units of Teekay LNG and all of Teekay's Class A common shares of Teekay Tankers and a pledge of the equity interests in the Teekay subsidiaries that own its three FPSO units. In addition, Teekay Parent completed the settlement of its cash tender offer to purchase its outstanding 2020 Notes, repurchasing $460.9 million of the $497.7 million aggregate principal amount outstanding prior to the tender offer. Of the $460.9 million of repurchases of the 2020 Notes, $458.0 million was repurchased for total consideration of $1,032.50 per $1,000 of principal amount and $2.9 million was repurchased for total consideration of $982.50 per $1,000 of principal amount.

In May 2019, Teekay Parent entered into an agreement with CNR International (U.K.) Limited to extend the employment of the Banff FPSO unit on the Banff field in the North Sea for a period of one year to the end of August 2020 at substantially similar terms to the previous contract.

Teekay LNG

In June 2019, Teekay LNG took delivery of the third, 50 percent-owned ARC7 LNG carrier newbuilding, the Nikolay Yevgenov, that immediately commenced its 27-year charter contract servicing the Yamal LNG project.

In December 2018, the board of directors of Teekay LNG’s general partner approved a $100 million unit repurchase program. Since that time, Teekay LNG has repurchased a total of 1.43 million common units, or approximately 2% of the outstanding common units immediately prior to commencement of the program, for a total cost of $16.9 million, representing an average repurchase price of $11.86 per unit.

Liquidity

As at June 30, 2019, Teekay Parent had total liquidity of approximately $186.8 million (consisting of $74.9 million of cash and cash equivalents and $111.9 million of undrawn revolving credit facilities) and, on a consolidated basis, Teekay had consolidated total liquidity of approximately $643.7 million (consisting of $235.2 million of cash and cash equivalents and $408.5 million of undrawn revolving credit facilities and the undrawn portion of a loan, which is determined based on certain borrowing criteria, to finance Teekay Tankers’ pool management operations).

Full Report

Source: Teekay Corporation

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