Teekay Corp Ltd (TK) 2003 Q4 法說會逐字稿

Welcome to the Teekay Shipping Corporation fourth-quarter 2003 earnings results conference call. During the presentation, all participants will be in a listen-only mode. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded. Now for opening remarks and introductions, I would like to turn the conference over to Mr. Bjorn Moller, President and Chief Executive Officer of Teekay Shipping Corporation. Please go ahead, sir.

Before Mr. Moller begins, and before I read the forward-looking statement, I would like to remind everyone that we have an earnings presentation available for download on our web site at www.teekay.com. We plan on reviewing the presentation during this conference call.

Please allow me to remind you that various remarks we may make about future expectations, plans, and prospects for the company and the shipping industry constitutes forward-looking statements for purposes of the Safe Harbor provision under Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our annual report on Form 20-F (ph) dated March 31, 2003, on file with the SEC.

I will now turn it over to Mr. Moller to begin.

Thanks, Scott, and good morning, ladies and gentlemen. Thanks for joining us in our year-end earnings conference call. As Scott mentioned, during today's presentation, I'll be referring to the numbered slides that are posted on our website www.teekay.com. And I'll start with slide number 3.

We're pleased to report to you on our 2003 results an outstanding year for Teekay. Thanks to near record tanker rates and the size of Teekay's operations, we generated cash flow from vessel operations of $580 million, more than in any prior year. With the Navion acquisition, we grew both our spot and shuttle tanker franchises. We increased our spot tanker operating leverage at the right time, extending our position as the world's largest operator of medium-size tankers. We also became the world leader in the shuttle tanker segment, raising the floor on our earnings with another significant step up in our base of fixed-rate, long-term contracts. During 2003, we accomplished significant fleet renewal, selling 15 of our oldest ships and adding a similar number of owned or chartered new vessels to our fleet.

We believe we are in the midst of an extended high tanker cycle -- some are even calling it a super cycle -- due to the convergence of several factors -- a finely balanced tanker supply-and-demand picture with little spare capacity, the accelerated phase-out of a large number of old tankers, and an above-average rate of growth in demand. We therefore believe we can look forward to several more years of strong tanker rates.

During this morning's presentation, I will discuss industry dynamics and key developments in our main business segments, and Peter Evensen will review the company's financial results.

Looking first at tanker demand on slide number 4 -- we are experiencing the positive effects of the growth in global oil demand and underlying driver of tanker demand. Oil demand in the fourth quarter rose by 1.6 percent from one year earlier, and grew by 2 percent for 2003 as a whole. The biggest single factor was China, where oil demand rose by 11 percent in 2003, accounting for 40 percent of global demand growth.

Recently, OPEC reminded us all of its intentions of managing oil supply carefully through seasonal variations in demand. Earlier this month, OPEC announced that it will be eliminating immediately 1.6 million barrels per day of production above its existing quotas of 24.5 million barrels a day, and a further reduction in quotas of 1 million barrels from April, subject to the price of oil at that time. If OPEC executes on these announcements, this will have a negative effect on tanker demand in the near term. However, with the price of WGI (ph) crude in the mid 30s per barrel, and with continued low inventory in many parts of the world, it's hard to imagine OPEC following through in full on these announcements.

Yet even if it does, it is more important to consider annual oil demand growth than quarterly OPEC production when assessing fundamental tanker demand. The IEA's (ph) most recent forecasts show a year-on-year increase in oil demand of 1.8 percent in 2004, and this figure has already been revised upwards several times. Historically, there has been a tendency for oil demand forecasts to underestimate the effect of economic growth on oil demand in non-OECD (ph) countries. And it therefore appears likely that we will see more upward revisions in the coming months.

Based on the global economic recovery we are experiencing, we expect oil demand growth for the next couple of years of at least the 2 percent seen in 2003, if not higher. Preliminary January 2004 data supports this view, showing a 2.5 percent growth from one year ago.

Only roughly one-half of the world's oil is carried by tanker, but importantly almost all of the incremental demand is met with oil carried by tanker. Therefore, there's a leverage factor of almost 2-to-1 in translating changes in oil demand to changes in tanker demand. Thus, a 2 percent increase in oil demand typically translates into a 3.5 to 4 percent increase in tanker demand. Shifts in marketshare between the longer-haul OPEC oil and non-OPEC producers can slide the oil for this factor (ph) up or down. Summing up the demand picture, we expect sustainable growth in tanker demand for the next several years.

Turning to the tanker supply side on slide number 5, net tanker supply rose by 0.9 percent in the fourth quarter and by 3.1 percent for the full year. In 2003, 30 million tons of new capacity delivered, but remarkably, considering the strength of the tanker market, over 20 million tons was sold for scrap. Even more remarkable was the fact that only one-fifth of this tonnage was scrapped due to regulation, while the rest was scrapped voluntarily due to a combination of the high costs of continued operation of old ships, increased age discrimination by customers, impending regulatory phase-out, and the record-high price of scrap steel.

Looking forward, shipyards have sold practically all of their newbuilding capacity for the next 3.5 years due to strong demand from every sector of cargo shipping. As a result, we know the extent of new tanker deliveries through most of 2007. The effects of the longest order backlog in 30 years, a weaker dollar, and a sharp increase in steel price have driven up new building prices by more than 20 percent over the past year. As a result, the value of Teekay's existing contracts for 14 Aframax newbuildings has already appreciated by approximately $100 million in total.

We are now only 13 months away from the effective date of the new IMO rules in April of 2005. At that time, about 10 percent of the existing world tanker fleet will be barred from trading, with additional tonnage to be phased out during the remainder of 2005 and in each year after thereafter. If we look at the math on the next -- over the next few years, if you turn to slide number 6, we see the picture looking like this. In 2004 and 2005 combined, we expect 57 million tons of new deliveries and 36 million tons of mandated scrapping. This means fleet growth of 21 million tons. Offsetting this, 2 percent oil demand growth in each year, equivalent to 3.5 percent tanker demand growth a year -- and that equates to an incremental tanker demand of 23 million tons by the end of 2005. When you combine these, this implies a slight tightening in the supply-and-demand balance over the next two years.

Looking further ahead into 2006, going through the same numbers, we see in additional 18 million (ph) tons of new capacity, delivering, 2 million tons of mandatory phase-out, and using the same demand growth assumptions, 12 million tons of demand growth. All in all, these figures point to a continuation of the current, finely-balanced supply-and-demand picture for the next three years. And notably, these figures do not take into account any voluntary scrapping during the period.

Next, I'll turn to slide number 7 to talk about the freight market. Tanker rates strengthened significantly across all segments during the fourth quarter as a result of growing oil supply, particularly from the Middle East. In the Atlantic, Aframax rates reached very high levels due to a combination of demand growth and seasonal weather factors. In the Indo-Pacific, rates rose as well, but to a lesser extent, due to the transitory influx of newbuildings from Korean and Japanese yards. Rates strengthened even further during January and into early February on the back of continued growth in oil production.

The outlook for tanker rates can be divided into a short-term view focusing on seasonality and a medium-term view focusing on the fundamentals. Over the next three to six months, rates will hinge on the actions of OPEC. If it carries out its stated intention of cutting oil supply to counter the seasonal drop in demand, rates will, as usual, follow suit. Yet the reality of low global inventories and high oil prices could allow OPEC room to maintain higher-than-normal production levels during spring, paving the way for tanker rates to remain robust during this period. Over the medium-term, with tonnage supply fairly predictable, the market will be linked to the strength of the global economy.

Turning next to slide number 8. There were a number of important developments in our spot business segment. During the fourth quarter and into early 2004, we completed the disposal of our older Panamax (ph) O/B/O fleet. During 2003, we also disposed of our eight oldest Aframax tankers as part of our ongoing fleet renewal. Through careful timing, we were able to backfill the same amount of ship days through one- to five-year end-charters (ph) of a similar number of modern ships at an average Aframax day rate of under 18,000, thereby preserving our operating leverage during this strong market. In the process, we reduced the average age of our fleet by more than 3.5 years.

The new tonnage we added in 2003, as well as our seven newbuildings entering our spot fleet during 2004 and 2005, are joining our fleet at an opportune time. In January 2004, we signed contracts for a further four Aframax newbuildings for delivery into a spot fleet in late 2006 and 2007. As already widely discussed, new IMO regulations announced in December 2003 are viewed as very positive for Teekay. During his comments, Peter Evensen will discuss the details of the related vessel write-downs and accelerated depreciation of our single-haul fleet. With almost three-quarters of our owned and operated fleet now double-haul (ph) compared to only 60 percent of the world tanker fleet, we are ahead of the curve in tonnage replacement. In addition, our single-haul ships are among the most modern of their kind and will be among the last ships to be phased out under IMO regulations.

As you can see on slide number 9, we have very significant operating leverage in our spot market segment. The size of our spot fleet means that for every $1,000-per-day increase in rates, our EPS increases by 65 to 70 cents annually, and our net income breakeven in 2004 is expected to decline to only $13,000 a day. Year to date, the Clarkson Aframax TCE (ph) on Teekay's main trading routes has averaged around $40,000 a day, and we have plotted this figure on the graph.

Turning next to slide number 10, I will review developments in our fixed-rate segment. Our fixed-rate business provided 61 million in cash flow from vessel operations, up from 46 million the prior quarter due to higher shuttle tanker utilization as North Sea oil fields came back onstream at the end of the maintenance season. In addition, we took delivery of a shuttle tanker acquired from Fordham (ph). We also delivered three tanker newbuildings on 12-year charters to ConocoPhillips.

In January 2004, there were several further developments in this segment. The two remaining newbuildings under our five-ship ConocoPhillips delivered. We signed contracts for two Aframax tankers specially designed for the ship-to-ship lightering (ph) trade, and entered into ten-year charters with our 50-percent-owned joint venture company Skaugen PetroTrans, commencing in 2007 and 2008. We also took delivery of the first of two Suezmax newbuildings scheduled for long-term charters in Brazil following conversion to shuttle tanker later in 2004.

We remain on track to reach an annualized $285 million in annualized cash flow from vessel operations by the fourth quarter of 2004. Our contracts in this is segment have an average length of around seven years. In early February of this year, we completed the integration of Navion's organization into Teekay. The shuttle operations of Navion and UNS were unified and renamed Teekay Navion Shuttle Tankers (ph) with offices in Stavannah (ph) and Sandifjord (ph), Norway.

I'll now hand it over to Peter to discuss our financial results. Peter?

Thanks. As Bjorn has said, the fourth quarter was a good quarter on an operating basis, with both our spot and fixed-rate segments generating cash flows at or near record levels. Spot rates firmed during the fourth quarter, as one would expect in a normal seasonal pattern, and were at historically strong levels, which is an indication of the tight market balance between tanker supply and demand. With even higher spot rates and further growth to our fixed-rate segment, the first quarter of 2004 is well on pace to become a new record quarter for Teekay by virtually any financial measure.

Turning to slide 11 -- Teekay generated 154.7 million in cash flow from vessel operations in the fourth quarter, which is the company's third-highest on record, and a 76 percent improvement over the seventh (ph) same period last year. Of this, 93.7 came from our spot tanker segment, and 61 million from our fixed-rate segment. As a result, the vessel write-downs and other charges totaling $72.1 million, or $1.72 per share. Net income for the quarter was 6.6 million, or 16 cents a share.

Looking at each segment, cash flow from vessel operations from our spot tanker segment increased by $33 million or 55 percent to 93.7 in the fourth quarter compared to 60.6 million in the fourth quarter of 2002. The increase is due to the inclusion of Navion's conventional tanker fleet, which added over 2,200 ship-days to our spot tanker segment, but was partially offset by the sale of older vessels during 2003 as well as the increase in spot tanker rates. Our spot Aframax fleet generated a 365-day time charter equivalent of 25,400 per day in the fourth quarter, compared to 18,400 per day in the same period last year and 18,300 per day in the previous quarter. Our fixed-rate segment includes the company's shuttle tanker operations, both Navion and Ugland Nordic Shipping, floating storage offtake vessels, an LTG (ph) carrier and certain conventional crude oil and product tankers on long-term fixed-rate contracts.

The fixed-rate segment generated $61 million in cash flow from vessel operations during the fourth quarter, compared to 27.2 million in the fourth quarter of 2002, an increase of 124 percent, primarily due to the inclusion of Navion shuttle tanker operations. It is also worth noting that the fourth quarter figure has increased from the third quarter figure of 45.8 million. This was because the Navion's shuttle tanker business experienced higher utilization due to the typically higher oil production during the winter months, the delivery of three newbuildings on charter to ConocoPhillips, and the acquisition of the Fordham (ph) shuttle tanker activities, which includes the Navion Fennia. The cash flow from vessel operations generated by our fixed-rate segment will continue to ramp up with the earnings from the delivery of the final two newbuildings on charter to ConocoPhillips which occurred in January 2004.

Looking further into 2004, we have the Petauny (ph) Spirit FSO commencing operations in April 2004, and two Suezmax shuttle tankers commencing operations in Brazil in the third quarter of 2004. With these contracts in place, we expect the fixed-rate segment to generate annualized cash flow from vessel operations of approximately $285 million by the fourth quarter of 2004.

Turning to slide 12 and reviewing our fiscal 2003 results for the 12 months ending December 31, 2003 -- net voyage revenues grew 117 percent to 1.2 billion. Teekay generated $581 million in total cash flow from vessel operations in 2003, which is a record for the company, and 116 percent improvement over last year. Of this, 391 million came from our spot tanker segment and 190 million was from our fixed-rate segment. As a result of vessel write-downs and other changes totaling 118.3 million, or $2.91 per share, net income for the year was $4.35 per share, a 227 percent improvement over fiscal year 2002.

Turning next to slide 13 and reviewing our fourth-quarter income statement figures in detail and comparing them to the September 30th quarter, net voyage revenues increased by $66 million over the prior quarter to $340 million. Two-thirds of this increase is attributable to the company's spot segment, which earned higher spot tanker rates than the previous quarter, and the balance is attributable to the company's fixed-rate segment.

Our vessel operating expenses increased by $2 million over the prior quarter due primarily to the newbuilding deliveries and the purchase of one shuttle tanker, partially offset by vessel sales during the quarter. Our time charter expense grew by $6.3 million over the prior quarter, due primarily to additional end-charter (ph) vessels.

Depreciation and amortization increased by $2.6 million over the prior quarter as a result of the delivery of newbuildings and the purchase of one shuttle tanker, partially offset by decreases from vessels sold during the quarter. Included in depreciation expense is 6.4 million in dry dock amortization in the fourth quarter, compared to 7 million in the third quarter.

G&A expenses increased to 26.4 million in the fourth quarter, compared to 24.1 million in the third quarter, due primarily to retroactive adjustments to pension accruals, depreciation of certain foreign currencies against the U.S. dollar, and the timing of certain expenditures. For 2004, we expect a quarterly run rate for G&A expenses to come back down to a level similar to the third quarter.

Net interest expense increased slightly to 22.1 million from 21 million in the third quarter due to the delivery of the newbuildings -- again, partially offset by the sale of older vessels. Cash flow from vessel operations to interest coverage increased from a 4.6 times cover in the fourth quarter to 6.7 in the fourth quarter, due primarily to the increase in spot tanker rates and the higher utilization of the shuttle tanker fleet as previously discussed.

Deferred income taxes has increased to 13.3 million from 6 million in the previous quarter, due primarily to the higher operating profit from Navion's shuttle tanker fleet in the fourth quarter. In addition, the deferred income tax expense in the fourth and third quarters included 6.5 million and 4 million, respectively, in tax provisions relating to unrealized foreign exchange gains arising from the U.S.-dollar-denominated intercompany debt in Norway.

The results for the fourth quarter included the previously announced $56.8 million write-down in the book value of certain of the company's vessels due to the new IMO regulations. These write-downs are in line with our previously released guidance of $50 to $60 million. In addition, the company's depreciation expense will increase by approximately $2 million per quarter, or 5 cents per share, commencing the first quarter of 2004, due to the shortened useful life of the affected vessels. We have elected to be conservative, and depreciate the single-hull vessels to scrap value by 2010.

Other loss of 6.2 million relates primarily to a restructuring charge related to the closure of the company's Oslo and Melbourne offices, loss on the repurchase of our most expensive secured debt, our 8.32 percent secured bonds, foreign exchange losses, minority interest expense, and a number of miscellaneous items, partially offset by income from joint ventures and dividend income.

Looking at the balance sheet and treating the mandatory exchangeable preferred issue as equity, net debt to capitalization decreased from 42.6 percent in the third quarter to just under 40 percent at the end of 2003, as cash flow from vessel operations and proceeds from the sale of vessels exceeded our capital expenditures during the quarter. Our liquidity, consisting of cash, cash equivalents, and undrawn availability under revolving credit facilities, was $775 million.

Turning to slide 14, in July 2003, the company purchased a 16 percent investment in the product tanker company Torm (ph) for $37.3 million. The market value of this investment at December 31st had appreciated to $90.2 million, resulting in an unrealized gain of $52.9 million. This gain has been included in the company's stockholders' equity, and has increased the book value at year end by approximately $1.25 per share. At February 25th, 2004, the unrealized gain had increased further to $137 million, or a cumulative gain in book value of approximately $3.25 a share.

During the quarter and subsequent to December 31, 2003, Teekay sold its remaining interest in Nordic American Tanker Shipping, Ltd. (ph), and will record a nominal accounting gain in the first gain of 2004 relating to the sale.

Turning to slide 15, capital expenditures in the fourth quarter totaled 165 million, including 92 million in newbuilding installments, $32 million for the purchase of the shuttle tanker Navion Fennia, 20 million in dry-docking costs, and the remainder relating to vessel conversions and upgrades. Forecasted CapEx as of January 31, 2004, excluding annual maintenance CapEx of approximately $30 million, is roughly $225 million for the remainder of 2004, 95 million in 2005, 107 million in 2006, and 123 million in 2007 and early 2008. Long-term financing arrangements totaling approximately $255 million exist relating to these newbuilding commitments.

Looking at slide 16, we can see the combination of the company's fixed-rate contract segment and spot tanker segment allows Teekay to be cash-flow positive in 2004 at any spot charter tanker rate. In fact, the company's cash flow from operations from just its fixed-rate segment in 2004 is sufficient to cover the company's entire annual fixed charges.

Given the strong spot tanker environment Bjorn has spoken of, Teekay expects to generate free cash flow this year which will comfortably cover its fixed charges several times over. So the company's already strong financial condition should continue to improve and leave Teekay well-positioned for profitable growth, and, if determined to be the best use of cash, to return capital to its shareholders. I will now turn the mike back to Bjorn to conclude.

Thank you, Peter. If you'd like to turn slide number 17, which shows historical tanker rates over the past 30 years, I will make just a couple of final comments before we open it up to questions.

Traditionally in the tanker business, when you're able to look back on a good year, the end of the high cycle tends to be somewhere out there on the horizon. While this industry will remain cyclical, what is truly unique about the present situation is that, after a period of three good years in the last four, we are still looking at solid fundamentals that point to several more years of strong tanker markets.

The reason for this is the convergence of four factors -- the mandated phase-out of single-hull tankers, a decade of under-investing in the tanker industry, a synchronized upturn in the global economy, and the China factor. Indeed, all cargo shipping executives are experiencing strong demand and scarce supply as exemplified by the cost of shipping iron ore from Brazil to Asia, where the cost of freight now exceeds the value of the cargo. On this basis, you could say the tanker rates look almost a bargain, at less than 10 percent of the price of a barrel of oil, or somewhere around 5 to 8 cents per gallon at the gas pump. This just goes to show that the demand for commodity freight is inelastic in the short-term, and this bodes well for Teekay, who ships more than 10 percent of the world's seaborne oil.

Thank you for listening, and we'll now be pleased to take your questions.

(OPERATOR INSTRUCTIONS) Magnus Fyhr.

A couple of questions. You made some great investments in 2003 including TORM (ph). I'm looking at your free cash flow for 2004 -- between $400 and $500 million. Could you elaborate a little bit, Bjorn, on opportunities -- if you see better opportunities outside your core tanker business, or if you still feel confident that you could find some value in your tanker business?

I guess we've spent a lot of time looking at opportunities. We spent a lot of time applying discipline to those opportunities. You know, as you point out, we invested $1.5 billion in very profitable new projects in 2003. And I think that we are confident that there will be future opportunities for Teekay to grow the business profitably. It might be a little lumpy. And with rates and ship prices as high as they are, we certainly want to be disciplined in the acquisition of cyclical assets. Yet, one might still get the opportunity as we did in January when we secured four very attractively priced tanker newbuildings launched at Hyundai (ph) in Korea. So, I think the answer is that we remain optimistic that we can put the money to good use, Magnus.

If you don't find opportunities to invest, would you pay down debt, potential dividend, or buy back stock?

Well, we have been busy prepaying some of the most expensive debt. We still have around 1.6 billion of debt. And so there's certainly the opportunity to apply it to that. We also did, as you know, increase our dividend last year for the first time since the IPO in 1995, signaling that that is one of the tools that we consider appropriate to use. And I think stock buyback is certainly also a tool that we will not hesitate to use when we see that to be the best use of cash. So it will be a combination, I think.

Okay. And just also on your single-hull vessels, you have been renewing your fleet in the last year. With the recent IMO regulation, do you see any difficulties in trading your single-hull vessels into Europe?

Well, I would say that we -- in a very strong market, you're not seeing very much difference in the trading utilization of single versus double. Last year, I think we experienced slightly more idle time on our single-hull ships, but it was maybe a few more days compared to double hull. All of them were very highly utilized. I think Teekay ships in particular, due to our reputation and our relationships with customers, enjoy a very high -- in fact, 100 percent acceptability. That might not be true for every operator. So if we see weakness in rates, and as we over the next several years approach a much higher proportion of double-hull tankers in the world fleet, I would expect that we will see increasing discrimination and marginalization of single-hull tankers. But that could be several years out, in my view. Certainly, as long as we have a high tanker market, it's not much of an issue, I don't think.

Right -- and just going back to your slide showing the operating leverage on the company -- how much -- we're only a month left in the first quarter. How many operating days do you have left to lock in for the first quarter?

I think it's about 75 percent that's locked in as of this point.

Gary Goldstein, Gilford Securities.

Congratulations, guys, on a great quarter. Wanted to ask a question -- you guys are now the leader, as it were, in sophisticated shuttle and medium-size, as you pointed out in the release. The focus of the company going forward -- you know, there has been a lot of growth to the company in '03. We're assuming that '04 is going to be a consolidation year. Can you point us to where the long-term of Teekay is, what we can expect you guys to basically own next?

We're certainly very pleased with not only the pace of our growth, but also the way in which we have pieced together different elements of what we call the midstream sector, pretty much covering our customers' service needs for marine solutions from the oil platform to the refinery. And that means we have expanded the scope of our service, but in a way where we are applying our core competencies in everything we do. We don't like to diversify into areas where we don't have a competitive advantage. So that will continue to be our focus. You can say that there's 95 percent of the world tanker fleet that we don't control. So there certainly is plenty of scope there. And then of course there's the whole LNG sector, which is clearly going to be a rapid growth market. So I am very confident that Teekay will have plenty of opportunities. We just have to take our time.

Okay. Even though Magnus asked our other questions -- the exposure to spot versus contract. Can we expect basically the same kind of mix going forward for '04 that we saw in '03? Or is the mix going to change, spot versus contract?

The best rate answer that is, of course, that we know pretty much what our fixed-rate contract coverage will be. It will be around 285 million by the fourth quarter on an annualized basis. The spot number will, of course, vary significantly depending on the tanker market. So in terms of the fleet mix, I guess you can say that's fairly constant, unless we see a growth opportunity in one of the segments. But the actual revenue distribution will change because of the variations on spot tanker rates.

Jon Chappell, J.P. Morgan.

I had a question from one of your charts on the presentation -- page number 4 shows the world oil demand. In the first quarter of '03, it was exceptionally strong. The first quarter of '04 looks to be almost half of the first quarter of '03 number. Yet, it's widely expected that the first quarter of '04 is going to be the best quarter ever. Can you speak as to how -- what could be playing out there? Are there any one-time events or any supply issues that could be resulting in the first quarter '04 rates being so much stronger than we've ever seen before?

Two things, I guess. One is that this is a forecast, not an actual. And we've seen that IEA and others tend to lag when they kind of review up -- in fact, both on the upside and the downside. The second point is that one-quarter '04 is on top of one-quarter '03. It's a year-on-year number. And because you had a very high number in the first quarter, I guess it might be a little bit of timing issues, or winter weather variations. But it's a year-on-year. So if you have a very strong growth in a quarter, then the following year the comp is going to possibly be the bit tougher to beat. Then, of course, as you see from the color, the OECD and the non-OECD differences -- we have seen some flattening in OECD demand growth after very strong demand growth a year ago, whereas non-OECD, as you can see, is going great guns. So those are a couple of my observations on that.

Okay. And Peter, I'm trying to forecast the other income going forward. It seems to have some wide variations, and there's a lot of different items that go in there. The tax issue with the Norwegian fleet is obviously the biggest one. But can you give us some guidance as to how we can kind of normalize that number going forward?

Well, there's a lot of different items that go into that. So I'm not sure that I can give you guidance on that. That's the reason that it is other income.

Are there seasonal issues involved with that?

No, it's primarily what sort of income we make off the Navion shuttle tanker activities. There is some seasonality, of course, in the Navion shuttle tanker activities,

(OPERATOR INSTRUCTIONS) Ethan Silverman (ph), Silver Tree Capital.

I have two questions. Can you talk about the strategic investment in TORM (ph), especially given their ownership or involvement with 30 percent of Norton (ph) -- is that a decision to get involved with the dry buck (ph) market? And if so, despite the fact that TORM has gone up a lot, is there any potential interest in doing something further?

And secondly, you mentioned that your new orders are really worth about $100 million more, given the scarcity. If you wrote up the assets that are currently in your fleet as opposed to the write-downs of single-hull, what would be looking at in terms of the incremental value of the ships given that the dayrates?

Thanks for the question. I have to be very candid with you -- I think we are very lucky on TORM -- the fact that the dry boat (ph) market in that company as well as the ownership of a large dry boat (ph) company in Denmark, Norden, caused their stock price to jump significantly. We did acquire the shares in TORM because we view it as a strategic opportunity in the product tanker market. And TORM is the leader in that segment. And so this is a long-time holding for Teekay. But just to say, I think we looked out on the dry-boat (ph) market. But we'll take it. As far as the -- so just to be specific, it does not signal our intention of entering the dry boat (ph) market.

As far as they the market value of Teekay's fleet compared to the book value, it is higher. I don't have a number in front of me. It may be something we can generally look at, but we don't comment -- we don't write up our ships, of course. And so, I mean, we kind of leave it to analysts to make an analysis of the NAV of Teekay's fleet. It's not something we really look at that closely.

Can I ask a follow-up question?

Sure, go ahead.

Is there any correlation between the higher spending by oil exploration offshore that potentially you'll see in capital spending by major oil companies and leverage in your earnings?

I think it's interesting that the combination of our shuttle business and our spot business -- you can argue that's now into (ph) hedging, in that if you have very low oil prices or low exploration, that typically plays into the hands of OPEC and their market share in the long run, which is very accretive to tanker demand because of the long-haul nature of OPEC crude oil. On the other hand, if oil prices are high and if EMP is taking place outside of the Middle East, a lot of this is taking place offshore in deep water, and that plays into the hands of the shuttle tanker business.

So I guess there is that element of complementary investment for us. So, of course, we have an ambivalent view of it. But on the whole, I think there is significant underinvestment in EMP at the minute, and talk about oil companies raising the sustainable oil price at which they will develop projects -- I think that speaks to an increase in investment going forward.

Samir Chachin (ph), Stern Agee.

Good morning, guys. With a few quarters of Navion now in the bag, what sort of pullthrough do you guys see from some of your other businesses that you might be able to generate. I guess in other words, are there any other opportunities that you guys see to expand that business into other geographical markets?

Well, I think the biggest market for shuttle tankers is by far the North Sea market. But there are certainly other frontiers that either are growing or have significant potential for growing. In Brazil, for example, we have six ships employed which were not employed there two years ago, and that includes two ships due to deliver later this year. That's actually 10 percent of the world shuttle tanker fleet. So in terms of percentages, that's a fairly significant growth in that market in a short period of time, and that is a market that continues to grow. And we expect to continue to renew charter from existing tonnage down in that region.

Then there is a number of other frontiers where the shuttle business is beginning to show some potential. Especially interesting also that we don't just offer shuttle tanker services. We offer a broader spectrum of offshore services to our customers, including the projects where we provided both the moorings and the shuttle tankers in a package -- floating storage, and so on. So we actually have an opportunity to provide a lot of the infrastructure an solutions to a variety of projects and geographic locations. So we're quite excited about the know-how that we have acquired through Navion combined with the know-how we already had in Teekay.

Also, I guess there's been some talk about the Russian/Far-East pipe line. What sort of impact do you see over the longer-term or in the near-term on tanker demand from both -- from that pipeline or any other ones that are being planned?

Well, there's some doubt about that pipeline as far as I've read most recently. I think what's happening is in China, demand is growing so quickly that if a pipeline were put in, it would maybe cause less increase in tanker demand rather than the opposite. And should that pipeline be in question, or should it not materialize, then of course that would make tanker demand grow even more rapidly. So there are a variety of places where -- and it's the same around the Mediterranean Sea and the Caspian, there are a number pipelines that have been discussed there. But all of them are really to kind of manage part of the growth rather than to replace tanker demand.

And then just more of a longer-term impact -- nothing near-term?

Correct. At the most, the near-term pipeline situation is of course on the say hand (ph) pipeline in Iraq, where they have still yet to restart the pipeline, which used to export about 40 percent of Iraqi crude oil through the Mediterranean Sea instead of through the Middle East. That pipeline continues to be a security problem. And in fact, they're piping crude oil from northern Iraq through a strategic pipeline domestically down to the Middle East Gulf. And they're about to open another tanker port called Koala Meyer (ph) that has been dormant for a number of years. And that's -- actually, the Iraqi oil production is very accretive to tanker demand right now.

Okay. And just a couple of housekeeping questions here. What do you guys see on the trend of operating expenses?

For our operating expenses in the fourth quarter were a little higher than in the third quarter. And we expect that to move back down to our third quarter run rate throughout 2004.

I guess what I meant to say is just (ph) on a vessel operating expense -- individual vessels -- what do you see there? Is there anything -- whether it's from insurance cost rising or anything like that, that might be impacting over the next year or so?

For our vessel operating expenses, I think it will be fairly stable in 2004.

Okay. And also, I guess, could you provide a little more guidance on DD&A? I think you sold some assets, and as well as the accelerated depreciation on the single-hulled vessel there, what you might see in the first quarter as a run rate?

Sure, one second. I think our run rate on depreciation and amortization is about 200 million for the year. So I think you can count on about 50 million in the first quarter.

Gary Goldstein, Guilford Securities.

My question was asked by Jon -- just one clarification. At the beginning of the call -- in the Q&A period, there was a question about single versus double in the North Sea and Europe. That's what I thought I heard. That's no longer the case. I mean, those ships are no longer plying European waters, correct?

Actually, that's not entirely correct. There are some restrictions around the carriage of what is known as heavy oil in single-hull tankers around Europe (multiple speakers) that is residual fuel oil and a few very heavy crudes that other -- most of the crude oil that moves around that region is in fact of a lighter nature. So the phase-out of single-hulls in Europe, other than those restrictions I mentioned, are driven by the IMO regulations.

(OPERATOR INSTRUCTIONS) Martin Rower (ph), MSR Capital Management.

Thank you, Operator, and thank you, Bjorn and Peter, for a very thorough presentation. They get better and better, and it's much appreciated. The question I have is -- I read a couple of articles about a potential new major new Japanese airport project that could utilize a significant amount of capacity to build tankers. Is that something that has occurred (ph) yet, or is on the horizon, or -- any thoughts on that?

Thanks for always being a supportive shareholder (multiple speakers) We are aware of the Haneda Airport project in Japan. It's one of these elusive "fata morganas" out there. It's been talked about for the last six or eight years. It seems that each year, the Japanese shipyards kind of have in the back of their mind the potential for needing space for that. But again, unfortunately, the latest we're hearing is it's probably a little bit pie-in-the-sky, and there are some local noise pollution discussions against the project. So I wouldn't -- we're not hanging our hat on that one. But it will probably happen one day, but -- that will be a positive when it does.

Jim (ph), Guilford Securities.

As Teekay becomes more of a full-service company, going forward, should we be expecting turnkey contracts as opposed to specific contracts with companies? Could you elaborate on that potential?

We certainly could offer services where needed. A couple of examples where it's sort of emerging -- I don't think it's likely to be a big trend -- for example in the North Atlantic, we have shuttle tankers that carry crude oil from platforms to nearby storage terminals. We have VLCCs (ph) that carry that crude oil to the same customer across the Atlantic. And we now own 50 percent of the biggest lightering (ph) company, that trans-ships (ph) that oil through to ports in the U.S. Gulf Coast and elsewhere. So that, if you will, is sort of an integrated logistics chain. And it's not currently being done as a turnkey but could be done. Another example of more of a turnkey project is the Ardmore (ph) project in the North Sea, where we -- our subsidiary in Norway has furnished a couple of moorings, as well as some shuttle tankers that were modified. I guess you can characterize that as a turnkey project, as well. And we have done some floating storage projects that have elements of that. I don't think it's a trend, though.

(OPERATOR INSTRUCTIONS) Ethan Silverman, Silver Tree Capital.

Two questions. One, given the price of scrap steel and the fact that you have existing contracts with the shipyards, is it the fact that they're taking it on the chin and crushing their margins to the point that, since they've already contracted with you, that they can't change pricing to raise your costs? Are they getting squeezed because the price of raw materials coming in is it that much higher?

I believe that typically, shipyards would move to further lock in the components when they enter into a shipbuilding contract. And so I guess in most cases, it's sort of squared away at the time of ordering. And so it's simply whoever they bought the steel from that might have ended up selling it more cheaply. However, it becomes more complicated when the lead time at shipyards becomes this long, because it's hard sometimes to hedge currency or hedge steel prices that far into the future. And so the shipyards become a little nervous about quoting. And then partly the increased cost and partly the uncertainty will drive the price up of ships. So that's why we're seeing prices continuing to rise, actually, beyond the 20 percent that I mentioned in my comments.

Okay, one final question. You mention as other companies have that they have interest in liquid natural gas availability of ships. These ships are highly expensive, and take a long time to manufacture. Can you talk a little bit about how you would get your hands on some, if you would do it through a pool, if you would outright buy them? And given their costs, I mean, how many of these things could you buy to really get meaningful exposure in the market?

I would say we're looking at what the options are in the LNG business. We certainly have a balance sheet, probably more than pretty much anyone in the industry. If anybody can afford to enter, I think it will be Teekay. The question is, can we do it on a profitable basis, and on a basis that outperforms other investment alternatives that we have?

So I can't really give you a clear answer. I think that there are opportunities for organic growth. And we certainly I think can say that we don't have any current intentions to order speculatively. It will be sort of build-to-suit.

Jim Buffon (ph), Delphi Management.

Things are looking really good. Just a quick question -- so are there any other anticipated write-downs for '04?

No, we don't have any.

Great. And currently, what are you getting for rates these days?

The current Clarkson (ph) rates what -- if you look at Clarksons, you're seeing day rates for Aframax tankers in the Far East in the low 40s per day. Mediterranean and North Sea Caribbean -- in other words, Atlantic Aframax rates have come up a little bit to, say, the low- to mid-20s to the low 30s, which I guess seems low, but when we consider that used to be a boom in the old days, that's still not that bad. Supertankers, VLCCs -- probably generating around mid-60s per day. And Suezmax -- the million-barrel ships, probably generating in the mid-, high-30s.

And Mr. Moller, there appears to be no further questions at this time. I'll return the conference back over to you for any additional or closing remarks.

Well, I think we've exhausted our time here. Thank you very much for hanging in their for the whole hour with us this morning. We enjoyed presenting to you, and we look forward to talking to you again in the quarter. Have a great day.

And that does conclude today's conference. Thank you for your participation. You may now disconnect.