Teekay Corp Ltd (TK) 2004 Q2 法說會逐字稿

Good day, everyone, and welcome to the Teekay Shipping Corporation's second-quarter 2004 earnings release conference call. As a reminder, this conference is being recorded. Now for opening remarks and introductions, I would like to turn the conference over to Bjorn Moller of Teekay Shipping Corporation.

Before Mr. Moller begins and before I read the forward-looking statements, I would like to direct all participants to our website at www.teekay.com, where you will find a copy of the second-quarter of 2004 earnings presentation. Mr. Moller and Mr. Evensen will review this presentation during today's conference call.

I will now read the forward-looking statements. 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, dated December 31, 2003, on file with the SEC. I will now turn it over to Mr. Moller to begin.

Thank you, Scott, and good morning, ladies and gentlemen. Thank you for joining us on today's call. And as Scott said, we will be referring to the numbered slides posted on our website, teekay.com.

Turning first to slide number 3, Teekay had a very busy quarter. Our net income was 98.5 million, which is the highest figure we have ever recorded in the second quarter. Our Fixed-Rate segments delivered another record quarter, with cash flow from vessel operations of 76 million on top of the 107 million generated by our Spot segment. Global oil demand at present is growing at the highest level in 25 years, and this means continued high tanker demand going forward.

We completed the acquisition of Naviera Tapias on schedule in the quarter. We quickly demonstrated the strategic value of our new LNG platform by securing valuable 20-year contracts for three new LNG carriers from RasGas. We completed the previously-announced two-for-one stock split during May, and subsequent to the quarter, we sold our 16 percent share in TORM, resulting in a total gain on these shares acquired at July, 2003 of $90 million. This morning, I will review the tanker market and the highlights in each of our business segments and Peter Evensen will discuss our financial results.

I will begin with a look at tanker market dynamics, which continue to be very positive. Turning first to tanker demand, on slide number 4, we saw a big step-up in global oil demand in the quarter, with year-on-year growth of 5.2 percent. Demand continued to be extremely strong in China and in several other large emerging economies, but European and U.S. demand growth also accelerated rapidly, suggesting a more broad-based rise in oil use, consistent with the highest worldwide GDP growth in more than two decades.

In its July report, the IEA again raised its forecast for 2004 overall, predicting that oil demand would grow by 3.2 percent this year, the highest rate of growth since the 1970s, and in its first look at 2005, it expects continued oil demand growth, predicting a further increase of 2.2 percent next year. The IEA is also forecasting demand in the fourth quarter of this year to rise by an average of 2.5 million barrels per day compared to the quarter just completed.

Slide number 5 compares the development in the supply and demand for oil. The chart highlights that not only are today's high volumes of oil supplies, shown by the blue line, supported by the level of demand shown by the bars, but with oil inventories below their 5-year averages, oil supply will have to increase even further to meet the ongoing growth in demand, and this will continue to drive an escalation in tanker demand. I just picked out this morning that OPEC has announced that it will in fact be pumping about 30 million barrels a day in August, so that is very positive news.

Next, turning to the tanker supply picture on slide number 6, the second quarter saw a slight net increase in the world tanker fee of about 1 percent, with new tanker deliveries totaling 6 million tons against 3 million tons being deleted. The forward orderbook through 2006 has remained largely unchanged for several quarters, as shipyards are already full for this period. The orderbook for 2007 remains low relative to prior years, and the shipyard space for 2007 is now almost sold out. As you can from the charts, new ship deliveries for the remainder of 2004 plus all of 2005 are expected to total 45 million tons, while 25 million tons of tankers will be forced out of the world fleet under the IMO phaseout during this period, of which 21 million, or 7 percent of the existing fleet, must cease trading less than 9 months from now.

Slide number 7 breaks down the development in the fleet size in each crude oil tanker segment. It shows that net supply growth will be modest across all segments relative to the expected high level of demand growth over the next 18 months. It is worth noting that the size of the Aframax crude oil fleet, which has seen the highest percentage increase over the past 18 months, should remain static through 2005, when you exclude the part of the orderbook made up of LR2 product carriers destined for the refined products trade.

On slide number 8, we have adopted the tanker supply and demand balance, and this analysis continues to confirm that we can expect a tight tanker market for the next couple of years. The Clarkson data on deliveries and scrappings shown earlier indicates a net fleet increase of 20 million tons over the next six quarters through 2005. The IEA's projected oil demand growth over the same period shows that all of these additional tankers will be needed to meet transportation requirements, leaving no slack in the already fully-utilized world fleet. The data for 2006 shows the potential for a couple of percent growth in spare tanker capacity, but this is based on the conservative assumptions that there will be a further slowdown in oil demand growth and that there will be zero voluntary scrapping above what is mandated by the IMO.

Looking at the freight market on slide 9, tanker rates were lower in the second quarter than the near-record levels seen in the March quarter, despite the fact that average OPEC production actually rose in the June quarter and despite the fact that tanker rates normally are closely correlated with OPEC production. However, when you look at what occurred month-by-months in both the first and second quarters, you will see that there was some monthly volatility in oil output and this caused rates to decline significantly in April before staging a gradual recovery over the rest of the quarter. If you look beyond the short-term fluctuations, you can see from the chart that charter rates are experiencing higher highs and higher lows, trending together with rising OPEC production.

So summing up the market outlook, the combination of strong demand growth and capped supply suggests that the very positive tanker market environment is set to continue for the next couple of years.

Next I will review developments in our main business segments, starting with our Spot Tanker Segment on slide number 10. During the second quarter, Teekay's spot market TCE declined in line with changes in the open markets. However, our average Aframax TCE of $27,600 per day was still high in a historical context in this traditionally weaker quarter, and this speaks to the strength of the current cycle. The size of our spot tanker fleet increased from 82 ships at the end of March to 86 ships at the end of June, but our spot fleet was smaller than one year ago by 5 ships, due to the sale of our oldest single-hull tankers over the past 12 months, offset by number of new ships joining our fleet.

We continue to be very active in adding ships to our spot fleet going forward. We have 11 newbuildings on order in our spot segment. We are busy in-chartering modern tonnage in order to gain further exposure to the strong cycle. And between newbuildings and additional in-charters, we already have 5 to 6 new ships due to join our fleet in the third quarter. During the quarter, we entered into agreements to sell 4 of our single-hull ships as part of our ongoing fleet renewal, and these ships will deliver to the new owners in July and August.

Slide number 11 highlights the importance of timing when it comes to acquiring spot tanker assets. As shown by the red line, Aframax newbuilding prices have risen by 50 percent from their levels in 2002, when Teekay ordered the 8 Aframaxes that have now begun delivering into our spot fleet. And price is up 30 percent since we placed our most recent order for 6 ships last January. The leadtime for newbuilding order to date has doubled to 36 months or more, and the combination of longer lead times, higher steel prices, and a strong freight market has pushed the price up even more on newbuilding resales, shown by the blue line, and modern secondhand ships. These prices are up by around 70 percent from their low point.

While we remain optimistic about the tanker market and expect values to rise further, you are not likely to see us making major acquisitions of spot assets at this point in the cycle, because we have already invested in our spot fleet in a very profitable manner and we consider the odds of achieving a superior return over the entire life of assets bought at today's prices to be less attractive. Peter will comment further on the gains we expect to realize on our current ship sales. Dismissing these and future gains on asset sales simply as a one-time event fails to give Teekay credit for its consistent track record of disciplined tonnage acquisition.

Turning next to slide number 12, the highlights of our Fixed-Rate segments revolve mainly around the significant progress in our recently established LNG business. The acquisition of Naviera Tapias was completed as scheduled on April 30 and the integration of this company, now renamed Teekay Shipping Spain, is well underway. With the addition of the Tapias ships, as well as the commencement of previously announced long-term FSO and shuttle contracts, our quarterly cash flow from vessel operations in our Fixed-Rate segments increased to $76 million, a new record. Last week, we took delivery of our third LNG carrier, and we have a number of further ships joining our Fixed-Rate segments later this year.

During the quarter, we saw an early demonstration of the strategic value of our new LNG platform. In an exciting breakthrough, Teekay was awarded 20-year contracts for three LNG carriers. All told, Teekay now has approximately $7 billion in confirmed forward net revenues in its Fixed-Rate segments.

On slide 13, we are highlighting the attractive features of our new LNG contracts. 351,000 cubic meter LNG carriers with 20-year charters to RasGas, a joint venture between Exxon Mobil and Qatar Petroleum. The contracts involve a low-risk build-to-suit approach. With our close shipyard relationships and our buying power, we were able to achieve attractive vessel prices. Equity returns are enhanced through attractively priced financing and the use of high financial leverage, consistent with the long-term, stable nature of these cash flows. And through this contract, Teekay has become one of the earliest strategic suppliers to Qatar.

We view the risk-adjusted financial returns on the RasGas project to be very attractive. While we cannot speak to the details of our RasGas contract specifically due to confidentiality provisions, on slide number 14 we have laid out some approximate economics for upcoming LNG projects, based on generic parameters. In the example, we have fused a fully-billed (ph) (indiscernible) CapEx cost of 190 to $195 million per vessel, annual cash flow of approximately 20 million, and 80 percent debt financing, using today's long-term interest rates. The resulting annual returns for the equity are 16 percent cash-on-cash and 18 percent ROE. The accretion for this type of low-risk project averages 10 cents per share, and we will have created incremental value for our shareholders of approximately $46 million, or 53 cents per share per ship.

As we have stated before, we are excited about our LNG business, not only because of the attractive financial returns to be had, but also because of its tremendous growth potential. The ever-growing momentum in the LNG sector is illustrated by slide number 15. The chart on the left shows what McKenzie's (ph) estimates of growth in LNG production for 2010, and they are estimating a compounded annual growth rate of 10 percent.

When we announced the Tapias acquisition in March, our analysis already indicated dramatic future growth in the demand for LNG shipping, identifying the need for a total world fleet of approximately 325 LNG carriers by 2010. As shown in the table, this figure has already increased by more than 40 ships to 365 ships, due to new or expanded projects that have come to light just these past few months. With an existing fleet of 165 ships and a current orderbook of 80 ships, new orders will still have to be placed for a further 120 LNG carriers over the next two to three years if the necessary level of tonnage supply is to be ready by 2010. In Qatar alone, it is expected to require an additional 50 LNG carriers by 2010.

I will hand it over to Peter now to talk about our financials.

Thanks. As Bjorn has said, the second quarter was another strong quarter for Teekay in terms of both net income and cash flow from vessel operations. reflecting strong spot rates and further growth in our Fixed-Rate segment. Consequently, Teekay generated its highest-ever second quarter net income of $98 million.

Looking at the operating results of each of our segments on slide 16 of the presentation, you will notice that we now have a new segment commencing this quarter to reflect the results of our LNG business that Bjorn spoke of. Overall, cash flow from vessel operations for the three months ended June 30, 2004 was comparable to the same period of 2003 at just $182 million. However, the contribution from our Spot Tanker segment decreased by $19 million, or 15 percent, to $106.5 million, compared to $126 million in the second quarter of 2003. This decrease was due primarily to the net decrease in calendar ship days resulting from the sale of the older single-hull vessels during the past 12 months, prior to taking delivery of our double-hull newbuildings as part of our fleet renewal program.

The results of our two Fixed-Rate segments reflect our continuing investment in this area. The Fixed-Rate tanker segment generated $70.5 million in cash flow from vessel operations during the second quarter, compared to $56.2 million in the second quarter of 2003, an increase of 25 percent. This increase was primarily due to the inclusion of Teekay Shipping Spain's Fixed-Rate Suezmax Tanker results from May 1, 2004, and the addition of 5 conventional tankers on a long-term fixed-rate charter to ConocoPhillips.

Our Fixed-Rate LNG segment generated 5.5 million in cash flow from vessel operations during the second quarter, representing the results from Teekay Shipping Spain's two existing LNG carriers from May 1, 2004. And we took delivery of a third LNG vessel earlier this month and expect the fourth in late 2004.

Turning next to slide 17 and reviewing the remaining income statement figures in comparison to the second quarter of 2003, net interest expense was 25.8 million this quarter compared to 20.4 million in the second quarter of 2003, due primarily to the additional interest resulting from our purchase of Tapias. Deferred income tax expense was $6.1 million this quarter, compared to 13.9 million in the second quarter of 2003. The higher tax expense in the previous year related primarily to income from Navion's conventional tanker business, which has since been restructured offshore and whose results are no longer taxable in Norway.

Other income of 5 million primarily comprises a $2.2 million gain on the sale of 126,000 shares in TORM during the second quarter, dividend income of 5.7 million received from TORM, and the income from 2.1 million from our (indiscernible) equipment, partially offset by unrealized foreign-exchanges losses of 5.4 -million, primarily from the euro-denominated debt of Teekay Shipping Spain.

The dilutive impact in the second quarter from our outstanding stock options and mandatory convertible preferred units with approximately 2.5 million and 2.3 million shares respectively. This dilutive effect has increased as a result of our increasing stock price.

Turning to slide 18, we have presented our June 30, 2004 balance sheet with and without Teekay Shipping Spain to illustrate the impacts of the recent acquisition. Teekay Shipping Spain has a total of 393 million of restricted cash as of June 30, 2004, resulting from its two LNG carriers, that are accounted for as capital leases. Under terms of these arrangements, Teekay Shipping Spain is required to have on deposit the amount of the charter payments, and these deposits are funded with an equivalent amount of debt.

This results in the amount of cash and debt over what we would normally be recorded by the amount of the required restricted cash. Accordingly, both the interest expense and the interest income include approximately $3 million relating to these deposits. However, there is no impact on net interest expense, since the interest rate on the cash deposits is equivalent to the interest rate on the corresponding debt.

The addition of 185 million to intangible assets represents the value of the LNG and Suezmax long-term contract suppliers, which are amortized to income over the terms of the contract. The goodwill amount relating to the acquisition of Tapias was $48 million. Other long-term liabilities of Teekay Shipping Spain include 93.4 million of derivative instruments related to interest rate swaps, which are amortized as a reduction to interest expense over the terms of the swap.

Treating the mandatory exchangeable preferred issue as equity, net debt to capitalization increased from just under 35 percent at the end of the previous quarter to 49 percent at the end of the current quarter. This is due primarily to the acquisition of Teekay Shipping Spain, partially offset by the significant amount of cash flow generated from vessel operations during the second quarter. Had the proceeds from the sale in July, 2004 of our TORM shares and 4 single-hull vessels been included in our balance sheet at the end of the quarter, our net debt to capitalization would have been only 46 percent.

Turning to slide 19, we reported last week the sale of our entire share holding in TORM. We held this share holding just over one year and are pleased to be able to report an after-tax gain on sale of approximately $90.2 million. Including the $5.7 million we received as a dividend in April, the total return on our initial investment was over 250 percent. While Teekay has decided to sell its stake in TORM, we continue to believe it is an excellent company with a bright future. And importantly, this sale does not change Teekay's commitment to growing in the product tanker market.

In the last year, we have converted three of our Aframax newbuildings on order into LR2 tankers, and have also expanded our in-charter product tanker fleet so that we now have 10 small and 6 large product tankers operating primarily in the Atlantic.

As you can see on slide 20, we have very significant operating leverage in our Spot Tanker segment. The size of our spot fleet means that for every $1000-a-day increase in Aframax rates, our EPS increases by approximately 8 to 9 cents per quarter, and our net income breakeven in 2004 is estimated to be $13,000 a day. Based on the second quarter's average Aframax TCE rate of 27.5 thousand per day, the resulting EPS was $1.13.

Based on Clarkson's Aframax TCE rates reported thus far in the third quarter of approximately 31,000 per day, and assuming this average prevails for the entire quarter, the resulting EPS using our formula of taking 90 percent of Clarkson's rate would be approximately $1.20 for the third quarter, based on $28,000 a day, before including the 113 million, or $1.30 per share, gain we expect to recognize in the third quarter from the sale of our investment in TORM and the 4 single-hull vessels.

Finally, we have fixed approximately one-third of our total spot voyage days in the third quarter at an average of $30,000 per day. However, the market has been trending higher recently, as TCE rates have been higher than that average in our recent fixtures. I will now turn the mic over to Bjorn to conclude.

Thanks, Peter. Allow me to take a brief step back before we open it up to questions. The analysis of the general tanker markets that we have just presented to you this morning I think is fairly representative of how our industry looks at the market over the next few years. It assumes that future oil demand will grow at less than half of its current rate and that there will be zero scrapping of tankers beyond what is dictated by regulation, mainly because it is impossible to forecast volunteer scrapping.

As an industry, we seem to be spending a lot of time trying to answer the question how long will this market last based on these assumptions. As we find ourselves in the midst of an extended super cycle brought on by a combination of unforeseen high oil demand and systemic underinvestment in new tankers, this raises the issue of whether the tanker industry, for once, may be at risk of not being optimistic enough.

With pressures on shipping from regulations and public scrutiny weeding out substandard ships and with global demand for raw materials continuing at extremely high levels, every area of shipping is straining to keep up with demand. Perhaps we need to start considering an alternative question, which a growing number of people outside the industry have already asked. Will there even be enough ships to meet global demand?

Thank you for listening and we will be happy to take your questions.

Thank you very much. (OPERATOR INSTRUCTIONS) Magnus Fyhr with Jefferies & Co.

Thank you. A question for Bjorn. In the last five years, you created a unique platform with more fixed-rate business while maintaining exposure to the spot market. What is left to build in the Company and where do you see some of the opportunities going forward? You recently entered into LNG market, which seems to have some good growth over the next couple of years.

Well, I think we have an opportunity to grow our platform from every angle. We're very optimistic about the spot market, feel very positive about it, and we are active building our fleet there. We still have some older single-hull ships and there will be obviously ongoing fleet renewal. But as a I think I mentioned, we already have half a dozen ships lined up to join our fleet in the third quarter. We have more ships due to join in the fourth quarter and, of course, a big newbuilding program.

The LNG is, of course, lots of upside. Our shuttle business has grown since we took over by a pretty good margin, so we think that can continue. So really I think that the benefit of the platform is that we are cross-fertilizing and we are leveraging our position. So I don't see any limit. It's basically that we've completed the platform with the LNG and now we're ready to grow every aspect of it.

One area which -- Peter mentioned that the sale of the TORM stake was not an indication of the view of the future of that market. But that seems like a market where you definitely could expand going forward. Could you elaborate a little bit there on how you plan to grow that business?

Well, we are actively growing it. A large part of the product business we acquired from Navion was a kind of northwest European coastal business. And whereas they only had a couple of long-haul product tankers in that fleet, we have built that business not in ship numbers by very much, but certainly we have tripled the exposure to the longer-haul product business since taking over Navion, and we have three ships in our fleet on order. We remain active in that segment, so I would say that is an area for future growth. We have to take our time.

Just one more question, maybe more specific on the third quarter. I am referring to the chart on page 20. With 50 percent of revenues booked for the quarter and OPEC hinting on further increases, how confident are you that the third-quarter rates will be stronger than the second quarter?

Looking at the numbers at the moment, we are seeing rates for Aframax is over 40,000 in the Mediterranean and the UK, strengthening in the Caribbean and also strengthening quite rapidly in the Pacific. So I guess we dipped all the way down to 25,000 day during the second quarter, and now we are closing in on over 40,000 a day, so I think it is quite a different market. The OPEC announcement that I just mentioned of this morning is very positive, so we think we are in for an extremely good third quarter.

Okay, great. Thank you.

John Chappell with JP Morgan.

Talking about the LNG segment a little bit, are there any more projects, maybe like the RasGas project, that are on the slate? Maybe not the same magnitude, but the same kind of potential to sign ships into long-term contracts? Or is there the potential to get any more ships tied to the RasGas project?

I think the RasGas II project, as it's technically called, is pretty much completed in terms of the ships being contracted. But the fact is that there is an almost unbelievable amount of new projects in LNG. It's like every day our gas people are coming in telling us, this guy suddenly told us he needed twice as many ships or this is a new project or this new terminal is on the drawing board.

So it is a wild market basically. So I would say it is a matter of making sure that we conclude business that is sufficiently attractive, and we're going to be very selective with that. But there is going to be -- this is basically the highest growth sector in energy shipping.

You showed some charts from consultants showing the growth potential and you've kept a pretty disciplined strategy of only signing up for these expensive ships if you had the contracts in place. Would you possibly move to speculative ordering because of the growth potential of this industry?

We have not made the determination if that was logical for us, so we're focused on the build-to-suit suit approach. And so that is our strategy at the moment.

Okay, thanks, Bjorn.

Natasha Boyden with Sidoti & Company.

Great quarter. I just wanted to go back to the TORM sale. I guess the question that struck me was why did you sell at this particular moment? Was there any particular reason?

Well, first of all, we liked where the price was. But when we looked TORM going forward, the valuation was as much a function of the bulk market as it was of the product tanker market. So we don't think that our investors are encouraging us to be in the bulk market. So when we looked at it, and given the sort of growth prospects we have in other sorts of product tanker investments, as Bjorn was talking about, we thought this was the right time to go into the market and be able to affect a sale of that magnitude.

Okay, great. Thank you. Then I just have a question on the RasGas vessels. I think you said in the release that they will be the largest ever built. Do you foresee or could there be any kind of technical problems with that, if they have never been built before?

No, they are a proven design. They are simply incrementally slightly bigger. There are some new designs being developed for future Qatar projects, including Qatar Gas, or QG2. There's talk of ships of 200 to 250,000 cubic meter. That would be a little bit different. However, these ships are standard ships, but just slightly bigger.

Okay, great. Thank you very much.

Jim Chung (ph) with Dahlman Rose Weiss.

Another great quarter. I just had some additional questions regarding the current spot environment. I was wondering if you could give us some more color on the product tanker market, divided by the large and segments, as well as the Suezmax market. It seems like that is the only one of the smaller blips in the quarter.

Yes. Well, I guess looking at the Teekay fleet, as you see on the press release, we have a fairly small large-product tanker fleet, and you can have some volatility if you have a repositioning voyage during the quarter -- that can affect the time-charter equivalent. The open market for large-product tankers is actually quite strong right now. It is around $40,000 a day, and it seems to be firming, so I think that is just volatility around a fairly small sample.

Okay, that's all. Thank you very much.

Walter Lebotto (ph) with Passport Capital.

Good morning. A couple questions. Did I understand correctly that 50 percent of Q3 revenues are booked and that the average rate you booked is $30,000 a day?

One-third of Q3 has been booked at an average of 30,000 a day on the spot side.

Okay, great. Second, could you list the vessel delivery program schedule over the next two quarters?

Well, we have two newbuildings in spot fleet -- I presume you are talking about the spot fleets or are you also talking about the Fixed-Rate fleet?

Both.

I will try and piece it together here from the list I have. We have two Aframax tankers joining our spot fleet in the third quarter. And we have at least three, probably four and possibly more, in chartered ships joining our fleet in the third quarter in the spot market. Then in the fourth quarter, we will have at least probably a couple in-chartered ships and a newbuilding Suezmax delivering.

And -- let's see -- what else do we have? We have taken delivery of one LNG newbuilding in July and we expect another LNG newbuilding in the fourth quarter, which will join our long-term Fixed-Rate fleet. And I think we have one Suezmax -- actually there is not a spot Suezmax -- that is in the spring. The Suezmax joining us is a long-term charter to a Spanish customer in the fourth quarter. We can get you more details.

Sure, that's fine. And the time charters, are you getting them -- you say the time chartered vessels in the third quarter could be greater than three. Are those time charter rates being decided now or do you have options which you may call?

There are a number of ships -- excluded from that number, and we have already declared a number of options on ships at very attractive numbers. But to give you a sense of our positive outlook, some of the new in-charters we're doing on Aframax is closing in on 30,000 today for in-charters. So we obviously view the upcoming 6 to 12 months with quite a lot of positive outlook.

And what is the time frame on those in-charters?

They very in commencement from now 'til August. We have one ship we are negotiating for commencement in the fourth quarter, which could be October/November.

And the duration?

Duration is ranging from 6 to 12 months at the moment.

So $30,000 a day for 12 months?

I'm sorry?

So there are -- you would consider time chartering an Aframax for a year at $30,000 a day?

We're getting close to that, and in most cases we are able to negotiate optional periods beyond that, which also have value.

Okay. Final question I have is at what point, if at all, does the Bosphorus Straits -- what do you call it? -- become a problem in the winter in terms of being too congested?

It is simply a matter of daylight, hours of daylight. So the amount of traffic through there, the amount of demand for passage is pretty stable based on output from the Black Sea -- oil output from the Black Sea. But there are restrictions against transiting of tankers during hours of darkness, so obviously, with the swing in daylight hours between summer and winter, that is the main factor. So that will start becoming an effect I would say in November -- October, November.

Thank you very much.

(OPERATOR INSTRUCTIONS) Justine Fisher with Goldman Sachs.

I just have a few questions related to the balance sheet. I know that you said that as of the end of the quarter, you report in the press release that you had 321 million approximately of revolver availability. Could you go over how much you had drawn under your revolvers then? Just how much that you -- what that leaves drawn?

Sure, hold on one second. You want to know how much we had --?

How much you had drawn. I know you had 321 million available, so how much have you drawn then on your revolvers, because I know they were due semi-annually.

Yes, but every time we take delivery of a newbuilding, we are adding more revolving capacity.

Okay, so -- then a better question may be how much --

So we had approximately 550 million in liquidity before the sale of the TORM shares at the end of the quarter, and we anticipate that our total liquidity by August will be over $1 billion, by taking delivery of ships which carry debt facilities with them. So it will move from 550 up to roughly $1 billion.

Any -- I guess there's 130 million of proceeds from TORM and then 102 million from the sale of the four older ships. Do you have any planned uses for those?

No, right now those are going to debt reduction.

Okay. And then there were some rumors that I saw a few weeks ago about obtaining a new bank facility, a 500 million one. Can you comment on that?

Yes, we are into the market to refinance some existing debt, which actually gave us a little bit more capacity. When I included that $1 billion number in August, that will represent the closing of that $500 million facility, which has since been syndicated and is oversubscribed, so we will be closing that in the next month.

Okay, thank you.

Brandi Shaw with Beekman Capital.

I was wondering. It looks like there's 80 new LNG on order to try to complete that need for 120 ships. My question would be -- and I know this is a little bit longer term out -- is there any reason to expect that you may be needing to put in orders at these higher market prices in order to obtain some ships to help meet that demand?

Just to clarify, the 80 ships -- and the 120 ships is in addition to the 80. There is a need for 365 ships and there are 165 in the world fleets. 200 ships are needed; 80 have been ordered and 120 need to be ordered. Based on our build-to-suit approach, in a way, our rates that we offer to customers will be linked to the project costs and that will include the price of the ships. The ship prices are moving around a bit, and I guess some people have made a speculative bet that this was or is a good time to order ships based on future price increases. It is very likely prices will go up. In fact, they are rising now. However, we will be able to price at the higher cost of the ships into the bids that we submit.

Okay, thank you for the clarity.

(OPERATOR INSTRUCTIONS) Ole Slorer with Morgan Stanley.

Very good quarter. Very good markets. I can't see what's going to spoil the party (ph) on the sort of six to nine-month view, so looking pretty positive. But looking into next year, I am assuming that the IEA is correct in their oil demand assumptions for a change and you have 1.8 million barrels. Certainly, our oil analysts here seem to believe that Canada is going to be the biggest single supplier of incremental oil next year, heavy oil, that doesn't take any shipping. Nobody seems to talk about the Ceyhan to Baku (ph) Pipeline that is opening in the second quarter, which will take market share away from the Middle East. You could get Kirkuk (indiscernible) up and running.

And even the IEA is looking for (ph) 1.2 million barrel incremental OPEC oil supply next year versus record high this year. So with most of the oil coming from the East, isn't it possible that you'll get more of a distribution of Middle East exports East, (indiscernible) oil, more oil in the West satisfied by short-haul and no-shipping legs and that you could actually see a declining year-over-year tanker development in the second half of next year, despite a very good kind of increment in oil demand?

I guess there is no doubt the world is going to need a lot of oil. And I guess the issue, frankly, is more beginning to be, is there going to be enough oil rather than is there going to be too much. Canada is not going to -- we are right here and we follow some of those projects. That is trending upwards, but that is not going to be any watershed changes in production in Canada. Many of the short-haul groups that you talk about, like Ceyhan to Baku, and other short-haul projects, are actually very positive for Aframax tanker demand.

Any incremental oil production the moves by sea is incremental to tanker demand and there is going to the oil -- I mean, I don't like to second guess the IEA, because they are obviously very thoughtful and have a lot of people that follow the market. But you look back at the initial forecast they had of 2004 oil demand growth, it was 1.7 percent when they first covered 2004. Now they're saying 3.2 percent. So I think that with things like China and other emerging economies jumping ahead by over 20 percent year-on-year growth in oil demand, I think the real issue is I think the oil will come in from everywhere we can get it, and it will be incremental to tanker demand on the whole. So we think that the supply and demand balance is very tight.

Even into the second half of next year?

Yes, absolutely.

Okay, thanks for that.

Jim Chung with Dahlman Rose Weiss has a follow-up question.

We saw recently that another public company actually took in single-hull assets because of their positive view on the market. I was wondering if that was a consideration in your tactical strategy, as opposed to chartering in additional assets at high prices?

Well, I guess it's a good question. We want to keep as much exposure to the strong cycle as we can, and we're making a lot of steps to do that. We have a very large spot fleet. Let's not forget the size of this Company's operating leverage. So if we sell single-hull ships, certainly there is an opportunity cost associated with that, but the prices of single-hull ships is also very high. And so we're doing what we think is an excellent hybrid, namely taking some of the ships off the table on the high price of single-hull ships, coupling it with in-charters that maintain our operating leverage. So it is a very carefully thought through strategy, and it doesn't speak in any way to the fact we feel other than extremely positive about the spot market.

Is there additional possibility that once you have these ships chartered in, that there is a potential of also purchase down the road is well, especially since you had a chance to operate them firsthand and they will be also longer-lived assets as well?

That is an option. I think generally what we're saying -- and I think shown in one of our charts -- we believe that asset prices are at a point right now where they may go higher, but they are already quite high. And we feel that with our disciplined approach, we've done a lot of our fleet renewal and growth at a much lower point in the cycle. So what we're doing, in the recognition that ships are probably a little pricey right now, we are chartering in to make sure that we have the broadest access to the upside in the tanker markets.

Thank you very much.

It appears there are no further questions. So Mr. Moller, I will turn the conference back over to you for any additional or closing remarks.

Thank you very much for joining us this morning. This was an exciting quarter for Teekay and we think the picture ahead is extremely positive. I hope you enjoy a great summer. Thank you.

Thank you very much and that does include our conference for today.