Teekay Corp Ltd (TK) 2005 Q1 法說會逐字稿

Good day, ladies and gentlemen, thank you for standing by, and welcome to the Teekay Shipping Corporation First Quarter 2005 Earnings Release Conference Call. [OPERATOR INSTRUCTIONS]. And now for opening remarks and introductions, I would like to turn the conference over to Mr. Bjorn Moller, CEO of Teekay Shipping Corporation. Mr. Moller, please go ahead, sir.

Before Mr. Moller begins and before I read the forward-looking statements, I would like to direct all participants to our website at www.tk.com for you will find a copy of the first quarter of 2005 earnings presentation. Mr. Moller and Mr. Evensen will review this presentation during today's conference call. I will now read the forward-looking statement.

Please allow me to remind you that various remarks we may make about future expectations, plans and prospects for the Company in the shipping industry constitute 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 most recent annual report on Form 20-F dated December 31, 2004 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. I'm pleased to report to you on another very good quarter for Teekay Shipping, and I'll begin by reviewing the highlights for the quarter on slide number 3.

We recorded net income of $279 million or $3.19 per share. While this is in fact our highest every quarterly net income, it was of course aided by gains on vessel sales. 144 million of this net income came from our operating earnings where we saw continued firm rates in our spot tanker segment and our fixed-rate businesses delivered another good quarter.

We recorded gains in the quarter of more that $100 million on asset sales. Over the past 15 months we have capitalized on high ship prices to conduct a $700 million disposal program of our single hull fleet, which reviewed to be of limited strategic value in our trading system and we are now nearing the end of that program.

The ship prices had record high levels. We continued our cyclical discipline, preferring to use our cash to pay down debt, significantly reducing our net debts to total cap from 41.9% at the end of December to 33.6% at the end of March and to complete a 3 million share buyback program.

Yesterday, we announced a further buyback program of $225 million reflecting our strong cash flow from operations and vessel sales. Teekay LNG Partners remains in registration with the SEC and because of this, we are limited in our ability to discuss our LNG business or indeed the registration process on today's call.

This morning, I will give you a brief overview of tanker market fundamentals and discuss the main developments in our business. Turning to slide number 4, I'll begin with tanker demand. In the first quarter, world oil demand shown in the green bars continued to grow at an above average rate, increasing by 2.6% from one year ago. Non-OECD economies accounted for almost two-thirds of this increase with demand rising 4%. Chinese oil demand growth was 8% for the quarter having accelerated to 11% in March after a weaker start to the year. And this morning we heard that China's March crude oil imports jumped 23% from one year ago.

As shown on the chart, the IEA's latest 2005 forecast for global oil demand growth stands at 2.1%. Average global oil supply, the more direct driver of tanker demand shown here by the blue line decreased marginally from the December quarter. However, a close up of the first quarter OPEC output figures, if you turn to slide number 5, indicates that after the big cut in OPEC production from December to January, crude oil supply grew each month in the quarter as OPEC gradually reversed those production cuts due to strong oil demand and very high oil prices.

Tanker demand followed the same trend starting the year at a lower level but gradually rising through the quarter. April OPEC production is shaping up to be even higher than in March and is approaching recent peak levels seen in October 2004. Current stated OPEC policy is to keep a lid on oil prices by building global oil inventories ahead of expected strong demand next winter. In order to supply enough oil to address both the ongoing growth in oil demand and the need for high inventories, oil market observers expect that OPEC will need to maintain very high production for the remainder of this year. And this bodes well for tanker demand going forward. Next, I will turn to the key developments in the tanker supply on slide number 6. During the quarter, the world tanker fleet increased by 1.8%.

As in most years the pace of new deliveries pick up in the first quarter reaching 8.4 million tons of new capacity. Deletions remained unchanged from the prior quarter at 2.7 million tons. We saw no meaningful increase in scrapping in the lead up to the IMO deadline on April 5 nor have we seen any major activities since that date. Shipping analysts who are following the dynamics around the IMO deadline have been working on vessel by vessel analysis of the category 1 ships impacted by the IMO rules. However, due to imperfect data, this is proving difficult especially so soon after the regulations became effective. However, piecing together information from different sources as best we can, it would appear that of the 25 or so VLCCs and Suezmaxes identified as category 1 tankers in a study last autumn, roughly 1 quarter have been scrapped and one-half have been sold for conversion to offshore projects.

The remaining one quarter have not yet been fully accounted for but are assumed to be still trading having presumably undergone some form of conversion to category 2. In the Aframax seg, for the numbers are even more opaque. Of the approximately 44 Aframaxes identified last autumn, one-third have been scrapped while remaining vessels are presumed to be still trading. A good number of them probably having been modified to category 2.

And for ships below Aframax size the information remains to be developed. As we highlighted last quarter, any ships converted to category 2 will typically enjoy only a short life extension before the next year of the IMO phase out catches up to them. Even if they do remain in the world fleet for that extra period of time, these ships would probably have a limited impact on effected global supply. We would expect utilization to be very low due to customer discrimination and other restrictions such as the ban on the carriage of heavy oils non double-hulled ships. It is notable that China recently announced it adoption of the new IMO rules flogging one of the biggest potential loopholes that might have undermined their effectiveness. It is still early days after the IMO deadline, we may find that its effect will be more gradual as opposed to the expected brick wall.

We would not be surprised to see many of these ships gradually ceasing to trade in the coming months and any weakness in tanker rates should see scrapping volumes pick up quickly. Looking finally at the forward tanker order book, it looks as if the combination of record ship building prices and delivery lead times reaching 3 years has finally caused ordering to slow. At the end of March, the order book stood at 25.7% of the world fleet, down from 26.8 % at the end of December. The amount of new orders placed over the past four quarters dropped by one-third compared to the previous four quarters.

And over the last couple of months the slow down has been even more pronounced. Annualized ordering in February and March was only 50% of 2004 levels. Looking next at the overall tanker market on slide number 7, lower tanker demand early in the quarter due to the lower OPEC production coupled with the large number of new building deliveries just after the new year, set tanker rates on a downward trajectory which lasted for much of the quarter. As OPEC production gradually came back on stream, there was a positive recovery in tanker rates in the latter part of the quarter, but accompanied by increased short-term volatility, which has carried, into April.

The dynamics of the Aframax rates in the Indo-pacific were better than the general market. After a weak start to the year, two factors caused rates for double-hulled tankers in that region to increase to more than $50,000 a day by March. First, several terminal operators in the region introduced voluntary bans on single-hulled ships loading from their facilities leading to increased demand for double-hulled ships. Then, as the April 5 IMO ban on carriage of heavy oils approached, fuel operators bid off double-hulled rates even further to ensure tonnage for their requirements. In April, rates have come off their highest in the quarter as trading patterns in the far east has settled down, yet, rates still remain good by historical standards.

We continue to focus on the expense and effect of discrimination against single-hull tankers because we believe it's an important dynamic in the outlook for double-hull tanker rates. Our analysis suggests that discrimination varies by segment and region but that it is generally on the rise. In the Mediterranean, the long-standing divide in rates between single-hull and double-hull trades is not so pronounced that the 2 hull types rarely even compete against each other. In the West Africa Suezmax trades the TCE differential is broadening with single-hulls under performing double-hulls by around $10,000 a day, probably due to getting paid lower nominal freight rates but more significantly due to greater average waiting time between cargos.

The single double differential is similar or slightly higher in the VLCC market and in the Indo-Pacific Aframax markets waiting time incurred by single-hull appears to be on the rise. In all of these markets during periods of slow market activity the earnings differentials tend to widen significantly due to increased waiting time on single-hull tonnage, and as a proportion of double-hull ships in the world fleet increases with inflow of new buildings, we expect to see the utilization in the single hull fleet continue to deteriorate.

Turning to slide number eight, looking at the forward tanker market, we expect rates in the near term to remain at seasonal lows from the combined impact of increased tanker supply and earlier than normal annual North Sea oil field maintenance, although rates are still at historically strong levels. We expect fleet utilization to improve during the second half of the year based on assumptions of OPEC maintaining high oil production, full North Sea production being back in place, the addition of new non-OPEC production expected to come on stream, and increased scrapping from a delayed shake out of the IMO Regulations. We believe that these factors should lead to higher rates later this year.

On slide number 9, we show the key developments in TK's spot tanker segment for the quarter. Our previously announced sale of 9 ships was completed, with all of the ships delivering to their new owners in the quarter. We also agreed to sell a further 4 single-hull tankers, 3 Aframaxes which have subsequently been delivered to the new owners earlier this month and our remaining single-hull Suezmax which is expected to deliver in the end of the second quarter or earlier in the third quarter. And we anticipate recording a gain from the sale of these four ships totaling $25 million. This leaves us with only two owned single-hulled ships in our spot fleet. Yesterday, two Aframax new buildings have joined our fleet through early April and 6 more remain on order.

In the quarter we fixed our in-chartered VLCC `Venture Spirit` for a 3-year out charter commencing in early April. This arbitrage deal is expected to generate profits to TK of more than $25 million during the 3-year period. The decision to charter the ship out was based on customer relation’s considerations and profit taking. Let me also briefly comment on the relatively low TCE figure of 38,900 per day generated by our spot Suezmax fleet in the first quarter.

As I mentioned in response to a question on our last call, our average Suezmax TCE figures were skewed by the fact that on several ships, which we in chartered at very low rates, we also locked in the earnings for these ships through hedged trades mainly in the form of one particular physical lifting agreement but also in part from a freight derivative transaction. Finally, on slide number 10 we showed highlights of our fixed rate segments.

Cash flow from vessel operations was marginally lower than in the previous quarter as the addition of our fourth LNG carrier in late December was offset by lower than expected utilization in our Shuttle fleet. Shuttle utilization suffered from production problems at 3 oil fields during the quarter. We also experienced better than normal North Sea weather in March, which meant fewer revenue generating days per cargo due to reduced loading and transit times. With annual North Sea maintenance taking place earlier this year, we can expect the seasonal dip in Shuttle activity to be more pronounced in the second quarter, but we should get some of these back through better utilization in the following quarter.

Looking further ahead, the level of new enquiry for shuttle transportation continues to be encouraging, reflecting the high offshore oil activity that has resulted from high oil prices. And finally, during the quarter, we completed the previously reported sale of one older shuttle tanker. I'll now hand it over to Peter Evensen to discuss our financial results. Peter?

Thank you. As Bjorn said, our net income this quarter amounted to 279 million or $3.19 per share, which included a 102 million investment sale gain and 33 million in foreign currency exchange related items. Looking at the operating results of each of our segments on slide 11 of the presentation, overall, cash flow from vessel operations for the first quarter decreased to 222 million from 261.6 million in the first quarter of 2004. The contribution from our Spot Tanker Segment decreased by 56.9 million or 30% to 134 million, compared to 191.3 million in the first quarter of 2004. This decrease was due primarily to the net 10% decrease in revenue days, resulting from the sale of our older vessels during the past 12 months, including 8 Spot trading vessels in the current quarter.

It is worth pointing out that our change in fleet composition, more chartered in, newer double-hulled tankers and less older single-hulled owned tankers gives rise to an exaggerated drop in operating cash flow, but not in net income. This is because the contribution to the cash flow from vessel operations or CFVO from chartering in double-hulled tankers is less than owning older single-hulled tankers because time charter expense includes an interest expense element. However, the impact to the net income line is not as great because a chartered-in vessel does not have any interest expense below the income from operations line.

Our Spot Aframax fleet earned an average TCE rate of 39,600 per day in the first quarter, down slightly from the 40,900 per day earned in the same period last year. In order to present the results of our Spot Tanker Segment on a basis consistent with our shipping company peers, commencing this quarter, we have calculated time-charter equivalents for TCE as net voyage revenues divided by revenue days for all the periods presented. Revenue days represent calendar shipped days less our hire days. We previously calculated TCE as net voyage revenue divided by calendar shipped days without deducting off hire days.

The fixed-rate tanker segment generated 70.8 million in cash flow from vessel operations during the first quarter, compared to 70.3 million in the first quarter of 2004. This increase was primarily due to the inclusion of Teekay Shipping Spain's, fixed-rate Suezmax tankers, offset by lower revenue from our shuttle tanker operations for the reasons Bjorn stated. Our fixed-rate LNG segment generated 16.9 million in cash flow from vessel operations during this quarter, representing the results from Teekay Shipping Spain's 4 LNG carriers.

Turning next to slide 12 and reviewing the income statement figures in comparison to the first quarter of 2004. The results for the first quarter of 2005 included gains on vessel sales in the first quarter of 2005 of a 101.9 million, primarily from the sale of 9 older vessels and 1 new building Suezmax tanker. We've elected to crystallize the value of the future earning streams of these vessels up front at very attractive levels, rather than taking them over time into our earnings.

General and Administrative expenses, G&A were 33.7 million, compared to 27.6 million in the first quarter of 2004. This increase is primarily the result of the appreciation of non U.S. dollar currencies, higher accruals for performance-based bonuses and the acquisition of Teekay Shipping Spain in April 2004. We currently expect G&A expenses to run in the mid 30 million range per quarter for the next few quarters. As the new accounting rules requiring stock options to be expensed have been recently deferred by the SEC, we now do not expect G&A to be impacted by the related stock option expense until the first quarter of 2006.

Net interest expense increased to 29.5 million in the quarter from 20.3 million in the first quarter of 2004, primarily due to the additional interest expense resulting from the addition of the Tapias fleet. We recognize the net income tax recovery of 9.3 million in this quarter, compared to an income tax expense of 2.1 million in the first quarter of 2004. The 9.3 million income tax recovery includes 6 million relating to unrealized foreign exchange losses and the remainder is due mainly to corporate reorganization of some of our shuttle tanker operations in Norway. Unrealized foreign exchange gains for the quarter resulted from the strengthening of the US dollar and included 27.2 million related to the Euro denominated debt of Teekay Shipping Spain and deferred taxes denominated in Norwegian Kroner. Our annualized return on equity for the quarter was 47%, an outstanding result.

Turning to slide 13, we have presented our March 31, 2005 balance sheet and compared it with the December 31, 2004 balance sheet. Cash balances are running higher than normal, primarily due to the rearrangement of our loan facilities in connection with the initial public offering of Teekay LNG Partners. We expect our cash balances to return to lower levels in the second quarter.

Our net debt, including capital lease obligations, decreased by 396 million in the quarter. We used our significant cash flow from vessel operations and the proceeds from the sale of vessels to fund prepayments of long-term debt, capital expenditures for vessel construction and to complete our initial share repurchase program. Treating the mandatory exchange for preferred issues as equity, net debt to capitalization declined from 42% at the end of the previous quarter to 34% at the end of the current quarter. This takes us to a net debt to capital level below where we were before purchasing Teekay Shipping Spain, just 12 months ago.

Turning to slide 14 we retained significant operating leverage in our Spot tanker segment. Our fleet renewal program on the Spot side of the business along with our increased fixed rate revenues has changed our EPS rule of thumb slightly, reducing our operating leverage, but also our break-even level. Our current net income break-even Aframax TCE rate is estimated to be 13,000 per day. The size of our Spot fleet means that for every 1000 per day increase in Aframax rates, our earnings per share increases by approximately $0.055 cents per quarter. Looking at the current quarter, we fixed approximately 37% of our total Spot voyage days and an Aframax TCE rate of $36,000 per day.

As Bjorn mentioned, as we have successfully completed in the first quarter our previously announced buy back of 3 million shares, we are pleased to announce our Board of Directors has approved the repurchase of up to an additional 225 million of our common stock, which at today's share price equates to approximately 5.1 million shares or 6% of the current number of shares outstanding. This decision reflects the strength of our balance sheet, the strong cash flows from our operations and vessel sales and our financial strategy of returning capital to shareholders when it cannot be profitably employed on a long-term basis in our business segments. I'll now turn it over to Bjorn to conclude.

Thanks Peter. The debate rages on about the impact of high oil prices to the global economy and ultimately on oil demand. Oil prices are reacting to daily news stories and OPEC is trying to balance all markets through all this noise. The resulting lack of visibility in oil supply will likely heighten the volatility in the tanker market. We believe this will benefit Teekay due to our flexible business model. Ultimately, in our opinion, as long as the economy remains reasonably healthy, tanker market fundamentals should continue to look strong for the rest of the year.

As we approach the conclusion of our 15-month single-hull ship disposal program, I would like to take this opportunity to highlight the benefits to our shareholders from the sale of these ships at high prices. While we have realized aggregate gains of close to $200 million, we don't consider this program to be simply a series of one-time gains. Rather, it represents a deliberate realization of forward earnings on this segment of our fleet. For example, for the 8 single hulls, which left our fleet into the first quarter, we have calculated that based on reasonable estimates for off time and waiting time these ships would have had to generate close to $30,000 per revenue day for their expected remaining useful life through 2010 to equal the price we obtained from their sale. So, selling these ships at today's high values has, if you will, allowed us to have our cake and eat it too. We have in a risk-free manner taken value off the table that in our estimation well exceeded what the ships could reasonably expect to earn over their remaining lives and we have responded to customer's demands for double-hull tonnage.

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

[OPERATOR INSTRUCTIONS]. Magnus Fyhr, Jeffries & Co.

Thank you, congratulations on a good quarter. Just a couple of questions, first you mentioned the Suezmax rates for the quarter was reduced by freight derivatives and also some of your [Inaudible] . How long does do these carry into the second and third quarter. What should we expect for rest of 2005?

I think you should expect that, that will continue because those are basically square trades which will gain ships and lock them away on contracts or to put it differently we had a contract opportunity and were able to get ships in to service the contracts and in another example we chartered a vessel and squared it away against an equal length freight derivative. So, that will continue. It is a relatively small segment, so it’s having disproportionate impact.

All right. Moving over to your fixed rate business and maybe talk a little bit about your shuttle tanker business, maybe talk little bit about of some of the opportunities there going forward when your Deep Water fields coming on?

Yes, it's difficult to be too specific, obviously, in active business development situations, but firstly I would say that, you know there are a number of new marginal fields that we are seeing, being discussed and we have previously delivered both Pure Seaway contracts as well as more kind of complex packages for some of those fields that look encouraging. We expect continued growth in markets outside of the North Sea. We are working on one project in a whole new hemisphere for us for the shuttle business, which we hopefully can talk more about. So, in general, without being too specific, I can just say we are encouraged by what we are seeing.

And do you see better opportunities on the fixed side or the spot side, I mean, you announced the buyback program here indicating that it's better to buy back stock here, but then, any difference between the segments?

Well, I guess -- one of the segments we can't really talk about very much, so I guess in talking about the rest of our business -- I talked about the shuttle already and as the Spot tanker business, we are obviously taking the proposition that ships at record prices is not the best bet for Teekay right now with our cash.

Okay and one just final question on scrapping. You mentioned that probably likely to pick up here in the 2005. In the prior presentation you had scrapping forecast. Do you currently have an internal scrapping forecast for 2005?

We don't have a forecast, we are just modeling as we showed last quarter numbers between 10 and 15 million tons. 2.7 million tons in the quarter is on track to be in that range and given that we are still seeing, we think people hanging in there as long as they can, given relatively strong freight rates, we would hope this is the low part of the year for scrapping. So I would say that looks like we are still on track for that forecast. But we could be surprised on the offside, I mean I don't think we should under estimate the difficulty in getting ships around the Coast these days, as the whole tightening and enhanced surveys and so on, which are some of the gory details of IMO that don't catch the headlines. There is a lot of scrutiny out there, so and with new -- with double hull tankers coming on at a good pace this year, I think the customers are definitely turning their attention away from single hulls and in particular, older single hulls.

Harry Stobber, Doughman Bros & Company.

Thank you. I was just wondering if you are considering spinning off the shuttle tanker business, and if so what potential form that might take?

We are not considering that. It is a very strong franchise that we operate there. The reason we would consider it an integral part of TK is the synergy that it has both in terms of the adjacency with our spot fleet. The shuttle tanker is transferable in and out of the spot fleet during pockets of low activity, and we also believe we can leverage our global spot franchise as we try to expand our shuttle business. So I would say, you know, they are synergistic [Inaudible] also significant customer overlaps, and that could change over time, but that's not currently under consideration.

Sure, thank you very much.

John Chappell, JP Morgan.

I got a question regarding the share buyback program, are there any restrictions you know with the pending LNG offering. You need to wait for that to be [Inaudible] price or can you start now that you have already reported earnings for the first quarter?

No, we don't see any restrictions that the registration of Teekay LNG would have on the share buyback program.

Okay, you did a great job of paying down debt obviously to 33.6%. Is there a target debt-to-cap ratio you would like to get to or is it something you consider too low? And, then a follow-up question to the debt number. You know the interest expense actually were not sequentially despite the fact that you have paid down a significant amount in the first quarter, any reason for the interest expense hike?

That was more a question of the fact that we were running cash balances now. So, we have some more negative carry over the fact that we have those cash balances. I would say in with reference to the net debt that we are at the level that we are very comfortable with right now. As I said, we were back to the level we were before the acquisition of Teekay Shippings.

Okay, thanks, Peter, and just one quick one for Bjorn. On the shuttle tanker business, you had mention the production problems in the North Sea, have those been rectified yet?

The three fields were the Sonora, Dragon and Ross fields, I believe that the Dragon field which is the most, the biggest impact on us is actually undergoing early maintenance, because of production problems although I'm not an expert in that area. My sense is that that is being rectified, but it has still reduced volume because of it moving into maintenance situation.

Okay, thanks, Bjorn.

Tom Arnoldy, Premcor.

On the conversion of single hull to category 2, I don't think you have mentioned how much time exactly does that take for the vessel?

If you refer to the slide that was in our presentation last quarter there is a table that indicates how long extension category 1 ships -- sorry, the face out schedule of category 2 ships, and so it averages one to two years. If every category 1 ship converted to category 2, the average extension would be slightly over one year. But, that isn't happening, but the, it will be between one and three years.

And, on the new buyback, is that set up for the offering at the LNG business or should we think of that as completely separate thing?

That is a completely separate thing.

Okay, that's all I have. Thanks.

John Kartsonas, Smith Barney.

Good morning. First of all on the income tax recovery gain, I guess this is the first quarter you are reporting a gain there, and even if you include the $6 million you still have a gain, how should we think about this point forward?

Well, because of the accounting rules whenever we have a strengthening of the US dollar, which we had this quarter that's going to result in getting gains, because our foreign currency loan are translated to be lower in US dollars. But, we think that with the reorganization that we are doing, we should have minimal tax expense going forward. So, these kind of movements should be -- decline a little bit on the tax expense side.

Also on the Aframax segment, as you mentioned earlier the Indo-Pacific (ph) market is much stronger than the Caribbean or the Mid-market, why is it that you don't have vessels going to trade at those markets?

Well, on the Aframax side, there really is not a huge amount of movement of cargo from the Indo-Pacific to the Atlantic hemispheres. So the arbitrage movement is difficult unless you want to go empty and we are seeing a fair amount, it is interesting, we are seeing a fair amount of new buildings coming out mainly in Korea and Japan, so into the backyard of the Indo-Pacific markets. Yet, I think some of those owners are more comfortable trading their ships in their own backyards, which is the Atlantic basin. So we are actually seeing ships voluntarily moving into the Atlantic. But if people can get there, I am sure they would try, but it is not easy to move ships around very quickly, although then it is too expensive to empty, reposition.

Is there any benefit having customer relationship in that region that's -- future and advantage of that?

I would say that is absolutely the case, Teekay has a number of very important frame contracts there with the customers. We give customers a number of scheduling benefits. But we gain benefits in return by having a better visibility and a better look at all of the cargos in that region. So our competitors see, I think a somewhat smaller cargo volume than we do every day.

That's it. Thank you.

Justine Fisher, Goldman Sachs.

Hi, the first question that I have. There are two questions there, with respect to time chartering, first of all, given that recently announced some time charters out of its tankers. Would you look to put some of your tankers currently operating on the spot market on to time charters, obviously at the right price. But, a) are you looking to do that and b) are you seeing oil companies come to you asking for that?

Well, you saw the reference to the VLCC fixture we did. That was a clear example of opportunistically locking in a profit at the same time as forging a grade on close relationship with a particular customer. On the Aframax segment, we have done some of that, again customer related. But we have done a lot of that kind of coverage through our fixed-rate segment. So in a sense, we are doing that all the time. So I would say, we are comfortable with the mix of spot and fixed-rate, and we will look at these things opportunistically.

I guess, I probably should have asked this question first, but I was going to ask you for a bit more color on the VLCC deal here. Can you give us a bit more information, maybe of the way you are turning it out and how that deal worked, because you said that you are time chartering that in.

This is the ship we in chartered 2 or 3 years ago at a very low rate and which has a period plus options behind it. We have effectively squared a way the remaining firm period of our in charter. But have still, we still have the options available to us at the end of the charter. So we have that upside. I can't be specific about the rate because of contractual conservations. But it has been reported in the trade for us somewhere in the low to mid-50s, 1000 per day on the out charter side. And I'll leave that for you to consider.

Okay. And then as far as Teekay chartering any of these small vessels, I mean you have said time and again that that is the Company's strategies and I can see on the fleet tankers that there is some in charters that you are going to be taking this year. But is Teekay looking to charter in a significant amount of additional ships given where rates are? Is the Company more actively looking to do this or will the fleet size stay more or less the same?

We will be opportunistic. The time charter rates don't jarr rate as much as the spot rates do. For example, charter rates for to in charter one of the Aframax tankers have come down a bit, but not necessarily as much as the spot market. So these things tend to move a little more slowly. We will be following that market. We have a comfortable sized fleet. So that if we don't see the opportunity, we can service our customers quite comfortably. If we did see the window open, we would react.

Okay. And then the last question that I had with respect to what ships you are going to -- what ships Teekay may not sell going forward. It seems, I think you have two single-hull owned Aframaxes left. And then I think a couple of other single-hull ships in the own fleet. Are you definitely looking to sell these or is it -- is the Company definitely looking to get out of the rest of the single-hull tanker?

Subject to price, I guess, it is a clearly articulated strategy. Two ships remaining in our spot fleet would be sold if we saw the right price and we are considering that. We have, I think maybe 1 or 2 older Shuttle tankers, which are on the contract, other than that the fleet, the own fleet would be entirely double-hulled.

Okay. And then I see, you did decide to sell the Santiago Spirit. I am sure you can't disclose exactly what the price or also maybe you can. But will Teekay look to sell perhaps more of its Aframax new buildings as they are delivered or will the Company sell those, choose to sell those new builds if the price is right as opposed to putting them in the fleet?

Again that's not a strategy that we normally follow. The sale of San Diego's trip (ph) was opportunistic. It was a ship acquired as a bit of surplus to the Tapias transaction. And although it would have been eminently suitable in our fleet, we chose to sell it opportunistically. It's worth noting that we have retained the technical and commercial management of the vessel. So, it will be in our fleet in terms of customer service and so on. I think the whole issue that we are trying to convey is that we are very disciplined, but also we think we've been quite good at picking up our moments both when it comes to selling and buying.

Philippe Menier (ph) , Banc of America Securities

Thank you very much. Congratulations on a great quarter. On the fixed rate business, perhaps I misunderstand it. Can you please explain to me on how the contracts work in the shuttle tanker business? Does that in some quarters when there is a down time that you are earning less money on that business?

Yes. We have two elements of business in our shuttle segment. We have some ships, which are on either time charter or bareboat charter, which means that we get paid every day -- whether ships are sitting, or whether they are working. And other -- so that's about probably half of our shuttle fleet, or little bit less. The other part of our shuttle fleet is what we call offshore loading contracts, where we service on a just-in-time basis and on a fractional-vessel use basis at about 30 oil fuels in the UK and North Norwegian Sea. And these are volume contracts --not -- where the you get paid on a fixed rate per day when you are serving, when you are working under these contracts. So, if you have a field shutdown, we would experience a loss of charter days and therefore a loss of revenue. But the benefit we have is that we have such a large portfolio that normally it smoothes itself out, except during the maintenance season in the summer. This is why you have some seasonality in our shuttle revenues despite the earnings being fixed rate -- on the day rates being fixed. So, the volumes can vary.

And just two quick more questions. First of all, on the product side, it seems that the product market is quiet strong and getting stronger with the market events you guys have in Asia. You see opportunities to expand the products on a ownership basis and do you feel that the purchase market right now for product tankers versus crude tankers is more beneficial to the price per the revenue you have got in as compared to the crude?

The product market is an area we intend to grow. We will be looking for the right windows; we have expanded our product fleet, as you can see from the number of segment base. We have three large product tankers on order at this time that would join our fleet in the next 6 to 18 months and we will look at in chattering ships. Again it's a matter that the windows kind of open and close -- at the moment we think the prices are probably a little on the front side for time chartering, although we have done some time chartering in the last 6 months.

Okay. And then just hanging on to the time chartering -- I noticed that you guys increased your time chartering in on the product side. Is that something that is announced on the website or it is something we can track when you decide to change your time chartering fleet? Am I missing that?

Sorry, I've. I guess we -- our fleet is updated on the website. I guess we will -- we can normally get information on our website shortly after we have in-chartered 1MR product tanker in the last quarter as well as we have a joint operation with one customer where three ships have been in-charted between us, of which we have one of those vessels on our -- and we have one-third exposure to that pool. So, these are not dramatic numbers but we are looking to build the product business. As it gets bigger, we will give you more data.

[OPERATOR INSTRUCTIONS]. Walter Louvado (ph) , Passport Capital

Good morning. Just two quick questions. On the share buyback, which I think buy the way is obviously a good idea. How do you come up with the figure of $225 million?

When we looked at what cash flow we had coming forward and we looked at what we could reasonably be expected to buy over a certain period of time, we came up with a 225. As you see, we completed the first program faster than anticipated. So, we came with another program. So, I think the timing of the sales would dictate the amount of share buyback.

The timing of the sales --

Excuse me, the timing of the purchases of the share buyback program will dictate the amount. This is an amount that we are comfortable that we will be able to purchase.

Okay. And, would you be comfortable purchasing the entire amount next week, if the price is right?

I guess I would say potentially but I am not going to expose our hand as to when we will buy and at what price we will buy.

Okay. I don't know if you can answer this. But on the LNG deal [Inaudible] how about timing, when do you think that might happen?

No, we are not comfortable talking about the registration process because we are in our acquired (ph) period.

Okay. And then lastly, on the rates. Where are the current Caribbean, US, Gulf, and AG-East Aframax rate?

I would say that probably 25 to 35,000 moving around like that. So, call it 30,000.

And fairly stable?

They are moving around a little bit. The East market is coming down, the Caribbean market is going up a bit.

Okay. Thank you very much.

Justin Yagerman, Bear Stearns.

On the VLCC charter, that you recently placed, I was wondering if there were any upside provisions in that, and then I guess in terms of where all the classified going forward, is that the conventional fixed rate fleet, is that where it will be moved down to?

Yes. There aren't any upsides. It's a fixed rate charter out and it's a fixed rate charter in and it will move to the fixed rate segment because ---

Okay, because [Inaudible] . And I guess, in terms of interest expense going forward, you touched on why it was higher but if you could give some guidance as to what you currently modeling for the next few quarters as we-- you have paid down and a nice one at that. And what we should expect to see in that line?

Sorry, on what?

On interest expense?

Well, we don't give modeling on exactly how much we'll go forward. We should be reducing as I said the absolute amount of cash and the absolute amount of debt when we complete the Teekay LNG segment going forward. But, we would expect that our cash flow should mean that we will continue to deleverage if we have the kind of market scenario, which Bjorn outlined.

Okay. Fair enough. And, just lastly, I guess, I was curious as to what your Suezmax earnings would have looked like had the FAAs (ph) not been in the calculations. You have a--TC (ph) figured that--

Yes, I can give you a rough guidance that probably would have been around 50,000 a day. But, it would have been on what would have been left, if we kind of look it up pure spot would really only cover about 4 Suezmax's. And so, that number even though you take out the other factors that -- the pure spot is likely to be quite volatile. The difference between a voyage kind of straddling the previous quarter or the next quarter or where you fit into the short-term volatility in the market can influence that number quite a bit. So, again it's a small segment.

Right. Thank you very much.

John Woodberry (ph) , Independence Capital.

I don't know too much about the rules about share repurchase. But, are there any restrictions of you were to, perhaps, pursue the full amount -- the recently announced share repurchases. Would you be under any restrictions to buy any more this year or would you be capped out?

Well, the -- our restrictions are that the Board of Directors has to authorize the amount of any share repurchase program. So, if we complete the 225 million and we wanted to do more then the Board would have to authorize a new share repurchase program or at some point expand the existing 225 million going forward which they may do at any share repurchase program, so if we complete the 225 million and we want to do more than the Board would have to authorize a new share repurchase program or at some point expand the existing 225 million going forward, which they may do at when they want.

That's the governing factor?

Yes.

Terrific. Well, Thank you for sincerely following through on the announcement.

That was the first announcement. Now, I have the second announcement.

And gentlemen, there appear to be no further questions at this time.

Okay. Well. Thank you very much for joining us this morning. That was a good discussion and enjoy the rest of the day. Talk to you next quarter.

And, that does conclude today's teleconference. We would like to thank everyone for their participation and we wish everyone a great day. And, now at this time, you may disconnect.