Teekay Corp Ltd (TK) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Teekay Shipping Corporation's third quarter 2006 earnings release conference call. [OPERATOR INSTRUCTIONS]

Now, for opening remarks and introductions, I would like to turn the conference over to Mr. Bjorn Moller, Teekay's President and Chief Executive Officer; Mr. Vince Lok, Teekay's Chief Financial Officer; and Mr. Peter Evensen, Teekay's Chief Strategy Officer. Please go ahead, gentlemen.

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 third quarter of 2006 earnings presentation.

Mr. Moller, Mr. Evensen and Mr. Lok 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 and 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 the 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 1, 2005, 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 Peter Evensen, Vince Lok and myself on this morning's call.

Beginning with the highlights in slide number three, I'm very pleased to report to you on a very good quarter in which we delivered strong results, grew our business, returned capital to our shareholders and progressed our drive to unlock the true value of Teekay.

Our net income was $79.8, or $1.07 per share, more than double our results from one year ago on an EPS basis. We generated cash flow from vessel operations, or CFVO, of $147.7 million, of which $87.5 million came from our fixed-rate business segments. Our strong performance was the result of the highest third quarter Aframax market on record coupled with a high fleet utilization across all of our segments.

We took a major step in growing our business with our successful bid for Petrojarl ASA, which results in us -- which resulted in us acquiring approximately 64% of that company for a cost of $525 million.

We placed orders for two additional Suezmax tanker newbuildings.

We raised our regular dividend payments for the fourth year in a row, this time by 14% for a total increase of 120% since 2003, and we've bought back a further 230,000 of our shares. We are on track to file the IPO registration statement for Teekay Offshore Partners during the fourth quarter.

And finally, Teekay LNG has agreed to acquire Teekay's interest in the RasGas 3 and Tangguh LNG projects.

Turning to slide number four, I'll review the main developments in our fixed rate tanker segments. CFVO was $70 million in the quarter, 18% above last year's figures and ahead of our guidance last quarter. As expected, we saw improved cargo volumes this quarter due to earlier than normal completion of North Sea summer oil field maintenance.

But we also benefited from two other factors -- namely, the rollover of a number of shuttle tanker contracts at increased rates and a high fleet utilization due to very efficient fleet scheduling.

The growth of our Brazilian shuttle tanker business progressed as planned. Upon completion of conversion work in July, we delivered the first of three vessels under the long-term contracts announced earlier this year. The second vessel is now undergoing conversion, and the third vessel will follow in early 2007 before commencing its long-term charter early in the second quarter of 2007. At that point, we will have ten shuttle tankers in Brazil servicing Petrobras.

As I mentioned, we remain on track to file the Teekay Offshore Partners IPO registration statement during the fourth quarter. While we're in the registration process, we're limited in what we can say about the prospects for the businesses in question. What we can talk about, however, is, as shown on slide number five, the strategic rationale for the acquisition of Petrojarl.

Petrojarl is a leading provider of sophisticated harsh weather FPSOs. It has 20 years experience in the FPSO business and is recognized for its advanced offshore engineering expertise. It currently owns and operates four FPSOs in the North Sea, which is the most demanding regulatory offshore environment in the world.

Petrojarl's business is a natural extension of Teekay's Offshore Marine franchise. Their FPSOs are complimentary to our shuttle and floating storage activities, and the combination makes Teekay a one-stop Marine solutions provider in the growing global market for offshore oil production and transportation.

The background for the acquisition is that while performing a joint venture with Teekay earlier this year, Petrojarl came into play during August. In order to protect our access to this strategic business platform, we moved swiftly to acquire a 40% shareholding in the company before launching a mandatory bid for the remaining shares. And as of November 1, our ownership stood at 64%.

During the quarter, Petrojarl was awarded a contract to provide an FPSO for the Siri deal in Brazil from the first quarter of 2008. This FPSO project, which involves the conversion of an older tanker to a floating production unit will be the first FPSO built to produce from the large reserves of very heavy oil that exists off Brazil.

Turning to slide number six, our fixed-rate LNG segment generated CFVO of $17.2 million, roughly in line with the same quarter last year. A major milestone was reached earlier this week, when the first of our newbuildings for the RasGas II project sailed from the building yard and commenced its 20-year fixed-rate time charter. With a cargo capacity of 151,700 cubic meters, the vessel -- shown in this photo, taken at last month's two-ship naming ceremony in Korea -- is the largest LNG carrier ever completed.

The remaining two vessels for this project are expected to deliver and commence their charters by the end of the first quarter of 2007.

Teekay LNG Partners has recently agreed to acquire Teekay's interest in two other LNG projects -- namely, a 40% interest in four [inaudible] LNGs for RasGas 3 due to deliver in the second quarter of 2008 and our 70% interest in two LNGs for Tangguh due for delivery by early 2009.

Turning to the developments in our spot tanker segment on slide seven, our Aframax fleet earned $34,800 a day in the quarter, the highest result ever for a third quarter. On a pure spot basis -- that is, excluding the effects of hedges mentioned in the footnote to the table on page three in our earnings release -- our Suezmax fleet earned $46,200 a day.

Our spot crude tanker fleet increased by net two Aframax vessels as we remained active in the in-chartered market. And we placed orders for two further Suezmax newbuildings, and this brings our Suezmax newbuilding program to ten ships, the largest in the world. These ships are scheduled to deliver during 2008/2009, in the lead up to the 2010 [Iomo] deadline beyond which many countries are expected to ban single-hull tankers.

Our clean petroleum product tanker fleet enjoyed another good quarter, with our large and medium-sized ships earning, on average, $26,500 a day. We increased the clean fleet by one ship with the in-charter of an additional MR product tanker.

On slide eight, we show the seasonal development in Aframax rates this year compared to the two prior years. As you can see, average rates in the third quarter were much stronger this year -- in fact, 40% stronger than the average seen in Q3 2004 and 2005. Put differently, winter started early this year for the Aframax market.

One evident driver of tanker rates was the rise in tanker demand, the result of global oil production in the quarter hitting another record high. However, another element was the cumulative effect of several smaller factors, a phenomenon which lead us to state on our last earnings call that we felt the effect of worldtanker fleet utilization is actually greater than the observed utilization. Interestingly, the latest estimates from [inaudible] do support this point, showing an unexpected increase in the overall fleet utilization to more than 90% in the quarter, and you'll recall that 90% is normally considered full utilization.

Looking at rates so far in the current quarter, we have not yet seen quite the same fourth quarter jump in rates that we saw last year, partly because there were no trade route disruptions due to hurricanes this year and partly because of a slight reduction in November OPEC cargo nominations related to an off-production cut. Nonetheless, as you can see, Aframax rates actually firms during October. Our fourth quarter is shaping up nicely with approximately 50% of our stock [voyage days] locked in at an average Aframax rate of $36,000 a day.

On slide number nine, we compare Aframax and VLCC rates year-to-date. Normally, we would consider tanker demand to be fundable across the world fleet. However, right now, we're seeing a temporary but pronounced shift away from OPEC production, assuming that OPEC follows through on its targeted cuts, and towards non-OPEC production, which is currently growing faster than normal. As the chart shows, when tanker demand is growing faster on shorter non-OPEC hauls as opposed to the long-haul OPEC routes, medium-sized tankers benefit more than VLCCs.

Looking ahead at the supply and demand fundamentals on slide ten, a strong global economy led by China and India is expected by the IEA to drive global oil-demand growth of 1.7% in 2007. We're also expecting to see the typical strong seasonal demands during this upcoming winter.

Over the next couple of quarters, non-OPEC production is expected to continue to grow faster than normal, rising by 900,000 barrels per day in the current quarter and a further 800,000 barrels per day next quarter, setting the stage in 2007 for the fastest growth in non-OPEC production since 2002. This should continue to generate strong demand growth, particularly for medium-sized tankers.

Longer term, non-OPEC growth is expected to slow while OPEC production capacity is expected to grow by six million barrels per day by 2010. As OPEC gradually regains market share, the resulting growth in longer-hull trades will raise the global ton-mile tanker demand.

Seasonal factors during the upcoming winter are expected to add to voyage times and [inaudible] demand. These typically include Bosphorus transit delays which have already begun and are running at three days in each direction, also weather delays and ice conditions.

On the supply side, the basic math of newbuilding deliveries minus mandatory scrapping points to fleet growth of 7% next year. However, this does not take into account any voluntary scrapping or any removals for offshore conversion projects, which have been growing in number. Another factor reducing effective supply is the widening discrimination against non-double hull tankers, and this is especially true for medium- and smaller-size tanker segments, which call on [inaudible] more often than the VLCCs.

In summary, we expect a good winter market, particularly from medium-sized tankers, and we expect the overall tanker market to relatively comfortably absorb new tonnage deliveries in 2007. This should lead to another year of volatile, but overall firm rates.

Finally, turning to slide 11, before I hand it over to Vince, I wanted to take this opportunity to congratulate Peter and Vince on their well-deserved promotions announced yesterday. Peter has been appointed to a new position of Executive Vice President and Chief Strategy Officer, and Vince has been appointed to the position of Senior Vice President and Chief Financial Officer.

Both Peter and Vince have been major contributors to our company's success and are key members of our management team. I thank Peter for his excellent leadership as Teekay's CFO over the past three and a half years, and I look forward to working closely with him in his new role as we further develop our existing business segments and pursue new opportunities. I also look forward to working more directly with Vince as he takes over the CFO role, and as he and his team continue to build on Teekay's financial achievements and support our growth plans.

So it's with great pleasure that I now hand it over to you, Vince, to discuss our financial results in more detail.

Thanks, Bjorn.

Overall, we had a strong third quarter in all of our segments. We generated our highest third quarter Aframax rates and reported our second highest third quarter earnings per share in Teekay's history.

Net income for that quarter was $79.8 million, or $1.07 per share. This included a number of items that, on a net basis, had the effect of increasing net income by $2 million or $0.03 per share. Without these items, which largely relate to unrealized foreign exchange-related items, and a [day on] sale of an [owner] shuttle tanker, net income would have been $77.8 million, or $1.04 per share, which is up almost 150% from the comparable figure in the prior year's third quarter.

Looking at the operating results of each of our segments from slide 12 of the presentation, overall cash flow from vessel operations, or CFVO, for the third quarter increased by 39% to $147.7 million compared to $106 million in the third quarter of 2005.

Our fixed rate tanker segment generated $70.3 million in CFVO during the third quarter compared to $59.6 million in the third quarter of 2005. This increase was primarily due to the higher utilization of the shuttle tanker fleet as result of the completion of seasonal maintenance of offshore hull facilities earlier than in the prior year. In addition, the time-charter rates on certain of our shuttle tankers increased a result of recent contract renewals that were concluded at higher rates.

The $70.3 million in CFVO came in $8 million higher than what we had previously estimated during last quarter's earnings calls, mainly because we were able to more effectively schedule our shuttle tanker fleet given the visibility we had on the oil feed maintenance schedules.

Our fixed rate LNG segment generated $17.2 million in CFVO during the third quarter, which was virtually unchanged from the $17.7 million in the third quarter of 2005. On October 31, we took delivery of our fifth LNG carrier, in which we have a 70% interest. As previously agreed, this vessel -- along with two other RasGas II LNG carriers currently under construction -- were sold to our 68% owned subsidiary, Teekay LNG Partners.

We currently have eight LNG newbuildings on order, two of which are scheduled to deliver during the first quarter of 2007, and the remaining six are scheduled to deliver during 2008 and 2009.

The contribution from our spot tanker segment more than doubled to $60.2 million compared to $28.7 million in the third quarter of 2005. This increase was due to the rise in spot tanker rates, partially offset by a reduction in the size of our spot tanker fleet.

Our spot Aframax fleet earned an average TC rate of $34,800 per day in the third quarter. That's up from $24,800 per day earned in the same period last year. It should be noted, however, that our spot tanker fleet increased from the previous quarter by 285 days as a result of in-charting three additional vessels during third quarter.

Turning next to slide 13 and reviewing the remaining income statement figures in comparison to the third quarter of 2005, G&A expenses were $39.8 million compared to $40.5 million in the third quarter of 2005. This $700,000 decrease is not directly comparable because the 2006 quarter included a $2.3 million expense for stock options, as per our adoption of [FAS 123].

Excluding stock option expense, G&A expenses actually declined by $3 million from the previous years, due primarily to a reduction in crude bonuses and restricted stock unit expenses.

Excluding the impact of the acquisition of Petrojarl, we currently expect G&A expenses to run in the low $40 million range for the fourth quarter, which includes an estimated stock option expense of approximately $2 million.

The $7.1 million gain on sales [inaudible] for this quarter included a $6.4 million gain on the sale of an older shuttle tanker in which we had a 51% interest. As we consolidate the results of this vessel, 100% of the gain is included in this line item, and the 49% minority share of this gain is deducted as part of minority interest expense, which is shown further down in the income statement.

During the third quarter of 2006, we incurred $2.9 mil in the restructuring costs, primarily relating to the relocation of certain operational functions which we discussed earlier this year. In the fourth quarter, we will have completed this reorganization and expect to incur an additional $2 million in restructuring charges.

Net interest expense increased to $26.3 million in third quarter from $21.3 million a year ago, primarily due to the interest incurred from the acquisition of Petrojarl and the expiry of certain of our more favorable interest rate slots partially offset by the repurchase of $32 million of our bonds and a conversion of our exchangeable preferred unit equity in February 2006.

We recognized an income tax recovery of $4.9 million this quarter, which was primarily related to unrealized foreign exchange loses. So on a net basis, we incurred an income tax expense of less than $200,000 in the third quarter.

Minority interest expense in the third quarter was $7.3 million, of which $3.2 million relates to the 49% minority interest share of the gain on sales [SO] I had mentioned earlier, and the remainder relates primarily to the minority interest in Teekay LNG partners.

Other items net of $1.2 million comprises mainly of income from our VOC outfits, partially offset by an unrealized loss on interest rates [inaudible].

Turning to slide 14, we presented the September 30 balance sheet and compared it to the June 30 balance sheet. Other assets has decreased by $63 million, which is due primarily to the increase in the value of our interest flat rate swap, which hedged our floating rate debt.

Advances on the newbuilding contracts have increased by $78 million from $287 million at June 30 as we continue to progress our newbuilding program.

The $356 million investment in Petrojarl and a corresponding increase in long-term debt is the result of our purchase of approximately 43% of Petrojarl as of September 30. As Bjorn mentioned, subsequent to the end of the quarter, we purchased additional shares, bringing our total interest to approximately 64% for a total cost of $524 million.

We mentioned we financed the Petrojarl share purchase using a combination of our existing revolving credit facilities and the new short-term $600 million acquisition facility we secured this quarter. We will provide more information on the impact of Petrojarl on our results in the coming months.

Our total liquidity as of September 30 was $937 million, down slightly from the $965 million at June 30. However, we completed a number of financings and refinancings in October, the effect of which has increased our current liquidity to approximately $1.5 billion.

Net of restricted cash, net debt to capitalization was 42% at the end of the quarter, an increase from 37% at June 30. This is due primarily to our investment in Petrojarl.

Turning to slide 15, from August 1 to October 31, we have repurchased approximately 230,000 shares for a total cost of $10.2 million. Our slower pace in the previous quarter pointing to short-term liquidity needs of the Petrojarl purchase. With the remaining share repurchase authorization of approximately $122 million is completed at an average price of about $41 per share, we will have repurchased over $22.0 million shares or 27% of our outstanding shares since November of 2004, when our initial share repurchase was announced.

Looking forward to the fourth quarter results, we have fixed approximately 50% of our stock [inaudible] and average Aframax TC rate of $36,000 per day.

On slide 16, our rule of thumb EPS guidance is a quarterly EPS of $0.06 for every $1,000 Aframax TC above our net income [rate] of $15,500 per day. This, however, excludes the impact of Petrojarl, which is likely to be consolidated with Teekay's results starting in the fourth quarter.

Since Petrojarl's current term contracts are at below market level, Petrojarl's results will likely be slightly dilutive to Teekay's results until their contracts renew, and when new projects, like the Siri project are added.

Overall, we are expecting to report a strong fourth quarter in each of our segments. Also, as Bjorn mentioned, our pending initial public offering of Teekay Offshore Partners is on track, and we expect to publicly file a registration statement with the SEC during the fourth quarter.

I'll now turn it over to Bjorn to conclude.

Thank you, Vince.

Let me close by saying that we're very pleased by the performance and the outlook for all of our business segments and especially our newest one, Petrojarl, and we believe that Teekay's well positioned to continue successful growth.

Thank you for listening this morning. Vince, Peter and I are now ready to take your questions.

[OPERATOR INSTRUCTIONS] Our first question comes from Doug Mavrinac, Jeffries & Company.

Great, thank you. Good morning, guys.

Hi.

I just have a few quick questions for you. Given the disconnect that we are seeing in the VLCC market versus the Aframax market, where are you seeing the most strength in terms of demand for Aframax tankers right now? And do you expect that to remain the same or change somewhat for the balance of the year?

We've been seeing pretty broad-based strength in the Aframax segment. We saw a strong market in the Asia-Pacific earlier in the quarter. And then as we ended the third quarter coming into October, we saw very strong markets in the North Sea and the Mediterranean, and we've seen -- at the moment, the Caribbean Aframax market is the firmest market, about [50,000] a day.

So it's moving around a bit, but there's very good demand overall, and I guess the new non-OPEC oil is mainly set to come from the former Soviet Union, West Africa and Latin America. So we would expect to see a lot of strength the Atlantic route.

Okay, great. Thank you. And then from a longer-term perspective. Obviously, with the number of Suezmax tankers you have on order, which that was increased during the quarter, you obviously like that particular sector. What about the Suezmax market makes it attractive to you over the longer term?

It's adjacent to the Aframax market, and we would say that to some extent it's interchangeable; although the Aframax is probably still slightly more flexible. But with West Africa seeing a lot of the growth, that's a slightly longer haul than some of the other and non-OPEC hauls, so we'll see -- we believe -- Suezmax and Aframax growth. So we want to be in both sectors.

It also gives us optionality in terms of converting ships to shuttle tankers, where the predominant size is Brazil, for example, is Suezmax. So we are able to use our position there in two ways.

Okay, great. And then final question has to do with the Petrojarl acquisition. Bjorn, can you add a little bit of color on how the integration is going and kind of the next steps in terms of folding that into the Teekay portfolio?

I'll let Peter handle that.

Yes, at present, we aren't integrating Petrojarl into the portfolio because we're continuing to buy shares going forward. So while we are in the process of -- and have planned for the integration part of it, we haven't started that process yet because we haven't secured over 90% of the company yet.

Okay, so -- okay, great. That's all I have. Thank you very much.

Thank you.

Our next question comes from Jordan Alliger, Deutsche Bank.

Yes, hi. Morning. You guys have done a good job with the acquisition from consolidation in the past. Obviously, this most recent one another in the line. Sort of your thoughts heading into the next year or so. You certainly have a good balance sheet and cash flow -- very good. Sort of updated thoughts on where you'd consider or what you'd like to look at, sort of, from here, depending on what the markets give you, I guess.

Peter, you want to take that.

Yes, I would say that we remain opportunistic about that. What Teekay has is the ability to invest in a number of business units. We've been growing our LNG units because that's something we can do at any point in the cycle. And then we have moved into the offshore area because we think the growth aspects in offshore are probably among the best when you look at it on a median term basis. And that also is very complimentary to our other businesses.

On the stock side, we remain opportunistic, but I would say that we find it better to order new tonnage that suits Teekay's specs rather than to look at acquisitions of tonnage that isn't exactly our spec, and we don't see a reason to have to pay takeover premiums.

And then we've been able to sort of use our significant in-charter strategy to sort of maintain significant operating leverage as we're sitting a bit on the sidelines and acquiring spot assets in the shorter term.

And finally, we think that Teekay's shares are a good investment. As Vince said, we've seen aggressive purchasers of our shares, and we think that's probably the best investment we can make.

And just refresh my memory. You mentioned the chartered-in strategy. Where are we in terms of charter-in, sort of flow-in, flow-out scenario? I think I saw in your presentation something about costs in the third quarter, fourth quarter. How does that look as we go into '07? And what would you strategize in that regard?

Again, that would be opportunistic, Jordan. I mean, we're going to look at what rates are, and as you can imagine, Aframax oils are pretty bullish right now in [technical difficulty] market, so we are going to be disciplined. At the end of the day, we want to have a good shot at making money, even though we also want to maintain a fleet size. So I think the fact that the in-charter fleet Aframaxes in the third quarter is really an assertive move. [Technical difficulty], but I would say we'll be opportunistic there as well.

And just a final question. Understanding that with the non-OPEC picking up in some of those areas that you mentioned and helping out the Aframax rates in terms of where they stand now -- and you sort of mentioned normally you'd expect there to be a fundability in the shipping markets. If you had a scenario where OPEC actually was disciplined on the production cuts, and utilization in the VLCC markets did soften at some point, does that lag -- at least historically, the lag has eventually gone away, and you've had that knock-on effect to the other shift classes. I mean, is that something that would still occur? Or are there things that may be fundamentally different?

I guess if you took -- if you look at typical Middle East OPEC production, about 80% of that is lifted by VLCC, 10% by Suezmax and 10% by Aframax. So when that production falls away, you're going to have that proportion of ship [days] freed up. So obviously, over time, the VLCCs can begin to look at West Africa and other movements, but they don't have the same flexibility, so you're going to see a partial and delayed erosion in rates at other segments, but not -- it's not going to be proportionate. Then, when it goes the other way -- when OPEC picks up again, of course, the VLCCs will disappear, again leaving room.

So I guess, historically, there is a differential in Aframax and VL rates, but the Aframax rates tend to be more sustained through the cycle. But then when it hits on the [screws], of course the VLs hit the ball out of the park.

Right. Okay. Thanks very much.

Thank you.

We'll now go to Omar Nokta, Dahlman Rose.

Morning. Congratulations, Peter and Vince, on your promotions.

Thank you.

It looks like your relationship with Petrobras is expanding now with the series build FPSO contract and the ten shuttle tankers you've got with them also. Is this something that you're looking to build upon even further? And just in general, is the deployment for the ten shuttle tankers you have with them, are those all in Brazil?

The second question, the answer is yes, all in Brazil. And we certainly that Brazil and Petrobras -- although there are other oil companies operating off Brazil as well -- is probably one of the most promising offshore frontiers. And their -- the weather characteristics and the quality commitment that they have there now is such that this really plays into our strength. So we are -- we view that as complimentary to our strategy with the FPSOs really fitting in with our shuttle relationship with Petrobras.

Are there any other regions that you're looking to market potential FPSOs outside of Brazil?

We certainly will follow the various [inaudible]. The big frontiers are Brazil, West Africa. They're growing, and we expect growth in the Gulf of Mexico, off Australia. So this is overall going to be a rapid growth market, but we will pick hot spots. I think it will be -- Petrojarl's niche is really harsh-weather, high-quality operations. So that is sort of exactly the quality niche that Teekay already has in its business. Well, that's very good there as well.

Okay. And could you just give a sense of what the conversion costs will be for the FPSO that you just contracted?

Yes, what we've said is it's going to cost somewhere around $150 to $175 million.

Okay.

Of which the vast bulk of it is part of the conversions cost.

Okay. All right. Well, thanks a lot, guys.

Thank you.

Our next question comes from [Roy] Stewart, Simmons & Company.

[Thanks, Sam]. I think the last quarterly conference call, you gave some great kind of macro data points. And in your opening remarks, you did talk about some softening in nominations for November loadings in the Middle East. I was just wondering can you confirm that's what you're seeing. And is that what you're seeing now or your expectation going forward, that you are going to see reduced loadings out of the Middle East?

Well, in fact, some of those loadings had already slowed down. Saudi Arabia was producing the lowest quota in October of the heavy grades, actually, because there was less demand for that oil. So I guess we already began to see that impact. But there's clearly an intention to demonstratively show compliance. And so a couple -- Nigeria has some outages for other reasons. And Israel and Indonesia have not -- are not even performing to their quotas because of production difficulties. So it's countries like Saudi Arabia, Kuwait and one or two other countries that are going -- they're going to make sure that they seem to be reducing.

So it's not going to be significant amount. I mean, we're going to see 1.7 million barrels of new oil from non-OPEC over the next two quarters. And the time it takes to ramp up the million -- 1.2 million barrels drop in OPEC, I'm not sure that we will really see an actual decline in the amount of oil on the market.

Okay. And then, I guess, last quarter as well, you order a Seuzmax, which I think was relatively [cool] price or a higher price than we might have seen in some newbuilds. And again, this time $85 million apiece. I think some of that was some of the shuttle tanker features that you put on those vessels. Is that the similar story with these units?

Not in this case. But we view that we have good environment prospects for that ship, and this will be profitable for us.

Okay, and the last one. With the Petrojarl [process] decided not to accept the offer that you were making for their kind of considerable share moving, I guess, do you think that's just more to do with the [Seamount] time limit by them having to pass back the profit on those shares? And I think that ends or runs out at the end of November. And so are you comfortable that you'll get up to that 90%, which obviously you need to process shares for?

We think we'll ultimately get 90% and then 100% of the company. Why Petrojarl has decided not -- excuse me, why [inaudible] has decided not to sell, you have to ask them. But as you point out, they have a gain of $70 million if they wait past roughly November 20.

Yes, that's how I read it. Okay, that's it for me. Thanks.

Thank you.

Our next question comes from Terese Fabian, Sidoti & Company.

Good morning. Can you address a little bit on the timing of the renewal of the Petrojarl contract?

I think we're going to defer any discussion on the Petrojarl until we're going to give complete guidance on that, as I said, when we make over 90% and we begin to consolidate it in. So we will give you much more information on that later.

Okay, let me ask a more general question. When you have long-term fixed rate contracts, do you generally build in escalator clauses? Or are they more or less set in stone?

It all depends upon on the contract, but I would say, in general, yes, we do have escalations. Particularly on the LNGs, we always have the escalation on the operating contracts because over 20 years, we either reset them to actual, or they're tied to some index like the consumer price index. And on our shuttle tanker, like the field contracts, again we have escalation clauses in there because they are so long. So on the majority of our contracts, we do have escalating -- escalations for operating cost.

Okay. Thank you. Let me ask another, sort of, question in the area of stock prices. Compared with many of your peers, Teekay's share price has not appreciated at the same rate. What do you think is going on? I mean, whether you take a six-month or a one-year or a two-year look.

Well, I would answer that -- we recognize that Teekay has been very good value. That's why we've been aggressively buying our stock back. That is why we are undertaking other steps to illuminate the true value of Teekay such as the floatation of Teekay LNG Partners, the intended launch of Teekay Offshore Partners, and I guess, basically, the very, very strong stock market over the last couple of years has probably overshadowed our very solid and profitable long-term fixed-rate strategy, which I believe will come more into its own as we go forward.

I also think if you look at today, I think Teekay shares are valued much better than they were in relation to the peer group, but we feel there is more value there. So we will keep plugging away at it.

Okay, thank you.

Our next question comes from Jonathan Chaplin, JPMorgan.

Thanks. Good morning, guys. Bjorn, even though there are a lot of the different regions where you see potential for the offshore business, but you left out the U.S. Gulf. I realize it's not exactly harsh weather, but there is a lot of optimism about potential deepwater opportunities there. My question is -- can you explain how the Jones Act works in the U.S. Gulf offshore business and how your fleet and potentially Petrojarl's can or cannot operate there, whether it be FPSOs or shuttle tankers?

Okay, I'm pretty sure I mentioned Gulf of Mexico as one of my regions, but if I didn't, I apologize.

Well, maybe you did, and I missed it. Sorry.

Yes, so the Gulf of Mexico is clearly going to be an interesting frontier for the FPSO and shuttle tanker business. I think what's interesting is the depth of the water there and the [substesiology], which is challenging; although there is also a very well developed pipeline infrastructure. But as we've seen, that infrastructure is certainly vulnerable due to hurricanes.

So we expect that there will be some additional projects. The FPSO business will not be subject to the Jones Act, in that it doesn't transport cargo. And so, therefore, we would be eligible to complete for FPSO projects in the Gulf of Mexico.

Where our shuttle tankers are concerned, that would be subject to the Jones Act. So we would be restricted in the percentage of ownership we could have in that business. But I would expect that we could add value and that we will seek to participate in the Gulf of Mexico shuttle tanker business to the extent we can.

Is there an opportunity for you to charter in? Or because you're still not a U.S.-based company, chartering-in's not an option for shuttle tankers?

There are various structurings you can do in which -- that will allow you to participate into certain percentages. But we will, of course, explore that as we better see this project develop. And then we will be able to pursue them.

Yes. Do you have a sense to what the U.S. flag shuttle tanker fleet consists of and if there is enough capacity to meet most of the new wells and rig projects for the Gulf?

Yes, there are no U.S. shuttle tankers in that dynamic. It's [inaudible] shuttle tankers at this point, so it should be considered also that the -- this is going to be a niche market. It's probably not going to be a very large market. The distances are relatively short, so you can do a lot of the work with relatively few tankers.

And then, lastly, does the -- assuming the Petrojarl acquisition goes through -- how did this impact the joint venture that you've already established with them?

Again, I think we'll give guidance on that when we complete the purchase.

Okay. Thanks. And again, congratulations to Peter and Vince.

Thank you.

Thank you.

We'll now go to Philippe Lanier, Banc of America.

Yes, good morning.

Hi, Philippe.

Two very quick questions. First of all, you had mentioned that you had some uplift in some of your shuttle tanker contracts. Is it possible for you guys to quantify roughly how much per quarter that means for future revenue?

It's difficult to quantify it because -- I think we mentioned last quarter we had about three or four vessels that had increases in their renewal rates. So I think you see that uplift that you've seen compared to the second quarter. Unfortunately, I think that's is -- do the math.

Okay. Well, let me try a different tact, and I guess [inaudible] possible. I'm using a run rate excluding the LNG basis on a quarterly basis, kind of normalized around $170 million a quarter for your fixed fleet from that revenue. Is that a fair metric to use? Or has it moved up since kind of historical measures.

You're referring to the fixed rate tanker segment?

Yes. That's assuming normal operations absent any seasonal declines in the North Sea.

Were you're using $170 with it?

Yep.

I think what we saw in the third quarter is a good representation. But I think, as you saw last year in the third quarter, it usually dips a little bit in the third quarter. But I guess, if you use, sort of, an average of what we've experience over the first three quarters of this year, I think going forward, we'll probably see a slightly -- a better rate than that given the renewals that you just mentioned. And we're seeing very good utilization in our shuttle tanker fleet.

And then the second question I have with the sale you guys had announced for all the LNG vessels, I noticed that you didn't quantify that in either of the press releases. Is that something you plan to do in the future? Or it'll just show up as a wash on the balance sheet, and that's not going to be released?

You're referring to the IPO --?

No, the sale --

No, the sale of the LNGs to the LNG Partnership.

Yes, there is -- because Teekay LNG Partners is consolidated with Teekay [inaudible], there is no gain or loss on those sales. And those sales are actually at cost down to Teekay LNG is per the agreement, the MLT, consolidated, no gain or loss.

Right. And as I understood it -- and tell me if I'm wrong -- part of that deal, embedded in that deal was the implication that any interest expense carried over the period while those vessels were being built would be reimbursed by Teekay LNG Partners. And since we can't see it in the balance sheet, since you guys are consolidating it, is it possible for you guys to confirm that's the case and quantify how much Teekay's going to be reimbursed for undertaking the burden.

That's right. When I say costs, it includes our cost of capital, our capitalized interest on the installment payments that Teekay's making. So we charge, a constant capital-based percent on that.

Okay. Thank you very much.

And the next question comes form Scott Burk, Bear Stearns.

Hi, good morning, gentlemen. Got just one quick question about your capital plans for 2007. The number went up by quite a bit, $190 million or so. Is that primarily due to the FPSO contract -- or the FPSO conversion that you're planning to do -- just looking at the capital expenditures for the fixed rate option?

Yes, that's right. We've included $75 million related to the Siri project, which was 50% of the $150 million that Peter mentioned earlier.

Okay. And just thinking of the FPSO business, with the drop in oil prices we've seen over the last couple of months, have you seen any impact in terms of interest in those projects? I guess the question gets to whether there's any sensitivity -- producer sensitivity to oil prices in terms of going forward with more of those types of projects.

Certainly not at these levels. And interestingly, I guess, what some of the major oil companies are experiencing in Russia, I guess it's narrowing the base where they can replenish reserves, and offshore oil is clearly that sweet spot for them. So that's the first thing. Secondly, I guess, the projects that will be competed for by Petrojarl already kind of on the [shoots] because all the drilling that's going on now is going to lead to significant increases in oil production offshore. And thirdly, the fact that OPEC is deciding to defend price in that market share, I think, again, is a very positive signal that prices are going to remain such that oil companies will invest in [CMP].

Okay, thanks. So if there was an impact, it also wouldn't happen until many years out because the projects that you'd be building for -- they're already in present.

And then, kind of speaking of OPEC, you talked about Venezuela a little bit earlier. If that would affect your -- kind of the Aframax market a little bit more, any -- have you seen any change in spends from Venezuela, a big -- a vocal opponent of OPEC cutting. But have you seen any changes there from actual production levels.

We have not, and that would be relatively small volumes, remembering that Venezuela's also supplying China now with oil. So on a total ton-mile basis from Venezuela, it's actually adding to the tanker market at the moment.

All right, thank you very much.

Great, thanks.

The next question comes from Justine Fisher, Goldman Sachs.

Good morning. The first questions that I have are just a couple of other mechanics questions about Petrojarl. Realizing that what you can talk about going forward is quite limited, but first of all, how will Teekay account for the Petrojarl stake in the fourth quarter, either assuming that you can purchase the remaining shares in the fourth quarter, or maybe even if that happens, in the first quarter? Would it just be like an equity stake on the income statement or --?

Justine, we -- since we own 64% right now, and if by year-end -- on the basis that we own more than 50% right now, we will consolidate Petrojarl into our fourth quarter results. We haven't picked up any equity in the third quarter, given that it was -- we were basically acquiring shares during the month of September, and that portion of the third quarter income is not material. You'll see Petrojarl consolidated with Teekay's results in the fourth quarter.

Okay. And then, I guess, we'll get guidance going forward on the fourth quarter call, or --?

That's right.

And then regarding the financing of the Petrojarl acquisition, what -- I mean, I guess there was probably $400 million of debt, or maybe more, issued to finance that acquisition. Any prospects or outlook for repaying that debt?

I think we had borrowed the money to purchase the $524 million, and we have plans to either term out that debt or other ways that we will raise the capital for it. So we'll give guidance on that later.

Okay, and then the second couple questions I had were just about OPEC and the general market. Not to kick a dead horse here, but there are some other tanker companies that are saying, 'Well, we don't think that OPEC will actually abide by the production cuts, even if they announce them.' It sounds like you guys, at least, think that they'll be more likelihood that the cuts actually take place. Is there a way that OPEC can get around cutting production even though trying to appear like they're doing that on face?

Well, if we have a couple hours, I guess we can discuss that.

I'll call you later.

We're obviously not necessarily closer to that information than our competitors are. Our observation is that there's significant resolve. After some initial internal bickering with OPEC a few weeks ago, they've come out very unified. And we are -- we're just taking that at face value that they're going to at least go forward with some of that. But we've had many examples where they were less disciplined.

I think stakes are very big this time based on the oil prices. I think that they let it slip too far. I think they're a long way down, and I think they realize that. So my projection, speculative guess, is that they will actually do something.

And on the heels of that, I think you mentioned an over 90% utilization rate for the world fleet, and I can't remember what source you sited for the third quarter. Do you guys have any estimates as you where utilization is now?

I would say it's probably around the same. I mean, if you see OPEC cutting 1 million [barrels] a day, that would represent, sort of, 1.5% that I would use [inaudible] globally by [3/1]. But they haven't actually done that entire cut yet, and we're seeing the normative take off. So I would assume it's right around 90%. And the fleet also is yet less efficient in the wintertime because of the delays and scheduling. So I -- typically, you see high utilization in the fourth and first quarters.

Great. Thanks a lot.

[OPERATOR INSTRUCTIONS] Our next question comes from [Peggy Crisilo, Eridian]

Hi, good morning. [Felice] asked the first part of my question, but can you talk about how many more shuttle tankers you might have coming up for contract renewals in the near term, maybe in 2007?

Well, the significant portion of our shuttle fleet -- we operate around 40 vessels. And about 20 of those vessels are engaged in long-term, what we call contracts of [effacement], in the North Sea. So those are long term and operate under volume contracts. Then you have about ten ships that are on long-term fixed-rate contracts running out sort of 15 years. And the remaining ten vessels, typically operate in planned charters, which are about one to three year duration.

So we've rolled -- I think it's three or four of these contracts in the last quarter at higher rates. And I guess we'll see some maturity of the other ships on a staggered basis over the next one to two years, just to give you kind of the flavor of the [inaudible].

I can't give you a lot of specifics. I don't have the numbers right here. But that would be a good rule of thumb, that we roll two or three vessels a year, maybe three or four. And right now rates are quite a bit higher than they were a year or two ago, so any ships that come due for renewal, we would expect to do better than the current [content].

And we'll go next to [Steven Ergo, Locustwood].

Thank you. I have two questions. The shuttle -- the offshore business IPO. Is that in anyway predicated on the Petrojarl deal getting to 90%? Do you plan to put the Petrojarl assets into that? That's my first question.

The IPO is not predicated on Petrojarl. It's going forward on its own. We have announced that any future FPSO projects that came out of the joint venture with Petrojarl would go into the MLT. So as with, when you start anything, it's the assets that you start with that are, in a way, grandfathered. And so they would be eligible to go into the MLT. But we're not counting upon the Petrojarl assets going forward because we started the MLT process prior to the purchasing shares in Petrojarl.

Great. And is it my understanding that you actually have filed this registration with the SEC, but it's under a confidentiality clause. So if you could just clarify -- do you expect to publish a prospectus in the fourth quarter? Or do you actually expect the IPO to be affected in the fourth quarter?

We expect to file publicly in the fourth quarter. And as we've said, we plan on doing an IPO either late in the fourth quarter or early in the first quarter with our preference being late in the fourth quarter.

And my last question -- so hopefully it can save me from being on the [TJP] conference call, Peter, is can you comment on any acquisitions or what the acquisition market might be for your LNG MLT at this point in time? And is it -- have you broadened that scope to look at things outside of LNG tankers?

We have broadened the scope, and we are looking at acquisitions, but we have nothing to report that we've completed at this time.

Okay.

But we are definitely looking.

Thank you very much for your time.

Thank you.

We'll now go to Daniel Burke, Johnson Rice

Good morning. Let me ask just one question on the Siri project, if possible. I noticed the contract term looks like it's two plus one and was curious -- that seems short against the capital commitment in [life sealed]. So is that standard for FPSO contracts? And if not, why is the contract for, at least it looks to be, three years?

Well, I mean, it's -- FPSO contracts more typically for the three to five years, I would say, for leased FPSOs. And where the oil companies expect to use it for more than ten years, they typically will own the assets themselves. In this particular case, this is the first FPSO, which will be producing heavy oil off Brazil. So it's actually a very intricate project in which Petrojarl has specific skills. So -- but because of the sort of pioneering nature of that project, Petrobras has wanted to initially keep it on a short leash. But if you look at the size of it, about 40%, 45% of their sales [prove and reserves] are heavy oil, and this will be the first asset that we'll be exploring. So it will give Teekay Petrojarl a really great position in that area. So we will expecting -- if things go the way Petrobras hopes they do, that there will be a lot of [oil].

So it would be your expectation that the FPSO will stay on the field longer than the initial term?

Yes, that's certainly our projection. But we're not fixed firm beyond that period, so obviously, that's -- we're exposed to that. We also see it as a great opportunity.

I understand. Thanks for the explanation.

Thanks.

And Mr. Moller, we have no other questions. I'd like to turn the conference back over to you for any additional or closing remarks.

Thank you very much, and thanks, Vince, for taking [the lawyer] today. And we appreciate your interest and active participation. Have a great day.

Once again, ladies and gentlemen. That does conclude today's conference. You may now disconnect.