Teekay Corp Ltd (TK) 2007 Q4 法說會逐字稿

Welcome to Teekay Corporation's fourth quarter year end 2007 earnings release conference call. (OPERATOR INSTRUCTIONS). As a reminder, this call is being recorded. Today is Thursday, February 28, 2008. Now for opening remarks and introductions, I would like to turn the call over to Mr. Bjorn Moller, Teekay's President and Chief Executive Officer, and also Mr. Vince Lok, Teekay's Chief Financial Officer.

Before Mr. Moller begins, I would like to direct all participants to our Web site, at www.Teekay.com, where you will find a copy of the fourth quarter and fiscal 2007 earnings presentation. Mr. Moeller and Mr. Lok will review this presentation during today's conference call.

Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from those projected by these forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in our earnings release and the earnings release presentation available on our Web site.

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

Thanks, [Dave], and good morning, ladies and gentlemen. Thanks for joining us for our fourth-quarter earnings call. Besides Vince Lok, we're also joined here for the Q&A session today by our Chief Strategy Officer, Peter Evensen.

I'd like to start with the highlights for the quarter, shown on slide number 3. We earned net income on an operating basis of $23 million, or $0.31 per share. This figure reflects the weak tanker spot market experienced for most of the quarter prior to the big rate spike towards year-end.

We generated cash flow from vessel operations, or CFVO, of 138.4 million, of which our fixed-rate businesses contributed more than 80%.

The successful initial public offering of Teekay Tankers Limited in December 2007 was a major highlight. Teekay Tankers provides a pure play opportunity for investors to coinvest with Teekay in the conventional tanker business.

Another highlight was ConocoPhillips selecting Teekay for a strategic multivessel transaction, in which Teekay took over six Aframax anchors time chartered a number of tankers out to ConocoPhillips. In Q4 we also acquired two specialized LNG carriers from a ConocoPhillips-Marathon Oil joint venture, and we completed the construction of the Siri FPSO in Poland in December. The unit has since been relocated to Brazil, where it has delivered under its contract to Petrobras.

On slide number 4, for all of 2007, we earned operating net income of 197.5 million, or $2.65 per share. We generated 622 million of CFVO, 73% of which came from our fixed-rate businesses. We generated record revenues of 2.4 billion, and our assets reached 10 billion, a compounded annual growth rate in our asset base of 26% since 2000.

In addition to the Q4 highlights I mentioned before, other highlights for 2007 include our acquisition of 50% of OMI Corporation, which gave us their large Suezmax franchise, as well as an increased product tanker fleet; winning new long-term LNG contracts in Angola; the ordering of four sophisticated newbuildings for our shuttle tanker franchise; and the repurchase of 2.5 million shares, as well as our fifth consecutive annual dividend increase, this time by 16%.

Next I'll briefly review each of our business segments, starting with our offshore segment on slide 5. In December, Teekay Petrojarl completed the construction phase of the Siri FPSO in Poland, achieved in a remarkably short period of only 15 months from contract signing to completion. Siri is the first new FPSO completed by Teekay Petrojarl in over 10 years, and represents the successful restart of their business development activities, the key reason for Teekay acquiring this franchise. As I mentioned, the FPSO unit has been relocated to Brazil, where it commenced its charter to Petrobras on February 1st.

The Siri FPSO represents a world first in the offshore space as it undertakes the challenge of producing heavy oil of 12.6 API. For this reason, this is a very high-profile project in Brazil and in other areas with large offshore reserves of heavy oil. The Siri FPSO positions Teekay for future opportunities in Brazil, the world's most exciting frontier for offshore oil and gas, where Petrobras recently announced megadiscoveries on the Tupi and Jupiter fields. Teekay is already well-represented in Brazil as the leading provider of shuttle tankers.

Teekay Petrojarl is getting underway with discussions regarding renewal on some of its existing FPSO units, and we expect to have more news in the coming quarters. In terms of new FPSO business, Teekay is being selective by bidding only on projects that play to its strengths. While some FPSO providers have, in our opinion, been bidding very aggressively recently, we believe it is prudent to take a more conservative approach in today's challenging environment, where project delays and cost overruns can be expensive.

As we show on slide 6, there are nevertheless a lot of opportunities for Teekay to expand its FPSO business. Offshore activity continues to climb due to higher oil prices. Increased deepwater drilling sets the stage for future FPSO demand, and the projected pace of FPSO demand growth is rising, as you can see from the chart. Between 107 and 127 floating production units will be needed over the next five years. Some of these will be redeployments of existing units, but most will be new units, and Teekay is actively pursuing selected projects.

With the trend towards deepwater production, our core strengths of operating in harsh weather environments and utilizing dynamic positioning technology will increasingly come into play. Offshore activity is also expected to create associated demand growth for FSO and shuttle tankers. As the only one-stop provider of offshore production, storage and shuttle services, Teekay is well positioned to benefit from the strong offshore market.

Turning to slide 7, it was generally a quiet Q4 in the gas market, but Teekay completed a couple of growth transactions nonetheless. We were selected by Kenai LNG, a ConocoPhillips-Marathon Oil joint venture, as the preferred buyer for two 1993-built 88,000 cubic meter LNG carriers for $115 million per vessel. These vessels have served on the Alaska-Japan route since delivery, and have special features, including (inaudible) strengthening and self-supporting prismatic, or so-called SPB cargo tanks. We have time chartered the vessels back to the sellers until 2009, with options to extend further. This is our first acquisition of existing LNG assets since the launch of Teekay LNG Partners. It diversifies our LNG portfolio and gives us tonnage with which to pursue specialized projects in the future.

During the quarter we also finalized the Angola LNG transaction, where Teekay has a 33% interest in four ships on long-term charter starting in 2011. For 2008, we expect a total of six gas newbuildings to deliver into our fleet. Four of these are for the RasGas 3 project, and the photo on the slide shows an event never seen before; namely, the world's first-ever quadruple LNG ship-naming ceremony, which took place in Korea earlier this month on what was a very special day for Teekay.

On slide 8, one of the key dynamics of the gas market these days is the number of major liquefaction projects that are being delayed or postponed due to increases in costs and bottlenecks. However, it looks like most of these projects will eventually come to fruition, thereby restoring the growth trend in LNG shipping demand. We're seeing growing customer interest in innovative LNG solutions, such as floating liquefaction aboard LNG vessels, regasification, etcetera. It is worth noting that the specialized SPB cargo containment system on our two recently acquired Kenai LNG ships make them uniquely suited for some of these innovative LNG projects. We're also seeing compressed natural gas, or CNG, projects inching closer to commercialization. I remind you that Teekay is involved in developing projects in this area. So we see ongoing opportunities for Teekay to leverage its marine midstream capabilities in the gas sector.

Turning to the developments in our spot tanker segment, on slide 9, charter rates were relatively weak throughout much of the quarter, as all inventory drawdowns caused the winter market to start later than usual. Teekay's Suezmax fleet earned 33,000 per day, while our Aframaxes earned an average of 24,200 a day, beating our Clarkson's rule of thumb. Our LR 2 product tankers outperformed the open market with TCE of 24,400, while our MR product tankers generated 18,800 a day.

The size of Teekay's conventional tanker fleet increased further to 128 vessels at the end of February, up from 116 vessels at the end of Q3. This was the result of seven in charters and the six ConocoPhillips Aframaxes joining the fleet.

We're expecting Teekay's Q1 Suezmax results to be well below market benchmarks as a result of specific onetime circumstances in connection with the change in ownership and technical management from OMI to Teekay. Whenever vessels change technical management, it is standard practice for oil companies to automatically rescind the vetting approvals that are a prerequisite for charter eligibility. The oil companies must perform a physical vessel inspection before they reinstate vetting approval. For Suezmax tankers operating in the medium to long-haul trades, it can take weeks and, occasionally, months before these inspections can be practically arranged. A number of the vetting renewals for the former OMI vessels took place during Q4. And until the approvals were finally reinstated late in the quarter, the trading flexibility of these ships was quite restricted, leading to significantly greater than normal idle time for our Suezmax fleet in December and January, which meant we lost revenue days during the brief but dramatic rate spike. Consequently, our Suezmax fleet is trailing market benchmarks for the current quarter. And during his comments, Vince will provide guidance on our Q1 TCE figures.

On slide 10 we provide more background on the two major events in Teekay's conventional tanker business in the quarter. Teekay was proud to be selected by ConocoPhillips for a multivessel strategic transaction. Teekay acquired six Aframax tankers, and time chartered two of these ships back to ConocoPhillips for five years. At the same time, we also time chartered one VLCC and two MR product tankers to ConocoPhillips for periods between three and five years. We believe the key success factors in our securing this strategic transaction with this major oil company were our track record for quality and service, and our ability to support ConocoPhillips' ongoing shipping needs across a broad spectrum of segments.

The second major development was the IPO of Teekay Tankers, which was completed in December. We're excited by the successful launch of this third carve-out from the Teekay parent, which was very well received by investors in an otherwise challenging financial market. Teekay Tankers was created to allow Teekay to grow its spot tanker business over time. We believe that the pure play full payout dividend model will serve to enhance the value of our conventional tanker franchise while allowing us to maintain control over this core part of our business. Teekay Tankers declared its first dividend of $0.115 for the 14-day stop period in December.

Slide 11 highlights the positive outlook for tanker demand fundamentals. GDP growth and oil demand growth are mainly being driven by energy intensive, non-OECD countries, which show no real signs of a slowdown despite higher oil prices. The IEA's latest estimate of 1.9% oil demand growth in 2008 represents the highest growth rate since 2004.

In addition to benefiting from overall ton mile demand growth, medium-size tankers can expect to benefit from non-OPEC supply growth, mainly in the former Soviet Union and Brazil. The planned start-up of 1.4 million barrels a day of new refinery capacity in Asia this year is expected to create additional long-haul ton mile demand, both from the inbound crude movements and the outbound product exports. And with the average ton mile factor on the rise in this manner, we project tanker demand growth somewhere in the region of 5% this year.

Turning to the tanker supply side, the table on slide 12 shows projected fleet growth numbers for each of the main crude tanker size segments. Net fleet growth is projected to be between 3 and 5% for the three segments. This assumes, though, that only the number of ships in the confirmed removals column leave the fleet. This figure comprises ships reported sold for conversion but not yet removed, plus tankers mandated for phaseout in 2008 under [IMO] rules. However, in our view, there is good reason to expect additional removals, and thus lower net fleet growth in 2008. In particular, the (inaudible) Korea from a single-hull VLCC late last year has led countries and leading charters in the region to announce accelerated bans on the use of single-hull ships, in some cases as early as from the end of this year. With scrap metal prices above $600 a ton, we would expect to see increased voluntary scraping. There are anecdotal reports of slippage in the delivery time of newbuildings under construction in new yards, mainly in China. So, all told, net tanker supply growth could end up being very restricted this year. And based on this outlook for demand and supply, we expect the tanker market to remain finely balanced again this year, subject to the usual seasonality.

I will now hand it over to Vince to discuss our financials.

Thanks, Bjorn. Good morning, everyone. Net income in the fourth quarter was 23 million, or $0.31 per share, when excluding the items listed in appendix A of our earnings release, which relate mainly to unrealized losses from foreign exchange translation and interest rate swaps.

The fourth-quarter results were negatively impacted by weaker spot tanker rates and higher-than-normal vessel operating expenses in our shuttle tanker fleet. However, our spot tanker rate strengthened significantly near the end of the fourth quarter, which will have a positive impact to our first-quarter results.

Looking at our segment operating results on slide 14, we generated 138 million in cash flow from vessel operations, or CFVO, during the fourth quarter, compared to 161 million in the fourth quarter of last year. The offshore segment's CFVO declined by 7 million from the fourth quarter 2006, mainly reflecting higher vessel operating costs, partially offset by the consolidation of 50% owned shuttle tankers effective December 1, 2006, and the addition of two Brazil operating shuttle tankers and one FSO during 2007.

Approximately 20% of the increase in vessel operating costs was due to the increase in fleet size. The remainder of the increase was due to a combination of higher crude costs, including 1.5 million in onetime bonuses, an increase in repair and maintenance work, and the impact of foreign exchange rate changes. In the fourth quarter, we incurred a number of unexpected repairs in our shuttle tanker fleet totaling about $2 million, which we consider to be of a nonrecurring nature.

Our new Siri FPSO commenced its charter in Brazil on February 1, 2008. As a result of the addition of the Siri FPSO, and expected lower operating costs in the shuttle tanker fleet, we estimate that the CFVO from this segment will increase to approximately 60 million in the first quarter.

CFVO from the fixed-rate tanker segment decreased by 2 million, primarily due to higher operating expenses, and lower profit share revenue from two vessels. This decrease was partially offset by three vessels added to this segment in the previous quarter. For the first quarter, we expect CFVO from the fixed-rate tanker segment to increase to approximately 26 million as a result of the addition of the two Aframax tankers on charter to ConocoPhillips, and the addition of one Aframax tanker from the spot segment which has been chartered out for a period of three years.

We had a strong quarter in the liquefied gas segment, generating record-high CFVO of 35 million, which is up 15 million from the same quarter last year. The increase was a result of the addition of the three RasGas 2 LNG carriers, and the acquisition of the two Kenai LNG carriers in December 2007. We expect the CFVO to increase to approximately 39 million in the first quarter, due to the inclusion of the Kenai vessels for a full quarter.

The CFVO contribution from our spot tanker segment decreased by 29 million compared to the same quarter last year, primarily due to the reduction in spot tanker rates, an increase in time charter hire expense, and an increase in vessel crewing costs. This was partially offset by an increase in the size of the spot tanker fleet resulting from the OMI acquisition and the delivery of newbuildings.

Our [spot] Aframax fleet earned an average TCE of $24,200 per day in the fourth quarter, and so far in the first quarter of 2008, we have booked approximately 75% of our spot Aframax days at an average TCE rate of $37,000 per day, and 80% of our spot Suezmax days at an average TCE of $40,000 per day.

Turning next to slide 15 and reviewing the remaining income statement figures, in comparison to the same quarter last year, G&A expenses were 60.1 million, compared to 56.4 million in the same quarter last year. This increase was primarily due to the acquisition of OMI, the addition of Teekay Offshore Partners and Teekay Tankers, and the depreciation of the US dollar. The increase in net interest expense was mainly related to the acquisition of OMI, as well as the deliveries of the RasGas 2 LNG carriers.

The income tax recovery in the fourth quarter of 2007 was larger than usual as a result of year-end adjustments for the deferred income tax provisions. Excluding the effect of changes to foreign exchange rates, we expect our tax recovery to average around 3 to 5 million per quarter in 2008.

We incurred a larger-than-normal equity loss of 7 million in the fourth quarter 2007, mainly due to nonrecurring items such as onetime retention bonuses to some of the ex-OMI employees. We expect our equity income or loss to be fairly minimal in the first quarter.

Excluding the minority interest portion of the items in appendix A, minority expense interest expense in the fourth quarter would have been 7.1 million. This will likely increase in the [second] quarter as a result of recognizing the minority interest expense relating to Teekay Tankers for a full quarter, versus only 14 days in the fourth quarter.

Turning next to slide 16, we have presented our December 31st balance sheet and compared it to the September 30th balance sheet. Vessels and equipment increased by 224 million, primarily due to the purchase of the two Kenai LNG carriers. Our net debt to capitalization remained virtually unchanged from the last quarter, at 59%, as the proceeds from the Teekay Tankers IPO was offset by the purchase of the Kenai LNG vessels. Except for the Kenai and Angola LNG vessels, we have prearranged financings in place for all of our newbuildings on order. We are close to securing debt financing for the Kenai vessels, and are working with our joint venture partners in securing financing for the Angola LNG vessels.

I will now turn it over to Bjorn to conclude.

Thank you, Vince. As we show on slide 17, with the IPO of Teekay Tankers, our platform is now complete. We've created three vehicles, each providing a focused investment opportunity for a specific part of our business -- Teekay LNG for investors looking for long-term fixed-rate contracts of more than 10 years duration and targeting steady distribution growth; Teekay Offshore for investors seeking a fixed-rate contract with a medium-term of three to 10 years, implying slightly greater volatility and also targeting more aggressive distribution growth; and Teekay Tankers for investors looking for exposure to the spot and short-term charter business with a full variable dividend payout.

Teekay's 2008 newbuilding delivery pipeline, shown on slide 18, consists of 12 vessels across various segments. Eight of these ships have long-term charters, they're all suitable for drop-down, and all have financings in place that can be transferred to subsidiaries, as Vince mentioned. This list excludes the Siri FPSO and the Kenai LNG ships. So we have significant building growth in 2008.

Slide 19 updates the sum of the parts calculation for Teekay Corporation, which [post-TNK] stands at just over $69 per share. At our current share price of around $46, we're trading at a one-third discount to the sum of the parts.

Turning to slide 20, we will focus on closing this value gap primarily through a strategy of drop-downs from Teekay Corporation to each of our subsidiaries. This should generate increased general partner fees from the MLPs and, in the case of Teekay Tankers, performance fees, and it should lead to an increase in the price of limited partner units and Teekay Tankers' share value, respectively.

In turn, Teekay Corporation should benefit from a combination of increased free cash flow coming out from the subsidiaries and an increase in our sum-of-the-parts valuation from the improved underlying value of the daughter companies.

Later this year, when we have progressed the drop-downs, we plan to evaluate our strategy with regard to further return of capital to Teekay Corporation shareholders. We're pleased with Teekay's central position in the global energy supply chain, and we're excited about our ability to create shareholder value through our business platform.

Thank you for listening this morning, and we're happy to take your questions.

(OPERATOR INSTRUCTIONS). Doug Mavrinac, Jefferies.

Regarding the ConocoPhillips transactions, was the charter-backed component of the transaction a strategic decision on Teekay's part to provide you guys with stable cash flow over the next five years and not take on additional spot market exposure, or was it a stipulation of the transaction? If you can share that.

That was a stipulation on the part of ConocoPhillips.

So it isn't necessarily a statement of your view, necessarily, on the market.

No. But I think we took our net spot exposure. I think that's in itself a statement. But of course, what's more important is that we have created an increased strategic tie with one of the fastest-growing companies in the industry. So it's very exciting strategically, but in addition it provides us additional -- probably a wash overall when you think of the ships we chartered out and the ships we took on.

But you did get longer this deal, so maybe we can read into that a little bit. And then second, you just chartered one of your VLCCs to ConocoPhillips as well, expanding that partnership. When looking at the VLCC profile, VLCC fleet profile this year on one of your slides, it appears there's likely to be limited growth in this particular asset class. And we know the VLCC asset class has outperformed the other asset classes in recent weeks. My question is, would the VLCC asset class be a sector you all would be interested in expanding after your expansion of the Suezmax asset class with the OMI transaction? And secondly, do you believe the recent disconnect between the performance of the VLCC asset class and the Suezmaxes and Aframaxes can continue?

We made a, I think, significant statement of our intention to replenish our presence in the crude market when we acquired OMI last year. And that fit very well with our strategy in the medium-size tanker space. We don't have any current plans to enter the VLCC market. We accept that this is -- it has good dynamics, but we see good dynamics for the overall crude market.

And on your point about the spreads, there can be some periods where they disconnect. But generally it is a fungible market, and certainly see the smaller vessels always benefiting from strong markets for the large vessels; not always true the other way around. But it's very consistent that the smaller vessels do benefit, even if with a lag at times when big ships have good markets.

Just a couple more questions. Can you guys remind us of how many additional assets can be dropped from Teekay Corporation to one of the MLPs and/or Teekay Tankers? And what considerations do you all have when deciding when and how many additional assets to drop down?

We have a multitude of assets that we can drop down. Basically all the forward LNGs on the gas side are eligible to go into Teekay LNG. And on the offshore side, we're waiting until we have recontracted some of the FPSOs before we look at putting them into Teekay Offshore. But we still have approximately 75% of our shuttle tanker franchise that is outside of Teekay Offshore. And there's another 39 vessels up at Teekay which are eligible to go into Teekay Tankers. So that's many years of profitable drop-downs, in our view.

That handled both of them, Peter. Thank you very much. Thanks, Bjorn.

Jonathan Chappell, JPMorgan.

Bjorn, it sounds like the Siri project could be the start of something pretty big down in Brazil. Can you talk about the growth potential there, elaborate a little bit on the slide in the presentation? Do you see more FPSO potential? Do you see more shuttle potential, or both? Also, what's visible from fields that have already been found there, versus what you think the potential may be? And finally, what's your capacity with those types of assets to meet the demand that you see in the Brazilian market?

I was in Brazil earlier this month, and I can tell you that it's palpable how excited people are down there. We had a chance to meet with the top brass of the Petrobras, and they're extremely focused on the rapid development of the Tupi field, which is anywhere from 8 billion to 28 billion, depending who you listen to, of barrels equivalent. They're looking at fast-tracking. In fact, we might have opportunities to help them because of our specialized involvement in the heavy oil sector now.

So I see estimates for FPSO demand in the next several years jumped by at least 10 units based on the Tupi field alone. So it's a bonanza down there, and I think we're really well placed. So in terms of our capacity, that's what we're in the process of ramping up. And we're strengthening the team. I'm extremely pleased with the way the Siri project went, and I would say if we can do one project a year in the next one or two years, and then a couple of projects a year thereafter, that would be a natural ramp up. But of course, a project isn't always a project; some of these projects are huge and some of them are more moderate. I think what's so impressive about Petrojarl is the quality of the engineering and the operational excellence that they have, and that's a great marketing tool. They're the pioneers in the FPSO business with 20, 25 years of experience. And they have just unbelievable uptime statistics on what they do.

And of course, then, the shuttle business is a great adjunct to the growth in offshore in Brazil and elsewhere, where we have $500 million worth of shuttle tankers coming in, and where we have other vessels with shuttle features in our fleet and long lead items on order so that we can step up our investment, or our involvement, rather, in shuttle. So this is a very exciting area for Teekay.

It sounds like there is a lot of potential for future drop-downs to [TOL]. To follow-up on the drop-down issue, is there a potential area you're a little bit more focused on that you think maybe the projects are a little bit more lined up for sooner than later drop-downs possibly in TOL? And also, what's the financing capability of your subsidiaries to take assets from the Teekay Corp? And how much of it is reliant on successful equity issuances as you look at the '08 schedule?

We like all our daughters, so there isn't one daughter that we like more than the other. And I don't want to give specific guidance on the timing except to say that we plan to grow all three. In the case of all the three daughters, we've created them so that they do not have to do follow-on equity offerings in order to grow. All of them have undrawn revolving credits, which can give them liquidity. And so that's not our preferred alternative. Our preferred alternative is to do follow-on offerings. So we were happy to see that the MLP space reopened this week with two large overnight issues on the follow-on side. So that would be our preferred way in order to grow. But, as Bjorn said in his speech, we are committed toward growing each of the daughters this year.

My final one is for Vince. What are the capital commitments, and what financing have you arranged for those commitments for the ConocoPhillips transaction?

The ConocoPhillips, we purchased two out of the six ships. The other four vessels are sort of medium to long-term (inaudible). In terms of the two ships we purchased, we just used our existing cash and revolvers to finance that. But we're looking at some long-term financing for those in the near-term.

Thanks, everybody.

Omar Nokta, Dahlman Rose.

I just want to get your thinking on buybacks. You said earlier, later on this year would be the timing for that. It seems that at least one of your competitors out there is holding back a bit to see how the credit markets shake out. Is that a similar position you're in, where you're waiting for cash from asset sales and these drop-downs, rather than tapping into your liquidity that's available now?

I would say, basically, we will plan to finish the existing buyback authority before the Q1 conference call, especially at these attractive prices. And we feel that the average price of $50 at which we purchased during the quarter is still an attractive price. But as we execute on our 2008 strategy of growing our subsidiaries by dropping down assets, as I mentioned, we will be reevaluating our share buyback plans and dividend policy. The parent could end up becoming debt free on a net basis. So we'll look at that, and I think the drop-downs will really create a lot of optionality for us. We have continued to say -- we always said we have several uses for our cash. One is accretive and attractive growth opportunities, one is repayment of debt, and the third one is return the capital to shareholders. So we typically have done, I think, a good mix of all those. But we won't hesitate to return capital if we don't think we can use it profitably.

I want to see, is there any other ways of exposing the value that's in Teekay? Because, obviously, you trade at a 33% discount. You have all your difference spin-offs aligned for the value, but it just seems that your shares are continuing to lag. How do you feel about that? Is there something else you can do, or is it just we simply wait until the drop-downs take place?

I think we have a good strategy in place for 2008 in order to create value, as we said. Obviously, there's other things you can do, but we have established a good investor base with our daughters. And we have been very pleased with the type of investors that have moved into the Teekay ownership space. And so I think we have a different model, which is that we're more of an asset manager and we're creating a longer-term value. I think the more interesting thing about the whole corporate structure is that it will increase the return on invested capital up at Teekay Corporation, as we start to get more the general partner incentives come up. So as we create projects, the return on invested capital, which has always been the hard part about doing long-term projects, which is that you have a low return on invested capital in the first few years, by having these daughter companies, we won't suffer from that up at Teekay Corporation.

So one of our plans going forward, which is the next step, is to try to show Teekay Corporation as a stand-alone company. And if we do that, I think investors will start to see the whole power of it, which is that as we consolidate up, of course, we look like we have a high debt to capital level. But as we achieve this strategy, you'll start to see the free cash flow up at Teekay Corporation on a stand-alone basis. And I think when investors start to focus in on the free cash flow, on the higher return on invested capital that will come up at Teekay Corporation, then they'll see that we actually are a different animal than your normal asset intensive shipping company.

Do you see that happening over the next quarter, being able to illuminate Teekay as a stand-alone in your financials?

We're working actively in order to try to re-change our earnings statements in order to try to look at that. I'm not sure -- our goal is to achieve it in the next quarter, which will be easier on all of you guys, because it hasn't been lost on us. We have listened to both investors, as well as to you analysts who have talked to us about the fact that it's hard to analyze Teekay. So our next step isn't just to illuminate the value of the assets, it's also to make it a little bit more transparent.

So I think if we can achieve that -- in other words, move around the segments, make it closer to the corporate structure -- if we can achieve that, I think, it will be easier for investors to analyze us. And then all the things that I just talked about will become more apparent.

Switching gears, could you clarify the vetting issue on the Suezmaxes? I thought that when you consolidated OMI's vessels that you'd taken on a technical management ,team and that you wouldn't have to go through a vetting process.

No, that is not the case. OMI took over the marine operations side of OMI. So (inaudible) I apologize; (inaudible) took over the part of OMI's marine operations, which remain in India. Whereas in Teekay, we decided to incorporated -- to integrate the OMI fleet into the Teekay fleet. I think, simply, we underestimated the trading flexibility that we lost during this transition. So this was done gradually (inaudible) the fourth quarter, and just slightly longer voyage [pass] on these vessels meant that it wasn't as practical to get these inspections done. Then, of course, missing the spike on a number of vessels really shows up very quickly on the bottom line. So that's sort of a onetime event; that's behind us; the ships are now fully in the Teekay system, and fully vetted and approved. So we look forward.

With the guidance that you gave, is there a percentage utilization that you could give us for the quarter on the Suezmaxes?

I don't have that number here, but I guess the utilization shows up in the TCE. So I guess that's the one to focus on. But there was a lot of idle time on some ships, so I guess that's -- once you get into that situation, then you don't earn revenue.

I can follow up off-line just to get the day that that's possible. Thank you.

Scott Burk, Bear Stearns.

Just a few follow-up questions. First of all, I wanted to know what percentage of your spot fleet is covered by your FFA activity for the next year?

It's relating to the Suezmax fleet. It's roughly about 3.5 vessel equivalents for the Suezmax.

Just the vessels leftover from OMI's charters. (inaudible), okay. So no active trading beyond that in the FFA market for the Aframaxes?

We do have some active trading in the FFA market. I don't think it's that material, but we have been doing some trading and hedging over the past year.

Final follow-up. I missed -- you mentioned minority interest for the first quarter; I think you said it was going to be $7 million. Could you just restate that?

I was saying that 7 million is the minority interest in the fourth quarter if you exclude the appendix A items. And in the first quarter, that number will likely increase because we have a full quarter of minority interest relating to Teekay Tankers. Whereas in the fourth quarter there was only 14 days of that. So that 7 million will likely increase in the first quarter.

You did mention also that the cash flow from vessel operations in the offshore segment going up to 60 million in the first quarter. How much of that is driven by revenue increase versus expense decrease? I guess my question is was a lot of the downside in the fourth quarter driven by onetime expense items, or was it just the fact that you had some of those -- some shuttle tankers off-line?

The offshore segment will include the Siri FPSO for a couple months. There's additional cash flow coming from that unit. And if you back out some of the nonrecurring operating expenses in the fourth quarter, roughly about 3.5 million. That's sort of the difference there.

Thank you very much.

Justine Fischer, Goldman Sachs.

The first question I have is a clarification on that Suezmax rate. Obviously, the idle time during the quarter you said would be reflected in the TCE. Vince, the 40,000 a day rate that you gave, that's before taking into account additional idle time?

No. That's all in. That's net of idle time. I think the market -- the Clarkson benchmarks are higher than that. That's what Bjorn was referring to.

Thanks. The second question is about your short-term debt maturities in 2008. I know that you had a big revolver, a balloon payment in '06, and I believe you had another one in '08. Can you clarify what portion of your short-term debt is that revolver payment? Or maybe I'm totally (inaudible) something else.

Actually, that related to a bridge facility we had in connection with the OMI transaction, which has subsequently been refinanced when we did the Teekay Tankers IPO. So that's been termed out.

Do you expect short-term debt, I guess, for the next four quarter periods going forward, once that payment is made, to be the kind of 250 to 300 million that it's previously been? Or are there any other large payments that you'd have to make, like in '09 or 2010?

We do have 150 of that bridge facility still in the current portion right now, because we paid off the majority of that facility, but there's still 150 outstanding. That's to sort of mid 2008.

And you guys will refinance that this year?

That's right.

A question on just the number of Aframaxes chartered. There looked like there were 10 new Aframaxes chartered in for the fourth quarter in the fleet list, at least in the fleet list on this press release, versus the third quarter. Can you tell us the duration of those charters? How long can we expect you to have those 10 additional Aframaxes in the fleet?

Six of those vessels relate to the ConocoPhillips transaction. Those are long-term in charters. And two -- the four in charters and the two owned vessels. So four of them, I guess. We bought two of the vessels and chartered in four. So those are long-term. But the typical tenor of our in-chartering activity is one to two years.

The last question I have is for Peter. I was wondering if you could go over the mechanics of the asset drop-down on the balance sheet in the cash flow statement, just so that we can get a good idea of how those will be affected. And I know that you consolidate the results of the MLPs into Teekay Corp. still. So if you drop an asset down, I guess you'd get cash for the asset and maybe pay down debt. But on a consolidated basis, does it make -- will it make any difference?

If we drop down existing assets, first of all, they'll be transferred in at Teekay's existing book values, even if the purchase price is different than that, because they are part of the consolidated Teekay group. If Teekay takes -- it depends on whether the MLP or Teekay Tankers issues equity; then that would change the capital structure on a consolidated basis. And of course, depending on whether Teekay subscribes the units, that could change the minority interest expense figure. But if you look at sort of consolidated EBITDA, that doesn't change. It's primarily interest expense and minority interest expense that change accordingly.

The total debt level would only change if the MLP issued equity, and therefore, debt would decline. But if they issued debt instead of equity, then the total debt on the balance sheet for Teekay Corp. would be the same.

That's correct.

Last question. Any plans to repay significant amounts of debt this year? Your debt to EBITDA, even if we take out restricted cash, is now around 5 times. Any plans to repay some of these big facilities that you guys have taken on to finance fleet expansion?

We have taken on a sizable amount of debt with the OMI acquisition. And as Bjorn mentioned, we're focusing on our plan to execute drop-downs into our subsidiary companies. And those companies may issue additional equity. So that's part of our plan for 2008, to pay down debt, but also look at alternative uses for that capital.

I guess it's worth noting that with 80% of our cash flow coming from fixed-rate business, our stability is unique in the industry. So while we certainly want to watch the overall debt level, that dynamic is also worth bearing in mind.

Thanks a lot.

Greg Lewis, Credit Suisse.

My first question, I guess, is a follow-up to the ConocoPhillips transaction. Are you able to provide any details regarding the rates involved?

We can't give any details. But I guess if you look at what the Clarksons of this world provide as rates for various periods of time charter of different types of vessels, it's pretty much market related.

Great. Actually, a follow-up to that. I guess the last time Teekay sort of did the vessel-by-vessel breakdown of chartered in rates was probably about a year ago. Is there any plans to sort of re-release those types of numbers?

Not at this stage. I think the mix changes quite a bit from quarter-to-quarter. And I think as you see changes in the fleet, you can probably just assume that they're sort of done at market rates, based on the terms that we entered into.

(multiple speakers) guidance, but I guess we didn't provide it this quarter. But that gives you kind of the aggregate outcome of those in chartering -- that in chartering portfolio. So we'll provide that on a regular basis.

Shifting gears to the FPSO business, I guess, on slide 5 you talk about your strength in the FPSO market. Is that more a function of region? Is that more a function of you want to do business in the North Sea and Brazil? Or is there something else with that?

I would say that our FPSO business is focused in on more complex FPSO solutions rather than simpler FPSO solutions. So you haven't seen us in more benign waters like Africa or in certain areas of Asia. But we're pleased with the deepwater opportunities that are available in places like Brazil. I think could you could see things in other areas that go to harsh environments. And the kind of complexity that you see on the existing Petrojarl assets goes well in the North Sea, or in Eastern Canada, or eventually, farther up toward the Arctic side of things. So that's where our competitive advantage is, and that's where we're focusing in on the tenders. So there's more complex value-added projects.

Thank you.

John Kartsonas, Citigroup.

Vince, can you give us the guidance on the cost side for '08, if you have some numbers, G&A, depreciation, chartering?

I think if you look at vessel operating expenses, the level that you saw in the fourth quarter is a pretty good indication, subject to, of course, changes in the fleet, which we will have some newbuildings delivered during 2008, if we're looking at sort of first quarter. The fourth quarter is a pretty good indication, although I think in the offshore segment, as I mentioned earlier, we expect that to come down a little bit because of the unusual nature, or nonrecurring nature, of some of the expenses we've seen.

In terms of G&A, I think just with sort of general inflationary increases and the addition of additional vessels, the G&A level will increase a little bit from where we are currently on a run rate basis, sort of in the low 60s per quarter.

Would you annualize it for the year?

Yes. That's low 60s per quarter.

Depreciation?

Depreciation. I don't have a full-year figure, but of course there's going to be fleet changes happening each quarter along the way. But if you look at the first quarter, we're looking at a total depreciation of, roughly, just under $100 million.

Second, on your debt, how much of that is swap, or how much you have free at this point or floating?

Pretty much of all of our debt is fixed on swaps (multiple speakers)

Do you have an average rate for that, approximately?

Our all-in debt cost with the spreads is about 6%

Also, on the rule of thumb, is that still something we can use as a rough guidance for the quarter, or has it changed?

It's fairly difficult to have an accurate rule of thumb, given the diverse range of ships that we have in our spot tanker fleet, as well as the fact that spot rates don't necessarily -- not all the vessel classes sort of trade in tandem in a particular quarter. If you're looking for a rough rule of thumb, I think the previous one we had -- I think the net income breakeven probably has increased given the rising cost and the fact that we're in chartering at higher rates, given the current market. So the net income breakeven is probably closer to 18, $19,000 per day. The operating leverage of $0.06 per quarter above the net income breakeven per $1000 is probably around the same.

And finally, have you done any calculation of what is the (inaudible) of your operating leases? Trying to see -- obviously, we had one of your competitor -- a credit rating change, and that was part of the reason. Have you calculated what your all-in liability is to cap based on the operating leases?

You could only do that if you went against Imarex curves. And we're not sure Imarex curves are actually quite reflective of that. So we don't give out any of that kind of data.

But these are like time chartering vessels. Why would you use Imarex?

Are you referring to the debt calculation?

Like how much of the (inaudible) the time chartering vessels?

We haven't done that calculation.

Do you have the outstanding amount?

You could see that in the notes to the financial statements for the quarter.

Thank you very much.

Charles Kornblith, Spencer Capital.

It obviously helps quite a bit to have a premium currency for your daughters to help them grow at the rates that you put out to the market. I guess my question is what tools do you have at your disposal to, hopefully, get the market to recognize the value proposition of your daughters, and to help lower your cost of equity for future growth?

I think we've given pretty much guidance on the two MLPs about what kind of distribution growth we want to have. So that -- so people have seen that the Teekay LNG wants to -- aims to grow its distribution by at least 10%. Teekay Offshore wants to grow its distributions by 15%. And on TNK, we're waiting for the first-quarter dividend so people can really see the real power of the free cash flow that's being returned to their shareholders. And I think when they start to see that, Teekay Tankers will regain its footing. So we're basically letting our performance show investors that we're delivering on what we said we were going to deliver on.

I think there was an element that, I guess, in hindsight, we probably should have been more aggressive in doing drop-downs in TOO last year, and I guess we missed the window. So that was -- probably there's a bit -- there's an element of show me please attitude out there. Of course that's what we intend to do this year; we intend to show you.

So looking at offshore and LNG, given what your current cost of equity is in the market, do you feel confident you can grow at the 10 to 15% you put out there this year?

Yes.

Terrific. Another question for you. Can you just review for us what the impacts of changing currency valuations are, and how you manage that through your FX program?

We have a regular hedging program in place. For example, we've hedged out -- we entered into hedges last year on our Norwegian Kroner expenses. That goes all the way through to the end of 2008, and then we've extended that through 2009. So in each of our currencies, our biggest one is Norwegian Kroner, I would say, as well as Euro expenses. But we do have many ships, for example, in our Spanish fleet, where we incur Euro expenses, but that's offset by Euro revenues. So there's a natural hedge in place for that. So our biggest exposure is Norwegian Kroner, which we have hedged for 2008.

Last question for you, and I guess this is more of a philosophical argument. I'm looking at your sum of the parts analysis right now, and I see that you use an implied EBITDA from Teekay Offshore to value your opco interest. Remind us why you feel it's appropriate to use the implied EBITDA multiple. When it comes time to drop down opco interest, you have to take a haircut on it.

How we feel is that any haircut that would be taken in an opco drop-down would be made up with the value of the general partner that would increase. So you need to have a basic benchmark for it, so we feel that those things will cancel each other out, as well as the increase in the LP units as well.

Do you feel that way regardless of the multiple that you drop down opco at?

If you took a haircut in dropping down certain assets, it should be made up in the GP value and the LP unit accretion. (multiple speakers) exactly 1 to 1, but that's the best benchmark you can come out with.

Terrific. Thanks.

Stephen Errico, Locust Wood Capital.

Most of my questions have been answered. I just wonder if you can get a little bit more specific on the size -- I know what the drop-downs can be over the next couple of years, but if you could just put a range around what you feel is realistic in terms of hundreds of millions of dollars that you could drop down this year into the daughters. That would be helpful.

I don't think I'm going to get drawn on that. That's a function of where the market is. As I said, we were comforted that we saw the opening up of the MLP market big-time with the follow-on offerings. So we're going to be aggressive, but we're going to look at what the market will bear. We don't want to create too much of an expectation, but we will time it out in order to get the best value. It isn't just a question of how fast you can do it; it's doing it in the right way and in the proper way. And I think we have a good mark on how the markets are, both listening to bankers as well as our own views.

Thank you very much.

Daniel Burke, Johnson Rice.

I have just two specific questions left. First of all, with regard to the equity value of the in-chartered fleet, Peter, based upon what I think you mentioned earlier, am I to assume you used the Imarex forward curves at the end of year 2007 to determine the value that shows up in your sum of the parts?

No. It's a rather small part of that. We have our own view of what we think those values are. What I was trying to say is that it isn't a huge significant amount of our sum of the parts, so we don't go out and say that it's worth X amount, or try to make it worth more. I think -- and the other thing that we do is we don't sit around and say Teekay's premium will be X amount over any Imarex curve. It's just a way for people to get an idea of what the value of our in-charter activity could be.

I understand. Last question. Was curious if you could address maybe the timing you would hear indications from both ConocoPhillips and Marathon on the LNG side, and I guess Petrobras on the CRE side, given that as it stands right now, I guess you've got potentially some remarketing risk on CRE and on the LNG carriers that you purchased.

We see it as a remarketing opportunity, I can assure you. The CRE project is a two or three-year project. And I think they say in Brazil that no FPSO has ever left Brazil to take up service elsewhere. That's a country where they can't get FPSOs fast enough, so we think that's a great opportunity for us.

Similarly, on the Kenai LNG, we think the prospects are good that we're going to be employed at least until 2011. But again, we think with the many specialized and innovative LNG projects that customers are looking at, we almost can't wait to get the ships so that we can pursue these projects. Of course there's a leadtime of those projects, so it's good that we have the fixed-rate employment in the meantime. We are very excited about the fact that, unlike the sort of 20, 25-year model on the LNG, which didn't give us a lot of opportunity to pursue projects, we're now getting into the project business. So that's a great development.

Great. Thanks for those two answers.

(OPERATOR INSTRUCTIONS). Urs Dur, Lazard Capital Markets.

Everything has really been asked, but interested a bit in vessel OpEx going forward. You have a lot of fixed rate stuff, but OpEx isn't fixed rate. I was wondering how you plan to manage that going forward, what potential hurdles you see. And also, Vince, if you could just chat through very quickly, or maybe off-line later, again, what the increases were in the fourth quarter, some of it for the larger fleet, but you mentioned some other items. I would love to talk about that, too.

Are you referring to the increase in the fourth quarter?

In the fourth quarter. But also, how you guys view at as a corporation going forward with a lot of fixed revenue going forward, which is fantastic. But how are OpEx going to be managed going forward?

Let me offer the comment on the fixed rate contracts. We have a variety of escalation provisions (multiple speakers) through on different contracts. So I think on some contracts, it's fair to say that the building escalation provisions are probably on the lower end of what we're experiencing on crew cost increases, for example. So we think there are some humps to get over here and there. But on the whole, we feel that this is manageable.

A large number of our fixed-rate business (inaudible) charter out as well. There's no operating cost risk there.

Okay. And then, how do you look at crewing costs, for instance, going forward? I mean, how does one approach it? What do you see as a hurdle on the horizon? Is it just continuously going to go up?

There's pressure, there's no question. The world's shipping fleet is growing, and the high-end of the shipping fleet, the sort of complex tankers, LNG offshore vessels, are growing. Teekay has always been at the high-end of the cost range because we're catering to the most quality-conscious customers. So in a way, we are already paying up for crew, whereas it's maybe more people who are at the lower end that will experience some tightness as well. But we're also diversifying our crew sources gradually. So we think Teekay is a very attractive company to work for, and we have very good crews. So we're just making sure we stay competitive.

Thanks.

Stephen Williams, Simmons.

Just a quick question on the two new LNG vessels. Can you just be a little bit more specific about how the specialized characteristics you mentioned associated with these vessels actually give you an advantage with whatever specialized LNG applications you think they do, such as floating (inaudible) floating liquefaction, whatever, and how rare this is in the existing LNG fleet?

These self-supporting prismatic tanks, or SPB tanks, are unique. These are the only ships in the world that have this feature. And unlike a membrane in an LNG carrier, the membrane doesn't have its own strength; it just relies on the hull strength to support it. Whereas these are fully self-sustaining tanks inside a hull. And what that does, it means that the forces of sloshing when you're offshore with a partially loaded tank, typically a membrane LNG cannot withstand those sloshing pressures. And therefore, it's very difficult to have transactions offshore where you're either partially filling or partially emptying a vessel. These vessels have no such restrictions. And there's one Norwegian company, FLEX LNG, that's been out ordering speculative newbuildings with SPB tanks, because exactly of the liquefaction, other offshore applications. But we already get this in these vessels.

Have you got any feel for exactly what application you'd really think these would be used for?

We have a range of ideas, and it's about which ideas gain traction. I think there's a lot of talk about floating liquefaction, but nobody has actually signed up yet. But we think these ships are not likely to complete until 2011, so we have a couple of years in which to develop projects.

That's great. Thank you.

There are no further questions at this time. Mr. Moller, please go ahead.

I just want to say that it's interesting that we talk about the supply and demand for the tanker space this year, and this week alone we've seen five Aframaxes and two VLCCs sold to conversion to drive offshore. So I think this tightness in the market is real, and we're pretty optimistic for this year. Thanks for joining us today, and we look forward to talking to you. And if you would like to hear more about the tanker market, we're hosting a conference call, the first-quarter conference call for Teekay Tankers, at 1 PM Eastern Standard Time today. Thank you very much.

Ladies and gentlemen, this will conclude the conference call for today.