Teekay Corp Ltd (TK) 2009 Q4 法說會逐字稿

Welcome to Teekay Corporation's fourth quarter and fiscal 2009 earnings conference call. During the call, all participants will be in a listen-only mode. Afterward you will be invited to participate in a question and answer session. (Operator instructions). As a reminder, this call is being recorded.

Now, for opening remarks and introductions, I would like to turn the call over to mister Bjorn Moller, Teekay's President and Chief Executive Officer. Please go ahead.

Before Mr. Moller begins, I would like to direct all participants to our website at www.Teekay.com, where you will find a copy of the fourth quarter and fiscal 2009 earnings presentation. Mr. Moller 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 results projected by those 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 the fourth quarter and fiscal 2009 earnings release and earnings presentation available on our web site. I will now turn the call over to Mr. Moller to begin.

Thank you, Kent; and good morning, everyone. Thank you very much for joining us. As usual, I'm joined today by our CFO, Vince Lok. And for the Q&A session we also have Peter Evensen, Teekay's Chief Strategy Officer, and also the CEO of Teekay LNG and Teekay Offshore, as well as our Corporate Controller, [Brian Fortier].

If you would like to turn to slide three of the presentation, we recorded a net loss in the fourth quarter of 2009, primarily due to a continued weak Spot Tanker market for most of the quarter, although we ended the year with the market on a firmer note. For the quarter Teekay reported an adjusted net loss of $33.3 million or $0.45 per share, a slight improvement from the $0.60 per-share loss in Q3.

Due to our profitable fixed-rate businesses, we still generated significant positive cash flow from vessel operations, or CFVO, of $129 million, an increase of 16% from the prior quarter. We declared our regular quarterly dividend of $0.31625 per share. This dividend is entirely funded by the stable distributions we received from our ownership in our to MLP daughter companies. For fiscal year 2009 adjusted net loss was $87.5 million or $1.20 per share, and CFVO was $526 million.

Reviewing recent highlights on slide four, there have been a number of positive developments on the commercial side. We took delivery of vessels in each of our offshore, gas and conventional tanker segments. Our annualized fixed-rate CFVO reached more than $550 million. We expect to continue to build our fixed-rate CFVO, as we are currently seeing increased customer inquiry for fixed-rate contracts, mainly on the offshore side.

In the meantime, Spot Tanker rates are off their Q3 lows, due to improving demand, even though they have fallen from the recent spike we experienced at the turn of the year.

Another highlight has been the significant progress we continued to make on our financial priorities, both building liquidity and reducing debt at the Teekay parent level. Of particular note is the highly successful $450 million bond offering completed in January. Also earlier this week we agreed to sell to our daughter company, Teekay LNG Partners, three tankers with long-term fixed-rate charters for $160 million. Vince will address our financial highlights a little later on the call.

Looking briefly now at each of our business segments, I will begin with the Offshore market on slide five, where we have seen a recent uptick in project activity. Global E&P spending is expected to grow by 11% this year, linked to a firm oil price outlook, and this will drive demand for FPSO, FSO and shuttle tankers. The graph on the top left shows the lull in new FPSO projects during the first half of 2009, following the collapse in oil prices, and the subsequent rebound in new project awards in the latter half of the year, once oil prices had stabilized. 10 FPSO contracts were awarded during this period.

Brazil continues to be at the forefront of new offshore activity, and we are also seeing new projects in the North Sea, and these are Teekay's two core offshore markets. As I mentioned earlier, we are seeing increased customer inquiries for fixed-rate business, much of it in FPSO and shuttle tankers.

Slide six covers the recent highlights in Teekay's offshore activities. In December we completed the conversion of the floating storage unit, Falcon Spirit, and the vessel commenced its 7.5-year contract in Qatar. The incremental CFVO will be approximately $8 million per year.

In our most recent shuttle tanker contract extensions, we have secured rate increases of 10% and over the past several months we have achieved cost reductions through reflagging of certain shuttle tankers. We're positive about the outlook for this part of our business. In 2010 our focus will be on completing contract renewal negotiations currently underway for two of our existing FPSO units, and we expect to have more news in the next couple of months. We have a number of choices available to us for the deployment of our Amundsen Class shuttle new buildings, which start delivering in Q3 this year. We will turn our attention to this in the coming months. And, we intend to selectively pursue new FPSO and FSO projects that play to our strength in the harsh weather, operationally intensive end of the market.

Turning to our gas business on slide seven, the market for new business is usually quiet due to the delay in customers taking final investment decision on new gas field developments. In Q4 Teekay LNG Partners took delivery of the second Skaugen LPG newbuilding. Our four-ship Angola LNG project commenced construction. We are a 33% partner in the project, which will commence 20-year contracts upon delivery in 2011 and 2012.

We discontinued the Kitimat FLNG project. While the technical concept was viable, the commercial economics of this specific project proved insufficient to proceed. In terms of new projects we continued to investigate various niche opportunities in the absence of new point-to-point projects.

Looking at the spot market on slide eight, we have updated a chart we first showed you last November, which looks at 2010 world tanker fleet utilization scenarios. As it is a busy slide, I'll walk you through it. The blue bar on the left shows that the estimated global tanker fleet utilization in 2009 was 84%, which, as we've seen first hand, yielded a weak tanker market overall for the year.

The second bar from the left indicates our base case for 2010 fleet utilization. Back in November, that base case, which is here called the old base case, had tanker demand growth of 5% being offset by 5% supply growth. In the column marked new base case, we have updated assumptions based on recent developments. For example, on the demand side, the IMF has raised its forecast for GDP growth from 3.1% to 3.9%. Also, OPEC has increased its market share of world oil supply.

On the supply side we have reduced the expected number of tanker new buildings cancellations in the base case from 5 million tons to 2.5 million tons because, following a flurry of cancellations one year ago, we have seen few recent tanker cancellations. On the other hand, we have maintained our assumption for single-hull tanker removals of 23 million tons because, year-to-date, removals are in fact on track to achieve this figure. The net effect of these changes in the new base case is a utilization of 85%, suggesting a slightly improved rate environment in 2010 but from a low base.

What we illustrate in the recovery case is the anatomy of a market recovery. The green bars show the impact on utilization based on the outcomes in the right-hand column in our table. The figures generally speak for themselves, but I'll just point out that we have added a new green and red bar on the right-hand side relating to floating storage. Currently, approximately 4% of the world tanker fleet is being used for floating storage, driven by oil price contango.

The red bar shows the effect if floating storage were reduced to 2% of the world fleet; and, conversely, the green bar shows the effect of storage growing to 6% of the world fleet. Current contango pricing points to a likely drop in floating storage, so in the near-term we're more likely to see a downward move into the red area than an upward move into the green area. If all other factors in the recovery case come to bear, we could see 2010 fleet utilization rise from the base case figure of 85% to somewhere in the vicinity of 90%, and effectively creating full fleet utilization in a tight tanker market.

While it is improbable that all of these factors will materialize, it is more than likely that some of them will. For example, yesterday an update from the energy intelligence group reported estimated year-on-year oil demand growth of 2.5% in February, a growth figure at the upper end of our recovery case assumption.

On slide nine we provide an update on Teekay's conventional tanker business. Given the range of outcomes on fleet utilization that I've just described, we expect rates in 2010 to be volatile. Against this backdrop we continue to carefully manage our spot market exposure, and during Q4 we redelivered four further in-chartered vessels and we laid off additional risk by fixing out four spot Suezmax equivalents for 2010, three of which were done through forward freight agreements yielding a TCE of approximately $24,000 a day, with the fourth ship being fixed on a regular time charter with a minimum rate and a profit share arrangement.

We took delivery of our fourth and final Suezmax tanker from Bohai. This leaves Teekay with no conventional tanker new buildings on order for the first time since shortly after the millennium.

On this slide we also provide our usual Q1 rate guidance. Some 40% of Teekay parent's conventional tanker revenue days are under fixed-rate charters, earning an average of $27,000 a day. Of the remaining days which are exposed to the spot market, to date this quarter we have booked 70% of our spot days at an average rate of $19,000 for Aframax and $26,500 for Suezmax, respectively. The spot Suezmax figure includes the three FFA contracts mentioned earlier, since these are classified under the spot fleet.

Our focus in 2010 will be to continue to actively manage our spot market exposure as we see the market unfold. In the near-term we expect to be on the sidelines with respect to new conventional tanker investment. Instead, we aim to expand our market share through Teekay tonnage pools and commercial management.

I will now hand it over to Vince to review our financial results and discuss the significant progress we have made on our financial objectives.

Thanks, Bjorn, and good morning, everyone. Turning to slide 10, I will review our operating results for the quarter. In order to compare the results on a comparative basis, we have shown an adjusted Q4 income statement against an adjusted Q3 income statement which excludes the items listed in Appendix A of our earnings release and reallocates realized gains and losses from derivatives to the respective income statement line items.

Even though we operated fewer vessels in the fourth quarter, net revenues increased by $17 million, mainly due to higher Spot Tanker rates and fewer drydock days in the fourth quarter compared to the previous quarter. Vessel operating expenses increased by $12.5 million from the previous quarter, primarily as a result of the timing of repairs and maintenance activity, particularly relating to our FPSO fleet.

Overall, we expect vessel operating expenses to be about $5 million to $7 million lower in Q1. Time charter hire expense decreased from the previous quarter by approximately $14 million, mainly due to the redelivery of four in-chartered conventional tankers and one in-chartered shuttle tanker during Q4. As a result of the Q4 redeliveries and an additional redelivery during Q1, we expect time charter hire expense to decline by a further $8 million in Q1.

Depreciation and amortization increased by about $4 million, mainly as a result of a full quarter of depreciation for vessels that were delivered in Q3 as well as an increase in the number of vessels that were drydocked in the prior quarter. We expect depreciation expense to be similar in Q1.

G&A expenses remained consistent with the prior quarter, as we have been able to sustain the 20% reduction from the peak level in Q2 of 2008.

Net interest expense increased over the prior quarter by $1.7 million, mainly due to the delivery of new vessels during the second half of 2009. As a result of recent vessel deliveries and the $450 million bond offering completed in January, net interest expense is expected to increase by approximately $6 million in Q1.

Equity income in Q4 mainly reflects the results from our 40% interest in the RasGas 3 LNG carriers and our 50%-owned lightering joint venture, SPT. Equity income increased compared to the prior quarter, primarily due to higher income from SPT.

The income tax recovery of $8.7 million in Q4 was unusually high, due to timing differences. The tax recovery in Q1 is expected to be closer to the Q3 amount of about $4 million.

Non-controlling interest expense increased compared to the prior quarter, due to the drop-down of the Petrojarl Varg FPSO to Teekay Offshore in September, the Teekay LNG equity offering in November and the higher net income in Teekay Tankers. Non-controlling interest expense in Q1 is expected to be in line with Q4.

Looking at the bottom line, adjusted net loss per share was $0.45 in the fourth quarter compared to an adjusted net loss per share of $0.60 in the third quarter. Based on where Spot Tanker rates have tracked so far this quarter and the expected reduction in costs, Q1 is shaping to be an improvement over Q4.

Turning to slide 11, looking back over the past year we have made significant progress towards our financial objectives. Mainly through asset sales to our daughter companies and third parties we have reduced Teekay parent's net debt and needed new building commitments by over $600 million during 2009. Through our cost reduction initiatives we have achieved significant savings in both G&A and vessel operating expenses. The reduction in the in-chartered fleet has reduced our quarterly time charter hire expense by over $85 million compared to the fourth quarter of 2008. A smaller in-chartered fleet not only reduces our spot market exposure but also our cash flow breakeven levels.

Our recent $450 million unsecured bond offering, together with other financings completed during 2009, has allowed us to term out our debt such that Teekay parent currently has no balloon debt repayments due until 2014. In addition, we have arranged debt financing for 100% of our remaining new building program, giving us a total consolidated liquidity of $2.8 billion. This places us in a very strong position going forward in terms of liquidity and financial flexibility.

Looking at 2010, one of our key focus areas is to increase the profitability of our existing assets by controlling our costs while also increasing our revenues through contract renewals and potentially an improvement in Spot Tanker rates. We intend to continue with our plan of reducing debt at the Teekay parent level, mainly through selective drop-downs of assets to our daughter companies in accretive acquisitions.

The recently announced sale of three conventional tankers to Teekay LNG for $160 million is a good example of that. This transaction will reduce Teekay parent's net debt while also increasing the value of our limited partner and general partner interests in Teekay LNG. Given our priorities to delever and improve our profitability, we have been and will continue to be very selective with any new capital investments and will only pursue projects with higher return hurdles.

With that, I will now turn the call back to Bjorn to conclude.

Thank you, Vince. Summing up, on slide 12, as you just heard Vince describe, we have made excellent progress in building our financial strength and flexibility. A key focus area going forward will be to enhance our profitability through recontracting existing assets, and we are making progress on this front. Even with Spot Tanker rates having come off their 2009 bottom, we see 2010 as another year of volatility, so we are managing our spot exposure in a relatively conservative way. We have unrivaled forward fixed-rate coverage with $11.5 billion of forward revenues, and we generated more than $550 million in annualized fixed-rate CFVO. Our platforms in the offshore gas and conventional tanker businesses provide great optionality and will give us access to attractive investment opportunities in the future.

However, as Vince indicated, with our focus on continued delevering at Teekay parent, we will be patient and selective in committing to future investments by targeting higher hurdle rates.

In closing, we are confident that Teekay is well positioned to create long-term shareholder value. Thank you for listening in, and we are now open to your questions.

(Operator instructions) Michael Lever.

On the supply side, can you give a little bit of color on where you think single-hull utilization rates are right now? We're two months into the year; have you started to see some vessels actually come out yet, or are they still actively bidding for business?

We are seeing significant scrapping in relation to the pace of last year, so the pace of scrapping has increased. And that's been on non-double-hull vessels, primarily. There's some use of single-hull vessels for storage in some locations. So that's obviously -- in that sense, if you count the storage fleet as being taken out of the active supply, then they have 100% efficiency as storage vessels. But generally, my sense is, although we are not directly involved because we don't have single-hull vessels, anecdotally, the sense is that they are very marginalized, so very low effectiveness. But they are being used for storage, and they are trading to certain countries in Asia, in particular.

On slide 8, you guys give a 45% compliance rate through your base case and a 65% compliance rate in your recovery case. That's, I guess, a little bit lower than we've seen from estimates from some competitors, and I guess it's general market estimates. What's behind that 45% compliance number, and what do you think would allow the remainder of that fleet to continue trading this year?

Well, I just want to point out, we are not really trying to give guidance here, we're just trying to show the mechanics of the what-if's. It's an arbitrary number, but it's also a pragmatic number, knowing that this is not a steel box that they are putting people in; it's a net with the escape routes here and there.

So it's really the commercial hammer that's going to drive these ships to the scrap yard. The regulatory aspect has enough loopholes that you are not going to see every ship leave in 2010. I think it's going to be driven by survey dates and so on. So we think this will be, effectively, a phase-out, whether they leave the fleet or they just reduce their efficiency further over time.

On slide four you mentioned you've seen increasing inquiry for fixed-rate business. Can you give a little color on the duration of that business and whether or not that is spread evenly across your asset base? Or, is that more concentrated within a specific asset class?

The most inquiry is in the offshore sector, and the typical interest is in the three to seven years, I would say. But in some case, the shuttle tankers, it's 10 to 15 years. There's a little bit more activity on time charter in the conventional space, but it's mainly one to two years. So that's not really what I would characterize as a change. But it's more the fact that the offshore market has become reactive again. And of course, our involvement is the part of the chain that follows the drilling. And so there's a lot of activity that's taken place in the last several years on the drilling sector, and this is now kind of assembly-lining down to the production and the storage and the shuttling sector. So, we see a nice cluster of activity coming up.

That actually leads into my next question. It was in the offshore segment. Has there been any thought or is it a realistic possibility to potentially move into other asset classes within the offshore segment, potentially upstream to more drilling or potentially UDW rigs?

That hasn't been considered. I consider the drilling business very different from the production business. It's much more cyclical and very different. So we haven't looked at that.

Jon Chappell, JP Morgan.

One follow-up on the offshore business, I know you probably don't want to give away too much information on the pricing environment, given you're in the process of renewing those contracts. But can you just give us a wide range of how things may have changed now versus when you were able to recharter the Varg? We've heard a lot about rig prices, deepwater rig prices, coming down on the contracts. Are you seeing the same with the FPSO environment?

No. The big potential value in Petrojarl was -- there were two things. There was the operating platform, but then there were also the out-of-the-money charters. So I guess we see significant repricing potential by virtue of the ships being out of the money in the first place.

So I would say prices are pretty stable in the FPSO business. They have been on the firm side, there's more activity and I would say we are certainly not seeing the trend we are seeing on the drilling side.

So the magnitude of the out-of-the-money contracts hasn't changed at all over the last 12 months or so?

Yes. And I would add, Jon, that on the drilling side, you've seen a number of owners ordering speculative units with the idea that they would get charters, whereas the nature of the FPSO business is that there aren't that many speculative units, and there isn't one-size-fits-all. So the idea that on these tenders you have to supply an FPSO on a build-to-suit basis, and we haven't seen the shipyards reducing their prices by that much. So I think it's a question more of scarcity value. As Bjorn said, the demand for FPSOs is starting to move up as the oil companies are now more confident about the oil price. And so that's what's giving the extra demand and giving us the chance to bid on many more contracts in both FPSO, FSO and shuttle tankers.

On the selective growth opportunities for this year, I understand, obviously the net debt-free Teekay is something that you aspire to. But this may be the time or it may be the trough of the market, and there may be opportunities out there. I won't hold you to anything, but which areas of your pretty diverse business today have the most attractive -- kind of those return hurdle rates that you were talking about?

Well, I would say that we are most excited in the near-term about the offshore market, so shuttle and FPSO. That's the place where we think we have a niche and where demand is growing and there is not a lot of spare supply.

The gas business, as indicated, is very quiet. And I don't see there being a lot of investment opportunity. At some point, there may be a consolidation play in that sector. But we haven't seen that yet.

And on the conventional side, while I agree that prices have come down significantly and may appear to have found a bottom and a slight uptick, even, I would argue that with the backlog of new ships delivering and the fact that the world is not yet out of the woods economically -- we think we can afford to wait and watch the situation. We think, in 1999 and 2002, in those dips, there was a danger in acting too late. I think this time around there may be a danger in acting too early.

So we don't think the market will get away from us. Obviously, if we see it turning, that may change our thinking. But at this time we feel comfortable that the opportunities that will come down the road will be as good as or better than what we see now.

So you don't necessarily view it as bouncing along the bottom; you think there's a very solid potential -- once again, not holding you to it, but very solid potential that there is more downside in the conventional tanker assets?

We certainly don't discount it, but we also have identified in our model for the anatomy of the recovery, as we call it, that -- you can read it off. There is a possibility that you can get a stable to slightly firming market. We don't rule that out. But I think there's volatility ahead.

On your charter-in strategy, obviously you have been focusing a lot on unwinding some of the charter-ins. I did notice from your fleet list that you have chartered in a VLCC. I won't ask for the economics of that, but are you starting to be a little bit more flexible and taking some back in on charter-ins? And has the time horizon changed on those? Are you looking for much shorter-term charter-ins to meet seasonal spikes in the environment?

I think the VLCC is maybe an aberration in the reporting. We have one VLCC on in-charter. We've had it for five, six years. It has annual extension options, and the vessel has subsequently been re-let by an Austrian oil company. So that will have shown up is that we exercised one of the annual options, and the vessel continued on its charter to an oil company through us.

So there's no -- we are not dabbling in VLCC in-charters at this time. But in-charters is something we have had the benefit of dialing up and down, and of course our tonnage pools give us a very nice footprint in the market, even if the P&L fleet numbers for TK are down. So we have a lot of flexibility on that, and at this time we are not in-chartering vessels. But we're looking at it, and we can move quickly, should we decide that the risk-reward ratio moves into the green territory.

Gregory Lewis, Credit Suisse.

You mentioned some issues facing the gas market and that it was fairly quiet. Could you go into some detail on the reason that the FLNG project simply became less attractive? Does that give you concern for the longer-term outlook of these types of projects?

Well, the project that we were investing, Kitimat, was a specialized niche project that had a different design concept than the typical projects you're seeing in the market. And in fact, it was kind of a low-tech, low complexity project. And the thing that made it not work was simply the size of the production, the cargoes, relative to the distances, relative to the price of gas.

And I guess the long-term contracting of gas in Asia, in particular, is a dynamic that can be kind of tricky. So if you look at FLNG more generally, there certainly is still rumblings out there. But these are very large, complicated projects, or at least there's a range of projects where the high end is very large and complex and expensive. Let's take a price of $5 billion, was mentioned around a Shell LNG project for Australia, which I'm not sure whether that will go ahead. But it has been talked about that they ordered a unit in [Samsung].

And then there are other, lesser projects. It's something we are following, and we have all the capabilities, through processing experience, our LNG containment, transshipment, conversion topside, we have all the skill sets. It's just a matter of making a -- I don't think you necessarily want to be first, to be first, on that industry.

Given the huge capital outlays for those types of projects, do you have joint venture agreements in place, or would those be something that would be set up as projects came available?

I think you would typically do that on a case-by-case basis. I know that some other players in the industry have recently teamed up. But that, I think, was more a function of trying to combine the skill set, the missing skill set, than it was necessarily a risk spreading. But I think we clearly would not plunge into -- like a huge project like that, without consideration of the capital.

Regarding the announcement of the drop-down of those three assets into TGP. I guess my first question regarding that is, were those three vessels with those long-term contracts -- were those contracts already on those ships before those assets were targeted for the drop-down?

Yes. Those assets were ordered when those contracts or converted with those orders in place. So those were existing assets up at Teekay, which Teekay LNG chose to buy because it fit our model of buying vessels with long-term contracts. As the gas market wasn't yielding us enough assets to have an accretive transaction, we thought that was our best opportunity to continue to grow our distribution down at Teekay LNG. And as it relates to the gas projects in general, there is a short-term hiatus. But what we've been focusing in is these niche opportunities.

What Kitimat was, which was the export of gas from western Canada, was an interesting project because it was a quick-to-market project. Whereas most of these liquefaction plants are very large and take years to build, we could supply a smaller unit but much quicker. And while the economics didn't work out, there are these opportunities that we look at. And one opportunity we continued to pursue is a floating storage regas unit in Israel, for example, which is on a joint venture basis.

And so there's all these mice opportunities that we look at, but it isn't part of a commodity trend; it's just as the different requirements come up for both export as well as import.

When I'm looking at potential future drop-downs, are there any existing vessels in Teekay parent, in the form of, I guess, more traditional tankers that have longer-term contracts at this point, that that could be future drop-down candidates?

There are more assets up at Teekay that have longer-term contracts. We have three daughters, one focused in on the gas, one focused in on offshore, one focused in on short-term tankers. So there isn't a natural place for tankers with long-term contracts. However, the Teekay LNG will continue to focus in on the gas side and the offshore side is for the offshore side. And then for the short-term tankers, that's - that are on zero to three-year contracts.

Urs Dur, Lazard Capital Markets.

A question to follow on to Greg's initially, on the drop-down of the three ships -- what's the gain on sale to the parent? I didn't see it listed anywhere. Or is that revealed?

Given that this is an intercompany sale, from the parent to Teekay LNG, there will be no gain or loss recorded.

Okay, perfect, makes sense. On OpEx, it's a little bit higher than I expected. And you did mention that you did a lot of maintenance in the fourth quarter, which is fair enough. And you gave very nice guidance on many other items or ideas. What's the outlook for OpEx? In 1Q, what should we be looking at?

As I mentioned, I think, again, the Q4 number is higher than normal due to timing differences. So Q1, we are expecting it to be about $5 million to $7 million lower on a consolidated basis.

$5 million to $7 million lower; okay, thanks, I missed that, very good. And, Vince, can you tell us also what's the net debt to cap [at] the parent now?

Net debt to cap is about 56%, I believe, around there. But on the --

On recourse, sorry, recourse net debt to cap.

When you look at the parent company only, it's about 28% on the net cap (multiple speakers) --

It's 28%, yes, okay very good, thank you, that's extremely helpful, and thanks a lot for your time, guys.

Justine Fisher, Goldman Sachs.

Just to clarify on the question on the drop-downs, so you guys -- so the reason why you dropped those down to Teekay LNG as opposed to the others is that Teekay Tankers is focused on short-term. But for Teekay offshore, the tankers in Teekay offshore are on long-term charters as well, aren't they?

Yes; they're on charter back to Teekay, and that was part of the tax planning that we put in place on Teekay Offshore beginning. But there are plenty of assets for Teekay Offshore to acquire in the offshore segment. So it's not interested in purchasing more tankers.

So really, then, essentially, the only daughter company that's appropriate for those time-chartered-out tankers is LNG?

I would say yes, that's true.

And I know that you guys are not looking at yields at the moment, in the tanker segment. And I think it makes a lot of sense as far as holding back if you think the market is going to become more troubled as far as asset values goes. But we've seen other shipping companies that seem to be getting deals not that are too good to resist but deals where they will get a serious discount on vessels if they pay more cash up front, etc.

And so if you guys were presented with opportunities like that as opposed to a vanilla acquisition from a yard, would you take that opportunity?

I think the environment for investing in the tanker market, as Bjorn said, is going to be better later on than sooner. And the real reason we think that is because the last Bohai we took delivery of was ordered about 2.5 years ago, when rates were -- and order prices were reasonable. So the vessels you're taking delivery of now are in the money or still worth their net asset value.

But the ships that are going to be delivered later in 2010 and into 2011 were ordered at as much as 50% more than what they are worth today. And that sets up an interesting dynamic. So to buy now, when you have some really interesting dynamics that are going to unfold over the next six to 18 months, seems to us to be not the best way to use our shareholder funds.

So we are waiting to see those opportunities. We get to see a lot of opportunities coming our way, but we believe it will be better later rather than sooner.

So, as far as that dynamic, how does that dynamic unfold? Like if we've got these vessels coming at very high prices versus what they would be priced at today, is the dynamic that you would take advantage of because those owners may not be able to pay the rest of the price to the yards; they will be selling them at distressed levels? Or, is it that the owners would turn around and flip them? How exactly does it create opportunities just because they were vessels ordered at --

Well, I think there's three stakeholders here. There's the owners, there's the banks that are financing the owners, and then there's the shipyard. And so, depending upon the financial profile of the owner, he may or may not have the money to complete that order. And his banks may or may not allow him to complete that, even if he wants to.

So there has to be a negotiation between the owner, between the shipyard, and the bank will of course be involved. So we think there's an opportunity, and we can go in through the debt, or we can go in through the equity. Or, if they abrogate their contract, we can come and help the yard. So we are focused in on working with all the different parties in mostly one-off transactions. And that's where we think the opportunities will come. But it's a slow-moving dance. Everyone is focused a lot in on distress. But, as Bjorn said, these things take time in order to work themselves out. And I think that's what the market is finishing.

But, while we are more conservative about the tanker market, is we think ultimately these vessels will come out on the market. The question is in what form and at what cost price. Teekay is good at harvesting these kinds of opportunities.

Just one more question to make sure that we've got the vessel numbers going forward right -- so did you guys go over the time charters that you have expiring, if any, in 2010? And then when are these shuttle tankers and LNG carriers that are the new builds on order being delivered?

Shuttle tankers -- I can answer that one. The first is, we have one vessel in Q3, one vessel in Q4 of this year and then two more vessels in the second half of 2011.

Do you have some numbers on time charter (inaudible)?

In terms of in-charter vessels, we have one coming off in Q1, and then there's three coming off in Q2., and another two in Q3. We do give a summary of the conventional fleet on the slide 17, as well, of our presentation.

Right, but I just didn't know if those included vessels that -- that's the Teekay parent fleet. So I didn't know if those included vessels that you are dropping down, but that aren't necessarily leaving the corporate fleet. So -- all right; I'll put those numbers in. That's fine. Thank you.

Daniel Burke.

A question; I did want to return to the shuttle tankers still on order. You have a decent amount of capital invested there. Can you expand any on the outlook for the Amundsen Class? I guess we presume that, given the way they were outfitted, they would be headed to the North Sea. Is that a reasonable presumption? How do you see the market accepting those assets here as they get closer to delivery?

Well, they certainly (inaudible) they have. These are some of the most sophisticated shuttle tankers ever built, and they definitely have features that make them very useful in the North Sea. I should note that Brazil is also upping its technical requirements significantly; they have a tender out at the moment where they actually are looking for a huge amount of thruster capacity. And so they are upping the ante as well.

So I think that having sophisticated new buildings on order in a market where there's little spare capacity and growing demand is very exciting. So I would say that it could be the North Sea, but it may not necessarily be.

Sticking with the offshore, just one other question. On the FPSO side, I would assume, then, looking at the harsher environments, you would similarly there be focused pretty specifically on North Sea and Brazil opportunities? Is that a fair way of looking at it?

I think it's about -- those are niches where I think Teekay has specialized skills, operational-intensive markets, harsh weather and not necessarily ultra-deep water, but we can definitely operate in those niches. There are a few other places around the world, I'd say, where harsh weather is an issue. So I think we have a number of places we can go. We certainly have more options than people who are at the benign weather end of the market.

Okay, and then one last question, coming around to the conventional tanker market, you pointed out in the recovery case the role that utilization of first-gen double hulls could play in terms of potentially tightening the market, Bjorn. Have you seen -- maybe not recently, but last year when the market was slower -- discrimination creeping into that first-gen double hull market? Or, how do you see that unfolding over the next couple of years?

It's definitely there. It's reality, and I would say we pride ourselves on both the technical standard, but also the cosmetic appearance of our vessels. I would say our vessels are of the highest standard, yet if you have a 17-, 18-year-old ship and there's one little deficiency, they flip the switch on being out of vetting approval way faster than they ever used to in the past. So I would say the oil companies, when they have a choice and there's lots of supply of modern tonnage, they are being extremely selective. So it is a reality. I think you are going to see that -- it will be a buffering -- like the single hulls we're buffering layer in the early transition to double hull, the same will happen with ships over 15 years of age, in my view. They will be the last to get employed in those markets, especially with a lot of new buildings coming in.

So I think you will see stratification of the fleet. And that helps, I think, dampen any surplus supply.

Scott Burk, Oppenheimer.

You talk about the recovery case in your presentation, and a median point would be, say, 88% utilization. But then you also talk about reducing -- folks introducing your spot exposure. So does this imply that you think the risks are higher to the downside near-term? And also, how actively will you be looking to charter out vessels on any kind of rates spikes?

I believe we are being prudent and conservative, but we are certainly not running for cover. We have spot exposure, and we have significant operating leverage still at this time. We are hedging our bets a little bit because of an uncertain outlook. You can look at the economy. People are talking about economic recovery, but others are talking about splattering economies. Right? So I don't think we're out of the woods, and we basically are playing right down the middle.

As far as chartering in or out on spikes, I think we have to just play it by ear. We did cover some tonnage in the spike over the new year; that's the four vessels that I referred to, Suezmax covers that we took. In the meantime, it's not like we don't have other projects to pursue. That's the beauty of the Teekay platform; we have good opportunities in the offshore sector that we can pursue.

For Vince, I also missed the DD&A number guidance that you gave for first quarter.

We don't expect that to change too much from Q4. It might be up a little bit with the new building in December.

When you're looking out for the rest of 2010 and into 2011, is that first-quarter indications -- is that good run rate going forward, or what kind of changes could we expect throughout the rest of the year?

Well, we have some new buildings scheduled to deliver in the second half. So, for example, we have the two shuttles in Q3. So that will increase DD&A. And we've got another Skaugen vessel delivering in [TGP]. So the number will tick up as vessel deliveries take place.

And I guess, same for the operating expenses, same idea?

That's right, except the Skaugen ship is on [their] boat, so there's no OpEx on that.

Any upward pressure on the G&A this year?

No. We're still maintaining the 20% savings from the peak from Q2 '08, and we expect to be able to hold that during 2010.

There are no further questions at this time. Please continue.

Well, thank you very much for listening in this morning. We are still cleaning up from the Olympics in Vancouver, but a very positive event. And we look forward to talking to you next quarter. Thank you. Have a great day.

Thank you. Ladies and gentlemen, this does conclude the conference call for today and we thank you for your participation. You may now disconnect your lines and have a great rest of the day.