Teekay Corp Ltd (TK) 2010 Q4 法說會逐字稿

Welcome to Teekay Corporation's fourth quarter and fiscal 2010 earnings results conference call. During the call, all participants will be in a listen-only mode. Afterwards, you will be invited to participate in a question-and-answer session. (Operator Instructions) This call is being recorded. 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. Please go ahead sir.

Before Mr. Moller begins, I would like to direct all participants to our website at www.teekay.com., where you'll find a copy of the fourth quarter and fiscal 2010 earnings presentation. Mr. Moller 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 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 2010 earnings release and presentation available on our website. I will now turn the call over to Mr. Moller to begin.

Thank you, Kent, and good morning, everyone. Thank you for joining us today for Teekay Corporation's fourth quarter and fiscal 2010 earnings call. As usual, I'm joined today by our CFO, Vince Lok, and for the Q&A session, we also have Peter Evensen, Teekay Corporation's Chief Strategy Officer and CEO-elect, as well as our Corporate Controller, Brian Fortier.

Beginning on slide 3 of the presentation, I will briefly review some of Teekay Corporation's recent highlights. For the fourth quarter, we generated $157 million of cash flow from vessel operations or CFVO, up 22% from the same quarter last year. In Q4, we recorded an adjusted net loss attributable to shareholders of Teekay of $37.8 million or $0.51 per share, an improvement to the $0.73 net loss we recorded in Q3. This was due to better results in our Offshore business, which more than off set the weaker spot tanker market that prevailed in the quarter. Our unique business model enabled us to complete $520 million of asset sales during the quarter to Teekay Offshore and Teekay Tankers. Proceeds received from these asset sales allowed Teekay Parent to further reduce its debt to $338 million as of December 31, 2010, which represents a net debt to total capitalization of only 15%.

During the quarter we opened an office in Shanghai and expanded our business with Chinese interests, of which the highlight was the ordering by Teekay Tankers of the group's first VLCC since the early 1990s, scheduled for delivery in 2013. During the first quarter of 2011 to date, Teekay Parent has remained active, initiating two notable transactions. Firstly, at the end of January, Teekay Parent offered to sell its remaining 49% interest in Teekay Offshore Operating LP, which I'll refer to as OPCO, to Teekay Offshore. If completed, Teekay Offshore will own 100% of OPCO, which includes most of Teekay's shuttle tanker fleet, while Teekay Parent will continue to control Teekay Offshore and remain its largest shareholder.

Secondly, this week, Teekay Parent agreed to invest $70 million in a new first priority mortgage loan secured by a 2011 billed VLCC. The vessel's owner is located in Asia and is not affiliated with Teekay. The investment ,which we expect to close tomorrow, February 25th, will pay interest at a rate of 9% per annum.

Finally, we have also been buying back our own shares, and since announcing our intention last fall to reactivate our existing $200 million authorization, we have repurchased 1.36 million shares at a total cost of $44 million. Turning to slide four, I'll review some of the key highlights from fiscal 2010. Given the volatility which characterized the spot tanker market in 2010, our diversified and predominantly fixed-rate business model proved to be a significant advantage. For the year, we generated $632 million of CFVO over all. CFVO from our Fixed rate business totalled $662 million, an increase of 18% over 2009. Both CFVO figures exclude $59 million of catch-up payments received under our amended Foinaven FPSO contract in 2010. By contrast, our spot tanker business generated negative $30 million of CFVO, due to a combination of weak spot tanker rates and out-of-the-money in-charters. The weak spot tanker market was also the key reason why we recorded an adjusted net loss attributable to Teekay of $121 million or $1.67 per share for the year.

During 2010 we took several steps to further reduce our exposure in the spot market. We re-delivered five end charters, sold two older vessels to third party buyers, and chartered out four of our spot tankers on new fixed-rate time charter contracts at rates above the prevailing spot market. We expanded the fleet size in the Teekay managed commercial tonnage pools, allowing us to maintain our commercial footprint and our economies of scale.

One of the key highlights of 2010 was the significant momentum we saw in our Offshore business. This included being awarded a nine-year FPSO contract with Petrobras to service the Tiro and Sidon offshore fields in Brazil, commencing in Q2 2012, and the successful restructuring of certain major North Sea shuttle tanker contracts. These developments are expected to drive further growth in our fixed-rate cash flows. On the cost side, continued discipline allowed us to hold the line on total operating and overhead costs and thereby consolidate the significant cost reductions achieved in 2009.

Finally, we continued to make good progress in our multi-year efforts to increase Teekay's financial strength and flexibility. Over the course of the year, we completed approximately $900 million of asset sales to our daughter companies, who in turn were able to raise approximately $680 million of equity capital in a series of successful offerings. Proceeds from these asset sales enabled us to reduce Teekay Parent's net debt by roughly $540 million in 2010 and grow our consolidated liquidity to $2.4 billion.

On slide 5, we focused briefly on the growth in our fixed-rate CFVO. As shown on the bar graph, over the past several years, our investments in offshore and gas assets have resulted in an increase in a diversification of Teekay's fixed cash flows. From 2007 to 2010 our fixed-rate cash flows grew at a compound annual rate of 13% from an already significant base. Over the past year, much of this growth has come from our offshore business, mainly from the improvements we have been able to negotiate in a number of existing FVSO and shuttle contracts. As a result, in 2010 our offshore CFVO was up by 40% over 2009, and this excludes the Foinaven catch-up payments I mentioned earlier. Given the opportunities we are seeing, we expect offshore to remain our fastest growing market segment for the next two to three years.

Slide 6 illustrates how Teekay's corporate structure provides flexibility to invest across our Business segments and at different levels. The matrix on the slide is one we first presented at our investor's day last October, and we have used recent examples to show the different ways Teekay can invest and grow in each of its business areas. For small-to-medium-sized pure asset transactions, our daughters now have sufficient size and liquidity to make acquisitions directly from third parties. Recent examples include; Teekay LNG's investment in a joint venture with Exmar, also Teekay Tankers investment in two first-priority VLTC mortgage loans, and its investment in a VLTC new building joint venture.

For larger build-to-suit projects or fleet acquisitions, Teekay Parent will still use its project expertise to create value and its balance sheet to warehouse the assets during the construction phase before offering it to the respective daughter company. This is the approach we have taken with the recent new building shuttle tanker program and with the -- which are relatively capital intensive and complex to develop. Involved an element of us picking up a distressed asset, acquiring the unit out of a restructuring situation during 2010 and finding a customer that wanted Teekay to operate the unit on a long-term contract. Teekay Parent retains the flexibility to invest in new opportunities, such as our just announced discretionary investment in a new first priority VLCC mortgage loan.

The take-away here is that we have considerable flexibility across our corporate structure to invest in different types of growth opportunities that may emerge in each of our business areas. Over the next few slides, I'll walk through some of the key market developments and near-term business priorities in each of our main business areas.

Turning to slide 7, I'll start with our Offshore business. Following the financial crisis, global oil demand has now recovered and crude oil prices have returned to historically high levels, with an average oil price of $80 a barrel over the last 12 months. In this market, offshore activity is flourishing, and the number of visible floating projects has doubled compared to just two years ago. In Brazil, recent giant offshore oil discoveries are expected to generate strong demand for FVSOs and shuttle tankers for years to come.

In the North Sea, higher oil prices have stimulated a new round of offshore investment involving fields previously deemed too marginal or uneconomic to develop but now being commercialized. Again, we expect this to create new demand for FVSOs and shuttle tankers in the coming years. Customers are increasingly focusing on qualifications that play to Teekay's competitive strengths, including our proven track record in harsh weather operations, our technical know-how and our financial strength.

The FVSO market has undergone consolidation in recent years. Gone are most of the small startup companies, some of which had speculatively ordered FPSOs in anticipation of winning tenders. Today, the market is characterized by a smaller group of experienced FPSO companies able to compete for projects in a more disciplined manner and resulting in higher returns in the range of 11% to 14% un-levered IRR.

We expect strong growth for Teekay in this sector going forward. In the near term, our key priorities for our offshore business will be to complete the sale of 49% interest to Teekay Offshore, secure new employment for our fourth shuttle new building; the Scott Spirit, which is expected to deliver in Q4 this year, complete the conversion of the Tiro Sidon FVSO and commence its nine year charter with Petrobras, and leverage our competitive strengths in harsh weather operations to pursue new FPSO in our core markets.

Turning to slide eight, I will review the outlook for Gas business. Overall, we consider long-term prospects for LNG Shipping to be favorable. Demand for natural gas is expected to grow faster than any other carbon-based fuel at 1.4% per annum. The demand for LNG is expected to grow even faster at 3.3% per annum. Over the past two to three years, the market for long-term LNG shipping projects has been in a lull, but this is about to change with the number of new LNG liquefaction projects due to come online from 2013 onwards, particularly in Australia. As a result, the demand for new LNG vessels is set to grow significantly over the next few years, with as many as 100 new LNG carriers needed by the end of the decade.

An increase in the demand for floating storage and reclassification units or FSRUs, represents a relatively new and very exciting growth market in the LNG space. FSRUs are becoming increasingly sought after because they're able to deliver natural gas cost-effectively to new markets with a shorter lead time. There are currently 10 floating reclassification projects underway worldwide with a further 24 proposed projects on the horizon.

The spot and short term time charter markets for LNG shipping have recently experienced increased activity due to a combination of seasonal factors and the emergence of arbitrage-driven trades which serve to increase LNG [ton]-mile demand. This has pushed LNG spot charter rates from a low of $25,000 today in mid-2010 to around $67,000 per day at present. It may be an indication that there is sufficient demand to absorb the existing LNG fleet, leaving room for new buildings to serve the new point-to-point projects I just mentioned.

Over the near term, key priorities for our gas business will be to finalize a new contract for the Arctic Spirit LNG carrier, which Teekay Parent has on long-term charter from Teekay LNG Partners, complete the sale of our one-third interest in the four Angola LNG carriers to Teekay LNG, and continue to build on our recent investment in our first FSRU to expand our involvement in the FSRU segment.

Turning to slide 9, the conventional tanker market in 2010 proved to be a year of two halves, with relatively strong rates in the first half of the year giving way to a very weak second half. Tanker demand growth was robust at 7% on the back of global oil demand growth of 3.3%, witch is the second highest level since the 1970s.The global tanker fleet grew by 4.5% in 2010, lower than in the previous year. However, the unwinding of floating storage added a further 3% to effective tanker supply during the second half of the year, tipping the market balance back into oversupply. Expected net fleet growth of approximately 7% this year is likely to off set tanker demand growth, thus creating the risk of another challenging year for spot tanker rates in 2011. The market up-side lies in the potential increase in OPEC production from the Arabian Gulf in response to strong oil demand and oil to replace oil supply lost from the unrest in North Africa and the Middle East. Such an increase could add meaningfully to tanker ton-mile demand.

Looking forward ahead to 2012 and beyond, we see the beginnings of a potential tanker market recovery, provided there is discipline in tanker ordering over the next 12 to 18 months. Tanker demand is expected to continue to grow at robust levels over the next one to two years, driven by energy-intensive non-OECD economies and by China in particular. If the level of new tanker ordering remains at the current low levels during the remainder of 2011, then the tanker markets should be more finely balanced going into 2012, setting the stage for a recovery in tanker fleet utilization and rates. Given our expectation of further market volatility in 2011, Teekay's near-term conventional tanker priorities will be to finalize Teekay Parent's $70 million investment in a new first-priority VLCC mortgage loan, continue to manage our spot exposure throughout charters if sufficiently attractive and through redelivery of expiring end charters, and pursue opportunities to invest through ownership or elsewhere in the capital structure in third-party assets that may become available at attractive prices as a result of the weak tanker market.

Turning to slide 10, we have provided an update of our sum of the parts calculation. Although you will be familiar with this slide, we have included it to highlight the effect of the pending sale of OPCO. For illustration purposes, we have made approximate pro forma adjustments in the table for the sale of Teekay Parent's remaining 49% interest in OPCO to Teekay Offshore. In addition to receiving an assumed cash component of $175 million, Teekay Parent has offered to take the remaining consideration in the form of Teekay Offshore units. Effectively, Teekay Parent would exchange a portion of its equity in OPCO with predominantly owned shuttle tankers for equity in a more diversified offshore business that also includes FPSOs. If completed, this transaction will also further reduce Teekay Parent's net debt and increase ownership in Teekay Offshore. Another benefit would be the simplification and streamlining of our corporate structure. We hope to be able to update you on the status of this transaction in the next few weeks.

I'll turn the call over to Vince to discuss the company's financial results for the quarter.

Thanks, Bjorn, and good morning, everyone.

Starting with slide 11, I will review our consolidated results for the quarter. In order to present 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. Later on, I will also provide our outlook for the first quarter.

Net revenues increased by $34 million due to several factors. Firstly, Q4 revenues from our FPSO and shuttle fleets increased as operations returned to normal levels after completion of FPSO planned shutdowns and North Sea field maintenance in Q3, as well as a full quarter of earnings from the amended Statoil shuttle tanker contract which commenced in September.

Secondly, we recognize an additional $17 million in Q4 relating to the annual revenue true-up for the Foinaven FPSO as we described in previous quarters. This annual true-up is recognized in the fourth quarter of each year since it is based on various annual performance measures, oil production levels, and average oil prices for the year.

Thirdly, we had scheduled dry docking and off-hire days in Q4, with 235 days in Q4 compared to 370 days in Q3. These increases were partially offset by lower average spot tanker rates in Q4. It's important to highlight that a greater proportion of our revenues are coming from fixed-rate businesses as a result of the significant reduction in our spot in-charter fleet and the continued growth of our fixed-rate businesses. Vessel operating expenses by $6 million mainly due to unexpected repair costs associated with our shuttle tanker fleet in Q4 as well as the recent delivery of two new building shuttle tankers.

Time charter hiring expense was in line with the prior quarter, and looking back at the past year, we have reduced our time charter hire expense by $170 million in 2010 compared to fiscal 2009. Depreciation and amortization increased by $3 million, primarily due to the delivery of the new building shuttle tankers and higher dry dock amortization expense. G&A expenses increased by $4 million to $51.5 million primarily due to increased business development activity and project costs in our offshore businesses in Q4. For the entire year, normalized G&A expenses were $196 million in 2010 down from $207 million in fiscal 2009. Net interest expense was in line with the prior quarter. Non-controlling interest expense increased by $1.5 million due to higher fourth quarter earnings in Teekay LNG and Teekay Offshore, partially offset by lower fourth quarter earnings in Teekay Tankers.

Looking at the bottom line, adjusted net loss per share was $0.51 in the fourth quarter compared to an adjusted net loss of $0.73 in the third quarter, with the majority of this improvement coming from the Foinaven FPSO annual revenue true-up and the completion of the FPSO shutdowns and North Sea field maintenance undertaken in 2003. The bulk of the loss of net income this quarter and for the entire 2010 can be attributed to the spot market exposure of our conventional tanker fleet, which has declined as a percentage of the overall fleet throughout the year.

Turning to slide 12, we have provided some guidance on our expected financial results for the first quarter of 2011. Apart from the $17 million Foinaven revenue true-up recognized in Q4, and any changes in spot tanker rates, overall, we expect the revenues from our fixed rate businesses in Q1 to be roughly in line with Q4. Overall, vessel operating expenses are estimated to decline by about $2 million compared to Q4, as we expect the shuttle tanker operating expenses to return to more normal levels in Q1. Time charter hire expense is expected to decrease in Q1 by approximately $3 million, reflecting the full quarter affect of a Q4 redelivery and less spot in-chartering activity in our shuttle tanker fleet. We have an additional 8 in-charter conventional tankers scheduled to redelivery during the course of 2011, which will further reduce our break-even levels and spot tanker market exposure.

Depreciation and amortization is expected to decrease by approximately $2 million as a result of the asset write-downs we recorded in Q4. We expect G&A to be about $50 million, which is slightly lower than Q4. Net interest expense is expected to decrease by $2 million as a result of lower net debt and capitalized interest on the Tiro Sidon FPSO project installments. Income tax recovery run rate expected to be $2 million in the first quarter. Non-controlling interest expense is expected to increase to approximately $29 million to $31 million in Q1 reflecting the recent equity offerings completed in Teekay Offshore and Teekay Tankers.

Turning to slide 13, we are pleased to report that Teekay is entering 2011 financially well positioned. Over the past two years, we have focused on enhancing our financial strength and flexibility with the objective of positioning Teekay to take advantage of growth opportunities that may emerge as a result of the financial downturn and the weak tanker markets. We have made significant progress towards this objective since the end of 2008, largely as a result of our flexible corporate structure, which has enabled us to raise over $1 billion in equity capital through our daughter companies and complete the sale of $1.6 billion of assets to our daughter companies and third parties. This, combined with substantial and growing fixed-rate cash flows, has enabled Teekay to reduce leverage and build liquidity at both consolidated and parent Company levels.

As shown in the top left graph of slide 13, we have reduced Teekay's consolidated leverage from 62% to 53% over the past two years, despite taking delivery of new buildings and the relatively weak spot tanker rates during this period. The current level of gearing is appropriate given our substantial fixed-rate cash flows. As shown on the bottom left graph, the de-levering is even more pronounced at the Teekay Parent level, where we have reduced net debt by $800 million to $338 million, lowering net debt to total capitalization from 35% at the end of 2008 to only 15% at the end of 2010. Looking at the right-hand side of the slide, Teekay has also built considerable liquidity totalling $2.4 billion on a consolidated basis, including $1.2 billion at the Teekay Parent level, and this is before including over $450 million of additional prearranged financing for our remaining new building commitments. Since all of our revolvers are currently undrawn at the Teekay Parent level, we have over $500 million of cash on Teekay Parent's balance sheet, which is currently earning very little income at today's low short-term interest rates. As a result, this is having a negative effect on our near-term profitability. However, as we start to put this cash to work through new investments, such as the recent $70 million VLCC loan, virtually all of the incremental investment returns will flow to the bottom line, which will help improve our profitability. In addition, with $1.2 billion of combined liquidity at our three daughter entities, they have the ability to make accretive acquisitions on their own.

Turning to slide 14, we believe Teekay has emerged from the financial crisis stronger. Our flexible business model is proving to be valuable, with a significant and growing portfolio of fixed-rate cash flows and an ability to source competitively priced debt and equity capital to finance our growth. Teekay Parent has de-levered considerably over the past two years and is now approaching net debt free. We have a favorable debt profile with no near-term maturities or covenant concerns. Each daughter entity and based on cash flows from directly owned assets, daughter dividends, and proceeds from drop-downs, available cash that can be allocated to new investments and/or returned to shareholders as we have recently done through our share repurchase program. These factors combine to create a strong financial profile for Teekay which differentiates us from our peer group and provides us with a competitive advantage. Teekay is not only financially stronger on an absolute basis but given the challenging marketing conditions, Teekay is stronger on a relative basis. With that and for the last time, I will turn the call back to Bjorn to conclude.

Summing up, the weak tanker market in the fourth quarter highlights the contrast between business model companies fully exposed to the spot tanker market. Against this backdrop on this, my last earnings call as CEO of Teekay Corporation, I reflect on the strong foundation Teekay has built for the future and on our key strengths. Firstly, we are an agile world class organization with a global team of over 6000 experienced professionals unified by a deep-rooted culture of safety, operational excellence, and customer service. Our people are the essence of the Teekay brand. Secondly, a uniquely broad and deep business platform that includes industry-leading positions and promising growth sectors like offshore and gas. Third, a long-standing relationship with our customer base of quality conscious blue chip national and international oil and gas companies who have a growing requirement for tailored high quality marine solutions, and as Vince just described, a company that is financially strong and with a highly flexible corporate structure that can support Teekay as we continue to pursue our full potential. As previously announced, I will be retiring as CEO of Teekay Corporation at the end of March, and I'll be handing over the job to Peter Evensen. As Chief Strategy Officer over the past five years, Peter has worked very closely with me to build the Teekay you see today. I am very confident that Peter will do a great job as our new CEO supported by a committed and experienced management team, and I wish the team every success in the future. I will remain on the corporation Board in a non-executive role where I look forward to continuing my association with this great company. I'd like to take this opportunity to thank you our investors and the analysts that cover Teekay for your support over the past 13 years. With that, I will open it up to questions.

(Operator Instructions) The first question comes from Jonathan Chappell of JPMorgan. Please go ahead.

Thank you. Good morning. Couple quick follow-ups on the VLCC mortgage loan first. Are we accounting for this in the same manner as the first two at the structure?

That's correct, Jon. The revenue on an annual basis would be about $6 million. That will be shown as revenues on Teekay's financials.

Okay. And then Vince, you mentioned the $500 million of cash on the balance sheet do you want to deploy, a couple questions for that. First of all, are there more of these type of mortgage loans out there? We asked the same question and clearly there were. And how do you rank these versus your investments? And the follow-up to that is, how have the investment returns kind of changed since your analyst day? How would you categorize offshore versus LNG versus core tanker business?

Let me take the first part of that question. We're looking at investing anywhere in the capital structure that makes sense that has offshore exposure. When we looked at the VLCC market, it was better to be able to do a first-priority mortgage loan in a specific instance rather than to have a part in the ownership. Whereas when we -- in contrast we took 50% of the VLCC new building which we were able to charter for five years. And so we will move up or down depending on the employment prospects and what we see. We fully expect to be able to return back to deploying assets into the shipping side, the conventional tanker side as the cycle evolves.

Okay.

If you think about offshore versus gas versus conventional tankers, that's where I think our business model comes in pretty handy. We're going to invest most of what we're doing down at the daughter companies and right now, as Bjorn said, we see the offshore side having the best returns and Teekay Parent, and that's where you'll see most of the growth.

So that hasn't changed. And I need to ask this question as well. The buyback program was pretty well received back in October. And although there was no terms or timing put around it, I think maybe people were expecting a little bit more than what you've done in the four months since it's been announced. Is that a function of the stock price appreciating or a function of the returns are better in the offshore space right now?

I think -- first of all, we're commencing a $200 million buyback program at a time when the industry isn't doing so well. We see compelling value in our stock, and we're continuing to evaluate it. We have a good track record of completing the share buybacks, and you'll remember three or four years ago we bought back a total of 25% of our stock. We're committed to the buyback program, but we're taking a measured approach. There's a lot of volatility out there, and that's even before you get to what's happening in North Africa right now. And so we have to gauge various opportunities and so we're committed to keeping going, but we're not giving specific guidance on exactly what we're buying and when we're buying.

Thanks Peter, thanks Vince. And congratulations, Bjorn.

The next question is from Gregory Lewis of Credit Suisse. Please go ahead.

Thank you and good morning. First, congratulations Bjorn and good luck.

Thank you.

Shifting gears, it looks like you mentioned that you have a handful of Suezmax rolling off in charters over the next I guess couple quarters. In terms of where charter rates are today, is this something that we think is going to roll off? Or are you in discussions actively about potentially re-chartering in the these vessels to keep your fleet size up?

I believe, I think you'll find that the bigger the shift, the less liquid the market for in-charters, so I guess the more liquid market is around the Aframax tanker. As soon as you get up to Suez and VL, rates are take a little bit longer to adjust. And I think what we're seeing in the last month is, people have finally decided, well, there isn't going to be a market, so the volatility option hasn't got as much value this year, and that's why you're seeing time charter rates beginning to adjust in a downward direction. So that begins to I guess create an environment where it may be more attractive to in-charter. But I still think we are missing liquidity in the market. It's not going to be easy to amass a lot of ships, but we'll continue to follow it, and I think that if rates stay weak, there should be some good opportunities in the coming months.

Okay, great.

You might find that we'll reset them back at lower levels which would be good for our cash flow.

Sure, sure. And clearly, when you think about the offshore sector and you think about the growth in the FPSO sector. You have that chart outlining existing tenders that are out there. In terms of going after these, you've done a good job of strengthening your balance sheet and you do have ample cash on the balance sheet. In terms of thinking about funding one of these -- say you were to win a new project. If you think about the time cycle between winning the contract and securing -- having the asset be delivered, how do you balance your existing capital structure and going after those transactions? And really, what kind of capacity do you think you have? Is it realistic to think you could go get one of these things per year? Or is it maybe two a year? How do you think about that?

First of all, I would say that the financial side of things isn't what we spend most of our time thinking about. We spend most of our time thinking about do we have the human capital? Do we have the resources in order to complete a project on time and on budget? That for us is the first important thing. And we've been gearing up in terms of our staff as well as hiring contractors to be able to have the capacity to grow with the market and hopefully, faster than the market. So that's where we start out.

In terms of the financial side, we look at what the internal rate of return is on any given project. And because of the financial strength that Vince outlined, we're not really focused in on whether it delivers in two years or three years because we have the capacity to warehouse those projects. So we're most of all -- and I think we were right, if you look over the last two or three years, a lot of our competitors were very aggressive on projects, and they came in over budget or late and both are bad for the ultimate internal rate of return. A lot of people get excited about 10-year projects or 15-year projects, but if you don't bring them in on time or on budget, they can go from being an asset to a liability. So I think we were right to be conservative. And now, as you heard Bjorn say, we're on the march, but we've done it in a very deliberate way. So the financial side is really an afterthought. We have the capacity through the business model to warehouse it so we will take short projects like Tiro Sidon, and then we'll look at longer projects that may involve new buildings.

Okay, great. So then in terms of thinking about those 17 tendering FPSO contracts that are out in the market at this point, I mean, how many of those roughly do you think you're bidding on?

Right now we are basing ourselves on one big project per year. I think we'd like to take that to two big projects a year in a matter of the next few years. So I think there are probably five or six serious FPSO companies to be reckoned with, so I think there will be one to two projects available per company per year if you look at the demand side.

Okay, great. Thank you very much for the time.

Thank you.

The next question comes from Fotis Giannakoulis from Morgan Stanley. Please go ahead.

Yes, good morning, gentlemen. And congratulations to both of you. I want to ask you if you can give us an update about the situation in Libya, and if you have seen this situation impacting the Aframax market in relation to the Mediterranean oil flows and whether you anticipate that we might see longer haul oil movements from Saudi Arabia?

It's a very dynamic situation as I'm sure you appreciate. We have picked up that some terminals have been out of commission and oil production has been shut in, in a number of areas although not every area. We have at least one, maybe two, vessels scheduled to load in Libya in the next couple days, so I guess we'll get -- we'll be saying, obviously, make sure that the vessel is safe. One of the issues in Libya is communications. So port agents are not necessarily available to help you coordinate the situation. So we'll be following it from a front row seat. If there is disruption as it looks like there will be, then it certainly looks like on the margin we'll get more long haul oil into the market. That could clearly have intensive effects, since 80% of Libyan oil is delivered into Europe and other Atlantic region destinations. So if that has to be replaced from the Middle East, that's clearly accretive on mild demands.

Do you anticipate some segments, for example Suezmax is benefiting more from something like that, vis a vis Aframax is?

I would say it's a fungible market, sort of trickle down, but the VLCCs will be the first to benefit from the Middle East pick-up should that occur. The Libyan market is served mainly by Aframax and Suezmax, so the short term drop in demand for those vessels. But I think, on the whole, any disruption that creates aggregate ton-mile increase is good for oil tankers.

I want to ask you also about your expansion plans in the tanker sector. You mentioned that obviously your main focus right now, and the best opportunities are in offshore, but we've seen signs of correction in asset price. Some brokers were reporting today Aframax being sold a new building at 48.5 which is a steep discount from what another public company bought back in December. What is the entry point that you see? What do you see the timing of you expanding again and using your balance to buy more assets?

Well, we have a company called Teekay Tankers which is very liquid right now and which is -- its sole job is to invest in the conventional tanker business. So clearly at the Teekay level, we are following the market very closely. We feel that the window of opportunity is beginning to open. And so clearly, this is a time when we will be looking closely at that.

And my last question again is about the oil flows we've seen some significant oversupply in (inaudible) area. Do you feel that this might have an impact on US imports? And what is your take on that?

Clearly, it's affecting US imports, because simple landlocked crude in Oklahoma from a place like North Dakota, that's depressing the price and that's why we're having this record spread between WTI and Brent CrudeBut that's come in now to $10 a barrel from almost $20 a barrel. I think that there is clearly -- people would rather ship their oil somewhere else at the moment. So that will be a balancing mechanism. It's difficult to see where it's going to fundamentally affect US imports in the long run. It's a temporary phenomenon, I believe.

Thank you very much, gentlemen.

Thank you.

Thank you. The next question comes from Justine Fisher from Goldman Sachs. Please go ahead.

Good morning.

Hello, Justine.

My first question is regarding the VLCC loans that you have done. Have you heard any commentary, perhaps negative, from your banks about what you're doing? Because on the one hand, if your use of the bank debt is not covenanted or anything, then you can use your revolver for whatever you'd want.On the other hand, the banks are essentially not taking counter-party respites, not Teekay's by you lending to other shipping companies. So have the banks said anything about these loans?

Well, in this case we're actually using excess our cash balances of the parent to invest. We're not drawing on any revolvers to invest in this VLCC loan. And overall, it's not a big percentage of our overall investment portfolio. So I don't think its a major concern.

You said you would look to obtain additional debt vis a vis the JV for the new VLCC loan. And so, if you've had any discussions on that so far, are the potential lenders for that debt concerned about the additional counter-party risk that's essentially being layered into Teekay?

No. That JV of course is in Teekay Tankers, where we have a 50/50 joint venture with Wah Kwong. So we are currently in discussions with several banks to finance that VLCC, and there's no concerns there.

And then have you seen competition for these kinds of deals? Because even looking at your unsecured bonds that trade at a yield of around 7.5% for unsecured debt, if there is secured debt available at 9%, I would assume that there would be more than simply Teekay maybe looking at these sorts of deals. Are you tending to be the only one in time willing to partner up in this? Or are there other entities looking to do more types of business?

We're not approaching it as a business. We're approaching it as a specific opportunity. And so we're not sort of in the business doing competitive type of analysis. So we look at each individual deal as a project and that was the best place for us to invest. And so I wouldn't say that -- so I think you're misconstruing it. We're not in competition with banks. We're not as part of anything. And our banks are very well aware of what we're doing. So it's just a transaction. It fits quite well with our cash flows. Making a short-term loan is a good use of our liquidity before it gets moved to FPSOs or other long term assets. So it's just a capital function.

Okay. And then I have a question on the charter market as well. I'm wondering how the cookie crumbles over the next year or two in the charter market, because on the one hand, if charters such as yours are rolling off and they're not renewed, then other tanker companies that might be looking to charter out may not have the opportunity to charter out. And obviously, there will still be some charter market as oil majors chartering tankers, but the shipping company to shipping company charters may reduce, and at the same time banks seem more willing to lend only against ships that are chartered out. And so if shipping company to shipping company charters are not renewed, how do you see that affecting spot rates and maybe vessel values? Or alternately, do you expect most charters in to roll over at lower rates, and so there's still a reasonably robust market, it's just at a lower dollar level?

I think there could be a combination of that, Justine. I think one of the reasons we have seen recent resales of new Aframax tankers is that the availability of time charters for that owner at rates that would cover his expenses and his debt service and so on may be not there now because the market has adjusted. So those owners are now forced to sell the vessels. And I think other owners, some of the ships we're re-delivering are going back to owners that are relatively strong. So they will be able to bridge the low market, but it's going to be challenging, I think. There are going to be some cheap deals from people who are squeezed. And we hope that we will be around to partner with them.

I think that's very true that the banks are differentiating between ships that have charters and fixed -- and ships that are spot. And that affects whether they lend in the first place and the percentage at which they lend, which can have an effect on asset values. And if people are more squeamish about buying assets, I think that opens up a great opportunity for us as Bjorn was saying. But it's -- I want to emphasize that you have to go sort of vessel by vessel, situation by situation. And while the brokers want to always say what the last done was, you have to recognize that when you're in the market as a buyer or a seller or as a charter or an out-charter, people are looking at each specific asset and each specific situation. So the good news is Teekay is seeing a lot of potential deal flow. And so that allows us to be much more circumspect about what we do.

Okay. Interesting. And thank you very much for that detailed response. And one more question for Vince. Can you remind us, I think your revolver availability, obviously there's undrawn, but the availability reduces I think by a couple hundred million this year or next year. The reduction in '11 and '12?

Are you referring to the parent Company level?

Yes, yes.

Yes, It varies by revolver but on average it's about 150 per year roughly.

Okay. Thanks very much. Bjorn, congratulations. The analyst community will miss you.

Thank you very much. I'll miss you too.

(Operator Instructions) The next question comes from Sal Vitale from Sterne Agee. Please go ahead.

Good morning gentlemen ,and congratulations to Bjorn. First I have a question on the expense side. If I look at offshore vessel OpEx for the quarter, it was $77 million. How do I think about both for Offshore and LNG? How do we think about that going forward?

And on a static basis because it's obviously going to increase as there are additional drop-downs, but just based on what the assets were say at the December 31st. How do we think about that going forward?

I think if you look at offshore, we just dropped down what we call the [seri FPSO] in the fourth quarter. And that unit is obviously in the fleet and operating, starting when it comes out of the yard in March. So I think going forward we expect the Teekay Offshore, based on the current fleet, to be fairly similar over the next quarter or so. There no major changes in the fleet over the next couple of quarters. Same with TGP. I'd say no significant changes in the fleet. So I think what you're seeing in the fourth quarter is fairly representative over the next couple of quarters.

Okay. And then just the question on the LNG side, you had said that there was a significant increase in rates from the I think it was mid-20s to about $65,000 or $67,000 something like that. Now, that's not something that will benefit TGP in the short term, because I assume most of the contracts are fairly long term and can your just refresh, remind us when is the first contract expiring?

Well, the TGP contract coverage is indeed long term. I think the first contracts that will probably mature will be some of its Suezmax in the next five to seven years, five to seven years.Whereas the LNGs are running, I think the first come off about eight or nine years from now. Those are the two smaller older vessels that aren't chartered to Teekay Corporation And then beyond that you go way out into past 2020. The reason we see these spot market as having a benefit, it's like I guess a ripple effect . Over the past three or four years you've had some 20, 25 LNG carriers that were either ordered speculatively or in cases, ships delivering early compared to the liquefaction projects they were scheduled to serve. So there's been a sloshing around of about 20 to 25 vessels, and we've seen a couple long-term contracts that came out that were actually smothered people that speculative ships. So with the apparent demand for some trading fleet emerging, it looks as if the next point-to-point deal will require new buildings, which of course levels the playing field for

Okay. So are your saying that you see the potential for the development of a quasi-spot market in the LNG space?

I think that could happen, but that's not what Teekay LNG is -- that's not what we operate in. But as Bjorn says, as you take excess capacity out of the LNG market, it opens up the scope for many more new building point-to-point tenders, which is what we specialize in.

Okay, thank you. And then the last question I have is on the capital deployment side. You've announced the share buyback, and you've started to execute some of that. Looking at the dividend, it's been fairly static for some time, and you're throwing off very significant cash flow. At what point should we start to think of a significant increase in the dividend? And could you just remind us, traditionally do you think of -- and I say traditionally because excluding the 2009 downturn, do you think of dividend in terms of a target dividend payout ratio?

Well, I think we look at it in the way that we discuss it each year with the Teekay Corporation Board, where we have a growth in fixed recurring flows that come into the parent, for example in the growth and distributions from the two MLP daughter companies. Those will be sustainable and things that the corporation could depend on, and that could flow into discussion at the Board level about raising the dividend at Teekay Corporation. Whereas the more ad hoc liquidity events for the parent such as drop-downs or asset sales would be either redeployed into new investments or be used to return through share repurchases. So it's one that is being monitored all the time, and I guess we'll be looking at it at the board level again on a regular basis.

Thank you and congratulations again.

Thanks very much.

Thank you. Mr. Moller, there are no further questions at this time. Please continue.

Okay. Well, I can't say I look forward to talking to you next time, because I won't be here next time, but it's been a real privilege to work with you, and I wish Peter and Vince and the rest of the team all the best and thanks to our shareholders and analysts. All the best. Good-bye.

Ladies and gentlemen, this concludes the conference call for today. We thank you for your participation. You may now disconnect your line and have a great day.