Teekay Corp Ltd (TK) 2011 Q2 法說會逐字稿

Welcome to Teekay Corporation's second quarter 2011 earnings results conference call. During the call all participants will be in a listen-only mode. Afterwards, you'll 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 Mr. Peter Evensen, Teekay's President and Chief Executive Officer. Please go ahead Sir.

Before Mr. Evensen begins I would like to direct all participants to our website at www.Teekay.com where you will find a copy of the second quarter 2011 earnings presentation. Mr. Evensen 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 second quarter 2011 earnings release and earnings presentation available on our website. I'll now turn the call over to Mr. Evensen to begin.

Thank you, Kent. Good morning, everyone, and thank you for joining us today for Teekay Corporation's second quarter earnings call. I'm joined this morning by our CFO, Vince Lok, and for the Q&A session we also have our group controller, Brian Fortier. Beginning on slide 3 of the presentation, I will briefly review some recent financial highlights for Teekay Corporation and our three daughter companies. For the first quarter of 2011 or second quarter, excuse me, Teekay Corporation generated a consolidated $149 million of cash flow from vessel operations or CFVO, an increase of approximately 9% from the first quarter. We reported a consolidated adjusted net loss of $36.3 million or $0.51 per share in Q2 on a consolidated basis. Teekay's diversified business model continues to be an important source of differentiation and fixed-rate cash flows, especially in the current weak spot tanker market, which is primarily responsible for our loss this quarter.

We continue to experience a high level of business development activity in our offshore business, which paid off in June with the signing of important contracts in both our FPSO and shuttle tanker business. I will talk further about these in a moment. Together these projects are expected to add approximately $2.7 billion to our existing $12 billion portfolio of foreign fixed-rate revenues and will increase our future fixed-rate CFVO. In July we paid our usual second quarter dividend of $0.31625 per share or $1.27 annualized, which is supported by the growing amount of fixed-rate cash flows generated by our direct owned assets and the stable dividend cash flows we receive from our general partner and limited partner investments in our two master limited partnerships. We also continued to return capital to shareholders under our existing $200 million share repurchase authorization.

Since our last earnings conference call on May 12, we have repurchased 1.9 million shares for a total cost of $62 million, which brings the total number of shares repurchased since the current program began in November 2010 to 4.4 million shares at a total cost of $144 million. Our three daughter companies continue to be the source of a growing portion of Teekay parent's cash flows. In July Teekay LNG Partners declared a second quarter distribution of $0.63 per unit in line with the first quarter. And last month Teekay LNG also took delivery of the first of two Multigas carriers, which commenced 15 year time-charter to IM Skaugen and will provide incremental distributable cash flows starting in the third quarter. Teekay LNG has a healthy near-term growth pipeline.

Early in the second quarter, the partnership completed $162 million follow-on equity offering, which will be used to finance the equity for the purchase of several newbuilding vessels, which are currently being warehoused at Teekay Parent. These include the Angola LNG carriers, one more Multigas carrier and one LPG carrier that have been committed to be purchased from Teekay Parent upon their delivery in the next six months. Teekay Offshore declared a second quarter distribution of $0.50 per unit in line with the first quarter. In June Teekay Offshore awarded a new long-term shuttle tanker contract in Brazil, which will result in time-charter's for four shuttle tanker newbuildings commencing upon their delivery in mid to late 2013. In July Teekay Offshore completed a $20 million private equity placement, which was used to make the initial payment on the shuttle tanker order.

This is the first time TOO has directly ordered newbuildings instead of asking Teekay Parent to warehouse them during the pre-delivery period. The positives of Teekay Tanker's tactical management were seen this quarter, as Teekay Tankers declared a second quarter dividend of $0.21 per share, despite continued weakness in spot tanker rates. Recently, Teekay Tankers flexed its tactical management capabilities again to expand its fleet with two opportunistic charter ins, which combined with charter outs of two owned vessels have locked in cash flows of approximately $3000 per day per vessel for the sixth and four month firm period of the charter ins. Should the market strengthen, Teekay Tankers has the option to extend these charter ins for up to 18 and 16 months respectively.

Taking these charters into account, Teekay Tankers now has approximately 60% fixed-rate coverage for the second half of 2011, enabling it to continue paying an attractive dividend, irrespective of the weak spot tanker market, while retaining the ability to profit from any upside in spot tanker rates, which usually occurs as part of a seasonal pattern sometime in the fourth quarter. Turning to slide 4 of the presentation, I will provide an update on each of Teekay's core business areas starting with our FPSO business. The world's search for new sources of oil to satisfy growing global demand, coupled with Brent crude oil prices well above $80 per barrel, have led to a high level of FPSO tender activity during the first half of 2011. In total, 10 new FPSO contracts have been awarded since the start of the year comprising a mix of new vessel orders, conversions, and the redeployment of existing units.

We anticipate the high level of FPSO tender activity will continue during the second half of 2011, with a further five to eight new contract awards expected by the end of the year. Looking further ahead, there are currently 123 visible offshore projects around the world, which potentially require an FPSO solution, around half of which are located in Teekay's core geographical regions of the North Sea and Brazil. Of the 123 visible projects, we estimate that around 70% will proceed to development using an FPSO, with the remaining projects either failing to materialize or going ahead using a different development solution. This leaves around 85 FPSO projects which will have to be tendered over the next five years or around 17 FPSO contract awards per year. Given the relatively small number of companies who are able to bid on these projects, we believe Teekay is well-positioned to take advantage of opportunities that will emerge in the FPSO sector over the coming years.

As I noted at the start of the call, our recent business development activities have begun to yield results, including our recent award of a new long-term FPSO contract with a subsidiary of BG Group to service the Knarr oil and gas field in the Norwegian sector of the North Sea. As we first announced at the end of June, this contract will include a firm period of either six or 10 years, with options to extend up to a total period of 20 years. The contract will be serviced by $1 billion FPSO to be constructed by Samsung Heavy Industry and expected to deliver in the first quarter of 2014. And BG has until the end of 2012 to determine which firm period option it prefers. We are also engaged in the FPSO business activities in Brazil and are reviewing a number of new project opportunities with our new Brazilian joint venture partner, Odebrecht.

We believe the joint venture partner has the potential to accelerate our growth in Brazil offshore activities. As part of the joint venture agreement, Odebrecht has taken a 50% interest in our Tiro Sidon FPSO project, which is scheduled to begin operating under a fixed-rate contract with Petrobras by mid-2012. Tendering activity in the FPSO space remains high and we continue to bid selectively on additional new FPSO projects, as well as reviewing FPSO acquisition opportunities. However, our general perspective is that we would rather focus on doing fewer projects well then taking on too many projects. Slide 5 provides an update on the current outlook and recent activities in our shuttle tanker business. We see a lot of growth opportunities for shuttle tankers based on the high level of new offshore oil production, which is due to come online in the next few years.

In the North Sea we anticipate a steady requirement for shuttle tankers going forward, as production from new oil fields and the use of enhanced oil recovery techniques at existing fields offsets the decline from maturing oil fields. New discoveries continue to be made in the North Sea, as shown by Statoil's recent announcement of a $200 million to $400 million barrel oil find off Stavanger in one of the most heavily explored areas of the North Sea, while recent discoveries further north in the Berents Sea bode well for future developments which play to Teekay's strengths in harsh weather environment. In Brazil, we know that the requirement for new shuttle tankers will grow as new offshore oil production is brought online in the coming years, particularly from the giant pre-salt oil fields in the Santos Basin.

With Petrobras already having covered much of its upcoming shuttle tanker requirement through recent tenders, the majority of this demand is expected to come from international oil companies and we estimate that these companies will require up to 10 additional units over the next few years. As the offshore industry develops, new opportunities are emerging that could result in the employment of older shuttle tankers in the offshore wind sector. Older shuttle tankers may also be candidates for conversion to floating storage units. For Teekay's shuttle tanker business there have been some notable events over the last three months. In July, Teekay Parent took delivery of the Scott Spirit, the fourth and final newbuilding shuttle tanker in the inc strengthened Explorer class series, which includes the Amundsen Spirit and Nansen Spirit and the Peary Spirit.

The first three vessels have been time-chartered out to Statoil under the new master agreement we reached last fall and were subsequently sold to Teekay Offshore Partners. We are currently negotiating to employ the Scott Spirit in the North Sea. In June, as I briefly touched on earlier, Teekay Offshore Partners entered into a new shuttle tanker contract in Brazil with another subsidiary of BG, which will be serviced by four additional newbuilding shuttle tankers. These vessels, which will also be constructed by Samsung Heavy Industries for a total cost of approximately $480 million, are scheduled to deliver in mid to late 2013. Upon their delivery, they will be time-chartered out for an initial period of 10 years. BG will also have certain time-charter extension and vessel purchase options.

We've also been exploring business development opportunities in some of the emerging areas of the offshore industry, where we may be able to leverage our maritime expertise and dynamic positioning and operations in harsh weather environments. In June, we announced we had entered into an agreement with A2C, a leading service provider for the offshore wind sector, to jointly develop an innovative design for a vessel that can be employed in the installation and maintenance of offshore wind foundations. Although in the preliminary stages of design, such vessels could ultimately lead to new areas of business and additional sources of fixed-rate cash flows. Turning to slide 6, we've provided an overview of some of the key developments in our gas business. Since our last earnings release in early May, LNG shipping spot tanker rates have gained a further $10,000 per day and are now approaching the $100,000 per day mark.

This is a result of higher demand for LNG in recent months, particularly in the wake of the Fukushima nuclear crisis, as well as lower fleet availability, as the number of idle units has fallen on the back of the increased charter activity. The long-term fundamentals for LNG demand remain attractive and recent question marks over the long-term viability of nuclear power in the wake of the Fukushima crisis have only heightened these expectations. As a result, approximately 30 new LNG vessels without charters have been ordered since the start of the year in anticipation of future demand. We believe the future LNG demand will absorb this additional shipping capacity, particularly from 2015 onwards, when a significant amount of new liquefaction capacity is expected to come online in Australia.

Based on this outlook, we have accelerated our business development activities, as the LNG shipping space returns to a higher level of growth in the next few years. With our strong operating skill set, Teekay is well-positioned to take advantage of the higher demand environment that is emerging in the LNG sector. The strengthening in the spot LNG shipping rates continues to be a catalyst for activity in our existing LNG business. As I mentioned on our first quarter earnings call, during the second quarter we successfully secured new short-term employment for our two smaller LNG carriers, the Arctic Spirit and the Polar Spirit, at attractive rates. After being idle for the first four months of 2011, the Arctic Spirit began its charter at the end of a April as a LNG lightering vessel in Argentina. And the Polar Spirit continues to move between Kanai, Alaska, and Japan.

Both these vessels will be on their current time-charters into the fourth quarter at a minimum and the charter of the Arctic has two one-year extension options available at attractive rates to us. Given the strengthening market and the fundamental outlook for LNG as an alternative fuel, we believe it is good to be a little long on LNG carriers at present. We also continue to see a high level of interest in floating regasification or storage units or FSRUs. And Teekay is actively pursuing a number of opportunities in this segment, in addition to the more traditional LNG transportation projects. Our business development team has been active during the second and third quarters and we expect to hear back on the status of many of our recent bids before the end of the year. Finally, turning to slide 7, we provide an updated outlook on our conventional tanker business.

Spot tanker rates weakened during the second quarter due to a combination of adverse tanker market fundamentals, coupled with various negative seasonal factors. In particular, oversupply of vessels relative to demand as a result of high fleet growth in the first half of the year continues to be a drag on spot tanker rates. We expect the high fleet supply growth to continue to affect spot tanker rates throughout the second half of the year. However, as we move toward the fourth quarter, we expect the normal positive winter seasonality patterns, such as weather delays and higher oil demand compared to the summer months will begin to emerge. While we anticipate the spot tanker market to be stronger in the fourth quarter of 2011, we don't expect it to be a sustained spot market rally due to the negative fundamentals.

However, looking farther into the future it remains our belief that a shrinking tanker order book and steady demand growth are setting the market up for a more sustainable tanker rate recovery starting sometime in the second half of 2012 and strengthening during 2013. If you look at the chart on the slide, the green bars represent tanker demand growth and the orange bars represent fleet growth, while the vertical lines for the years 2011 to 2013 show the range of values which could arise depending on various up and down side factors. From the situation in 2011 in which tanker fleet growth is expected to outweigh demand growth, we believe the market will become more balanced during the course of 2012, particularly in the second half of the year when tanker fleet growth is expected to slow.

The fundamentals for 2013 appear quite positive, based on low tanker fleet growth as a result of the reduced level of tanker ordering in the past few months. In fact, since the start of the year just 3.5 million deadweight tons of new tanker orders have been placed, which is the lowest level of new orders on an annualized basis since 1985. Of course, there are many uncertainties to our outlook, especially on the demand side which is highly dependent on the state of the global economy. Nevertheless, we believe the fundamentals will start to move back into shipowner's favor over the next 12 to 18 months. Given the weak outlook for the spot tanker market in the near term, we continue to reduce our exposure to the weak spot tanker market through the redelivery of time-chartered in vessels and through the time-charter out of vessels at rates exceeding the current spot market levels, whenever these opportunities arise.

During the second quarter, three of Teekay Parent's out of the money time-charter contracts expired and were subsequently redelivered. Looking ahead, we expect to redeliver a further five vessels through the remainder of 2011. We also continue to pursue incremental conventional tanker fleet growth through our tanker focused company, Teekay Tankers, which has been tactically managing its fleet to lock in fixed-rate revenues during this period of spot tanker rate weakness. The combination of time-charter in and time-charter out transactions I discussed earlier on the call have locked in $6000 per day of revenue for Teekay Tankers for essentially the rest of 2011. This further supports the dividend cash flows that Teekay Parent receives from its equity ownership in Teekay Tankers. And with that, let me turn the call over to Vince to discuss the Company's financial results for the quarter.

Thanks, Peter, and good morning, everyone. Starting with slide 8, I will review our consolidated results for the quarter. In order to present the results on a comparative basis we have shown an adjusted Q2 income statement against an adjusted Q1 income statement. Net revenues decreased by approximately $10 million, primarily due to vessel sales and re=deliveries, a higher number of drydock days in Q2, and repositioning costs associated with the delivery of the shuttle tanker Peary Spirit. These increases were partially offset by the new time-charter out contract for the Arctic Spirit, which commenced in late April. As a reminder, a portion of the revenue we earned on the Foinaven FPSO is dependent on various annual operational performance measures, oil production levels, and the average oil price for the year.

As a result, for accounting purposes this portion of revenue is recognized only in the fourth quarter of each year. And based on the results for the first half of the year, there was approximately $20 million of unrecognized revenue at the end of the second quarter, which will be recognized in the fourth quarter of 2011, provided our operational performance for the year is similar to that in the first half of the year. This would amount to $40 million of incremental revenue in the fourth quarter on an annualized basis. Vessel operating expenses increased by $11 million primarily due to seasonal maintenance activity for the FPSO fleet, higher crude costs as a result of weight scale increases, as well as the delivery of four shuttle tanker newbuildings and two MR tankers that are bare-boat chartered in.

As usual we typically schedule more of our drydockings and maintenance activities for our North Sea FPSO and shuttle tanker fleets during the spring and summer months. Time-charter hire expense decreased by $10 million due primarily to the redelivery of vessels in Q1 and Q2 and an overall decrease in spot in chartering of shuttle tankers. Depreciation and amortization was consistent with Q1 at about $105 million. G&A expenses were $51 million, in line with our normalized run rate. Net interest expense decreased slightly primarily due to capitalized interest on our FPSOs newbuilding projects. Equity income increased by $4 million as a result of increased earnings from our Skaugen, Petrotrend lightering joint venture, our Exmar joint venture and the RasGas 3 joint venture.

Income tax expense increased by $3 million, as there is a one-time tax recovery on the sale of the Karratha Spirit FSO in Q1 and higher taxes on the FPSO fleet operating in Teekay Offshore. Non-controlling interest expense was consistent with the prior quarter at about $31 million. Looking at the bottom line, adjusted net loss per share was $0.51 in the second quarter compared to an adjusted net loss per share of $0.39 in the first quarter. Again, most of the net loss is attributed to the weak spot tanker rates, but also due to timing differences relating to repair and maintenance activity and the recognition of the Foinaven FPSO revenues. Now turning to slide 9, we have provided some guidance on our consolidated financial results for the third quarter of 2011.

Looking at net revenues for our fixed-rate fleet in Q3, they are expected to increase by a total of approximately $10 million as a result of the June delivery of the newbuilding Multigas vessel, the Norgas Unikum, the decrease in drydocking activity expected for our fixed-rate fleet in Q3, and the commencement of the Peary Spirit time-charter in August. Net revenues from our spot fleet are expected to decrease as a result of approximately 550 fewer revenue days due to the redelivery of in charter vessels and higher drydocking days scheduled in Q3 for our spot tanker fleet. So far in Q3, we have fixed approximately 45% of our Q3 spot revenue days, that's an average TCU rate of approximately $10,500 per day for our Aframax and Suezmax fleets, which are lower than the Q2 averages, as you can see.

As a rule of thumb for each $1000 per day change in spot tanker TCU rates it results in a $2.5 million change in our consolidated revenues per quarter. Overall, vessel operating expenses in Q3 are estimated to increase by about $8 million to $10 million compared to Q2, primarily as a result of seasonal maintenance for our FPSO fleet, as well as higher repairs and maintenance coinciding with drydockings and the impact of the newbuilding deliveries in Q2 and Q3. However, we do anticipate that vessel operating expenses will decrease significantly in Q4 from the Q3 levels as a result of the completion of the FPSO seasonal maintenance work and less drydocking activities scheduled for Q4. Looking at time-charter hire expense, this is expected to decrease in Q3 by approximately $8 million to $9 million, reflecting our redelivery of in charter vessels during Q2 and Q3.

Depreciation and amortization is expected to increase by about $2 million due to the recent deliveries of newbuilding deliveries of shuttle tankers, as well as the Skaugen vessel. We expect G&A to be in the range of $50 million to $52 million, roughly in line with Q2. Net interest expense is expected to remain consistent with Q2. Income tax recovery run rate is expected to be a recovery of about $1 million. And non-controlling interest expense we expect to be $31 million to $33 million in Q3, reflecting higher expected earnings in Teekay LNG Partners, as well as the Q3 private placement completed in Teekay Offshore. Turning to slide 10, we have provided Teekay Corporation's consolidated net revenue by business segment. As you can see, about 88% of our consolidated second quarter net revenues came from our fixed-rate businesses, which provide strong cash flow support for our dividend going forward.

During periods of weak spot tanker rates, our diversified business model continues to be an important source of stability, which we believe differentiate us from other tanker companies. Also, as Peter mentioned earlier, the two new offshore projects we announced in June will provide an additional $2.7 billion to our existing portfolio of approximately $12 billion of forward fixed-rate revenues. Turning to slide 11, Teekay Parent and its charter entities are financially well-positioned, with substantial liquidity and a strong balance sheet at each entity. As of June 30, 2011 Teekay Corporation had $1.9 billion of total liquidity on a consolidated basis, with just under half of this, of about $850 million at Teekay Parent.

At the daughter entities, in addition to maintaining substantial liquidity, we endeavor to match the appropriate level of leverage to the length and stability of the respective contract portfolios. It is also important to note that approximately $450 million of the net debt on the Teekay Parent balance sheet is related to warehouse newbuilding installments on assets that have been committed to or will likely be sold to one of the daughter entities. So the effect of these projects on Teekay Parent's balance sheet is only temporary. On slide 12, we have provided an update to our sum of the parts calculation, which indicates Teekay's underlying value at approximately $43 per share. Our sum of the parts value has decreased from the $46 per share we reported in May, primarily as a result of lower equity values from our daughter entities ownership, due to the recent decline in the general stock market, partially offset by the lower share count.

This is also resulted in a widening of our sum of the parts discount to approximately 50% from 25% in early May, which we believe is more reflection of the negative investor sentiment towards the weak spot tanker market, which is overshadowing the strong market fundamentals we are experiencing in our offshore and LNG business. Accordingly, we believe the price levels that our shares are currently trading at represent strong compelling value. Despite the recent market volatility, our focus will remain un-narrowing the sum of the parts discount and growing the sum of the parts value on an absolute basis through the combination of organic growth and accretive acquisitions in our core business areas and through further repurchase of shares under our existing share repurchase authorization. I will now to the call back to Peter to conclude.

Thank you, Vince. To conclude, our business development initiatives yielded important new contract wins in our FPSO and shuttle tanker businesses during the second quarter and we are encouraged by the strong pipeline of new project tender and asset acquisition opportunities. However, we are being very selective in targeting higher unlevered returns. While we reported a net loss for the quarter, due mainly to the persistent weak spot tanker market, Teekay Parent and the daughter companies remain financially well-positioned. Our diversified business model and steps we're taking to further build upon fixed-rate business and reduce our spot tanker market exposure have us on the right path to yield better results in the quarters ahead. Operator, we are now ready to take questions.

(Operator Instructions) Justin Yagerman, Deutsche Bank.

Wanted to dig in a bit, you went into depth on a number of the LNG projects and opportunities that you are involved in, as well as offshore. I think it would be helpful if you guys could give a sense of returns, expected returns or projected returns on current projects, duration of average project, and an average capital employed when thinking about these projects and how we should think about the pace of them on a go forward basis.

Sure. For competitive reasons I can't be totally transparent on it, but on our offshore transactions we are targeting on the FPSO about 12% to 15% to 16% returns. And that depends upon the how complex the conversion is, if it's a newbuilding, and generally the longer the contract, the lower the IRR is, which you would expect.

Those are levered or unlevered returns?

Those are on leverage returns. The way we like to look at it is unlevered because the interest rates will take care of itself and in our MOPs you need to have that stability of having unlevered. On our LNGs on the fixed-rate side of things, on the point-to-point transportation, there I am seeing returns of 9% to 10% on an unlevered basis and on the FSRUs we are targeting 10% to 15% depending on the project. Some of the FSRUs are shorter dated, where people need them for a temporary reason, but then we are willing to take that residual rollover risk because we are confident in the growth of the market. And the same thing is true on the FPSO side, that is a risk we are comfortable taking that rollover risk.

And shuttle tankers, I don't think you've mentioned that.

Shuttle tankers, as I said, we are sitting at about 10% to 12%.

10% to 12%, great, that is helpful. Thank you. My next question we still are Teekay Tankers take into Aframaxes and you guys charter it out to at the same time. Given your view that '12 and '13 should be improving years, should we expect to see more of this conventional trading activity either at parent or at tankers?

I think you should expect to see less trading activity up at Teekay Parent. That's an activity which we've pretty much given over to Teekay Tankers. So I think it's good that Teekay Tankers started to get into the in charter side. It was a good paired transaction, but I think if we were more aggressive as we move into late 2012, 2013, if the opportunities present themselves then you will find Teekay Tankers using that. I think it's a good use of capital and Bruce Chan and his crew are working pretty hard on those various activities. But when you look at the results for the second quarter, I think our tanker guys did a really bang-up job in terms of the Aframaxes, they get really good rates when you compare it to the averages.

I guess following along the same theme, if you guys aren't going to be doing tanker trading activity at Teekay Parent, would you consider buying newbuilds for delivery in '13 or '14 as you look out to a potentially better supply demand environment?

I think most of the capital that we are employing up at Teekay Corporation is used for more longer-term fixed-rate projects. The tankers that we would be ordering up at Teekay would have to have long-term fixed-rate contracts before we would consider them up at Teekay. Otherwise we have a subsidiary, Teekay Tankers, that's their job. And you will have seen in late last year we ordered a VLCC for 2013 delivery. And that was Teekay Tankers that did that. And that was coupled with a five-year charter. So you should expect to see that growth in Teekay Tankers rather than at Teekay Parent.

So I guess with Teekay Offshore having done its first solo deal and with Teekay Tankers now shouldering the responsibility for ordering tankers for the future, I don't know at what point in time LNG gets there. How should we be thinking about what projects make their way into Teekay Parent and what you guys are going to be wanting to warehouse on your own?

Our goal is to have the daughters be able to make investments directly. So in fact, all three daughters have now made direct investments. Whereas, when we started they relied upon Teekay Parent in order to warehouse those. Obviously, big projects like the Knarr FPSO you need the sponsor to help you out with. But our goal is to have strong enough financial strength so that the daughters can make their own investment. And that frees up Teekay Corporation to look at higher return projects like you saw with the wind farm initiative that we have. And I think our innovation group has a lot of good ideas looking forward. And so, as I look over Teekay, I think there's a lot of skill sets that we can employ and that's what we're looking at, working together with some of our customers, as well as some of our strategic suppliers. So, you should expect higher return projects to be resident of the Teekay Corporation.

Okay, great, that is really helpful. Thanks for the time guys. That's all I have.

Take you.

Michael Webber, Wells Fargo.

My first question is on the buybacks. You guys picked up the pace the last three months at $52 million. And obviously with the recent pricing action it is certainly advantageous to buy more down here. The current pace points to November completion, us that reasonable? And how aggressive do you guys plan to be in terms of buying back the rest of that stock?

Well, Teekay has a track record of announcing share buybacks and completing them. And we look at it on an incremental basis. So, we are systematically going through the $200 million and as Vince said in his remarks, we see the current share prices being compelling value, especially when you see it against the sum of the parts. So, we see it as an investment and in reference to what Justin was asking earlier, we look at share buybacks as we would look at any other investment. Right now, it looks like a good investment since Teekay is selling at an extraordinary discount to its sum of the parts.

In terms of pace and from a modeling perspective, keeping your pace from the last three months, flat sequentially, is that probably appropriate or reasonable?

We don't give guidance on exactly what the pace of it is.

And I don't know if you can comment on this either, but given where the stock is and if we do hover down here for a while, you guys do have a history of buying back shares, are we in a situation where you guys would potentially look to another authorization if the stock does stay down here?

That is up to the Teekay board. But we look at each authorization as -- when we look at how much excess capital we have going forward. So, when we complete the existing $200 million that something be Teekay board can look at.

I wanted to follow-up on one of the questions on your FPSO. You mentioned five-day awards this year. Can you guys give some color in terms of how many of those tenders you guys are actually involved in right now? And what stage those are in?

We are involved in several tenders. For competitive reasons, I don't want to be more specific than that, but we are restricting ourselves to the North Sea and Brazil. And so that is what we are looking at. And in addition, there is various acquisition opportunities of offshore units with existing contracts. So, that's something that also is in the mix for us.

In terms of size then, obviously the [jorbare] was pretty big considering -- relative to what you guys apparently have. Are the tenders you guys are involved in now or what is in the marketplace around that size or it is throughout the entire spectrum?

That really is dependent on the field. But in general, our newbuildings, if we are going to have a newbuilding FPSO, you should see it in the range of $600 million to $1 billion. And if it's a conversion, it could be anywhere from $250 million to $600 million. I think what's also important is that we have teamed up, for example, in Brazil with Odebrecht. We think that's a important component. We've done the same thing on our LNG side. So you should expect us to employ joint venture partners if the level of activity is such so that in that way we share the risk and also get some local talent.

Actually a similar question on the LNG side and maybe you can't break out the number of tenders and you mentioned you are going to be hearing back hopefully by the end of the year on some. Can you maybe give a breakdown in terms of what you're going after, FSRU versus traditional point-to-point carriers?

Yes. We are going after several projects. We are actually looking at more FSRU projects than point-to-point. But we expect that as a lot of the liquefaction plants that we have see coming on in Australia and other areas come on, that we will probably see more demand for point-to-point tenders. But again, this is demand that comes from the customers based on their long-term projects. So as these projects get FID, then they are going to want to lock down their transportation requirements.

That makes sense within the context of the returns you threw out a little earlier from point-to-point versus FSRU. I'm curious, are you seeing any kind of creep in the spread between those returns as you're seeing some considerable strength in the point-to-point market? Is that gap getting a little bit narrower right now or is it still pretty wide between FSRUs and point-to-point?

I would say it's wide between the point-to-point and the FSRUs. The FSRUs there is a certain scarcity value built into it. You have to have -- and it really depends upon the speed to market. Ultimately, FSRUs are going to move into the newbuilding realm. But given how tight ship yard capacity is, those projects you can't really get a new build, so that flows you down into the conversion market where you get paid a premium in order to deliver earlier. And that's really what is happening on the LNG side, which is that there is such incremental near-term demand for LNG that customers are willing to pay up in order to have a solution faster.

There are a couple of higher profile point-to-point weeks that are up for bid right now. Can you guys comment, and I'm sure it will be generally, how closely you guys have looked at those and whether or not it gets specifically within the point-to-point market, are you looking at [onboard] transactions or is it more single, one-off assets or special situations on non-individual assets?

For competitive reasons I don't comment on potential acquisition opportunities.

Fair enough. That's actually all I had, I appreciate the time guys.

Thank you.

Gregory Lewis, Credit Suisse.

Peter, you mentioned that there were 10 FPSO contracts signed year-to-date and there's five -- first looking at those 10, how many of those were actual new construction FPSOs and how many of those were conversions of tankers?

I would say it was about half and half.

And are those conversions, are those primarily -- should we be thinking more along the line of the medium-sized Aframax assets or any of those VLCCs?

Yes, some of them are VLCCs. But when you get to some of the VLCCs in the pre-sold, if you're using a VLCC, that's just a very small part of the whole topsides. In point of fact, it almost feels like a newbuilding. But I think you will find, based on the reservoirs, you are looking really at VLCC conversions down in Brazil. And if you are looking in Asia, you're looking pretty much at Aframax or Suezmax conversions.

In other words when we think about the 5 to 8 later this year and then you talk about the 120+ visible projects, if we think that maybe half of those or 70% of those get done and we think half of those are potential conversions, it sounds to me that there is the opportunity for multiple tanker conversions, especially given the backdrop where we are at. Is that a fair statement?

Yes I think it is. And the other thing is that a lot of the big VLCCs will be used as floating storage units, because in the really big fields down in Brazil, you have to aggregate the oil before you can transport it.

So in thinking about that and just your inroads into Brazil at this point, it sounds like there is FPSO tenders going on down there. Are there also tenders for FSO's at this point?

Yes there are.

Is that a single digit number, is that a -- is it five, is 10, is that something you can talk about?

That is a single digit number, more in the mid-size I would say.

Okay, great.

Believe me, when you see the amount of oil -- obviously, we announced our shuttle tankers and they are going to go to aggregate stations because when you move oil even from a floating unit to a floating unit, that's a [cabatash] trade and they need to shuttle tanker. But ultimately you either have to ship it out on a shuttle tanker or in benign waters you can put it onto a conventional tanker. And so, when you see the amount, the doubling of oil production down in Brazil, you see the amount that the international oil companies have to come up with. They have to build their own distribution network, which is similar to what we saw in the North Sea. But of course, it is happening faster and at a greater magnitude than what we saw on the North Sea.

Just thinking about the two spot LNG vessels. Clearly, it looks like we're in the midst of a potential bull market in LNG. In other words, I realize the issues in Japan have definitely created demand for LNG at least in the short-term. Could we think that this is actually going to be a real shift in this industry where this is now a long-term bull market or is it more just a sort of a blip on the radar? How do you merge those two thoughts?

It seems to me that the Atlantic gas price is going to stay at a sustainable arbitrage to what you're seeing in the Pacific. And so, what typifies the oil market is that it's a worldwide market, whereas the gas market is a regionalized market. And so, with the price of gas in Japan being $14, if you have the price of gas as $4, for example, in the US or $5, that sets up the opportunity to make a lot of money on that arbitrage. And that's what's really happening, which is all the excess gas is flowing out to the Pacific. And so, yes, it's a bigger issue in Japan, but I think we have to think that the price of gas in the Pacific is going to stay higher for a longer period of time.

And that's before you get to the issues in Europe that they get droughts and they have their own questions on how much dependency they want to have on Russian gas. And so, we are actually very optimistic about that. Our strategy isn't to order ships and then play them on the spot market, our strategy is to have a view on chartering them, but clearly a lot of people have come into the market and they wanted to lockup tenants. And we are seeing new players come in, specifically more oil traders and financial players are coming in and they need a logistics partner.

And just to follow-up on that real quick. In thinking about the LNG vessels that are on short-term contracts and how do you think about that as it fits into the MLP structure, which has historically been vessels on long-term contracts? In other words, should we think that while there will be spot vessels in NPG pay, they will -- it will be a small portion of the fleet?

I want to emphasize that the Arctic Spirit and Polar Spirit, that's a historical charter that we had. All of our LNG vessels at TGP right now are chartered out long-term. The Arctic Spirit and Polar Spirit were chartered in by Teekay, so it's Teekay that's taking that risk not TGP. So I wouldn't exclude the fact that TGP could get into the short-term charter market, but primarily we are not going to be a spot player, we are going to move into the short-term market and I think what we are seeing in the LNG market is the amount -- is the time period of charters is reducing. So we probably won't see 20, 25 year charters. We are going to see more like 5, 10 and 15 year charters.

Then just one last follow question. It looked like in a broker report this week that it looked like Teekay actually scrapped one of its 19 year old Aframaxes. I guess first, is that correct and could you just give a little bit of the thought process behind why that vessel was targeted for demolition?

We actually on sold it, but in all likelihood it will either get short-term employment or else it will be scrapped. We are not scrapping it ourselves. But that actually was a real calculation. We looked at what it would take to go through forth special survey and in our opinion, the likelihood of being able to pay back the fourth special survey and trade it meant that -- and the near-term trading, meant that it was better to scrap it. I think a lot of other owners are going to come to that conclusion as well.

Let's hope so. Okay guys, thanks for the time.

Thank you.

Urs Dur, Lazard Capital Markets.

On the FSRU business right now, we've seen most of it on the conversion business and it looks like for you it would be much more competitive on a newbuilding basis. Is that -- you don't have any assets you think that you can buy to convert, you think you are really going to go after on a newbuilding basis, do I understand correctly?

No, we are after both. But we have access -- we believe we have access to existing tonnage we can convert.

That's excellent. Can you give us how many tenders are out there right now? How many possible deals are out there? Globally?

Again, for competitive reasons I don't want to say on specific deal, but if you want to talk about in general, we see about 10 FSRU projects we can identify.

And we have heard, actually, a higher number, but either way it's a nice margin business. Everything else has really been covered except I was wondering, can you give me a little bit of an idea of what you expect from the wind business? Is that going to be a really material thing that we have to model today or how do we want to look at that?

As I said, we are setting ourselves up in order to be able to play there. But the way Teekay operates is more on a build to suit. If we get a long-term contract than you'll find us going into the wind market. But our general rule on these specialized vessels is that we first get the contract and then we will build or convert a ship in order to meet that requirement. So, that's why it's so important that you work very hard with the customers on the design of the unit. I definitely believe that the wind farm market is going to be there and ships are required. We are making sure we have the best technology going forward. And right now, I think our dynamic positioning and the high deck load capacity of our shuttle tankers is a real advantage over the way they are building wind farms offshore right now.

Obviously, very much the starting stages, we've just received some questions on that and I think it's a great interesting idea. And this is probably way beyond anything you want to mention, but if you do go into wind, you're looking at contracts, is that something you would want to place in one of the existing drop downs, keep it in the parent or start a new drop down? Do you think they would be substantial enough, say, years down the road for a new and separate drop-down business?

I think it's too early to say where that would be resident.

Right, excellent. That's what I thought. Thank you for your time.

Thank you.

Justine Fisher, Goldman Sachs.

I just have a question about the role of the parent company going forward. I know that you guys have been putting most of the assets at the daughter companies as they are fully financed and delivered. Does the fact that you did this one deal at Teekay Offshore, does that mean that you are going to start doing more of your asset acquisitions at the daughter companies? And if so, as the parent slowly reduces its in chartered fleet, does the parent become an asset-less Company?

I think it actually sets up the potential for Teekay to go, Corporation to go in a number of directions. But in general, we are trying to get more excess capital at Teekay Corporation. So we watch our net debt level very much up at Teekay Corporation. So the shuttle tankers were done directly, whereas the FPSO was so big that you needed Teekay Corporation in order to warehouse it. But in general, as I said earlier, we want the daughter companies in order to build or to be able to order the and take the investment decisions directly. And that's helpful to us, because the more the daughter companies grow, then the value of the general partner goes up. And I think that's the biggest catalyst for increasing the value at Teekay. Obvious we are buying back shares, that's a near-term, will raise the value per share, but the greatest way we can increase the value of Teekay is to put good fixed-rate growth into our MLPs.

Maybe I missed this number in the presentation. I know I've done that in the last couple of calls I missed some of Vince's numbers. How much of the debt at Teekay Parent is associated with the owned tankers at Teekay Parent? I see you broke the fleet out in the earnings release and so how much debt is actually secured by those vessels versus debt that is currently warehouse facilities for vessels that will eventually be transferred to the daughters?

If you look at slide 11, out of the $700 million of net debt of the Parent $450 million of that is related to warehouse newbuilding installments. So the remaining $250 million on a pool basis is really relating to the other existing assets on the water. So that's the existing FPSOs and the conventional tankers.

So I guess it's the 267 that is actually encumbered by assets at Teekay Parent and so if Teekay were eventually to become to transfer those assets to the daughter companies, you would either have to transfer that debt as well or repay all that debt?

Yes and as you know, we also have a large amount of undrawn revolvers as well. The 267 is just the drawn amount.

And then the last question I had was just I know it's been a crazy week in the markets and probably the shipping markets as well and so maybe there's not a lot of this inquiry going on at the moment, but have you guys heard more inquiry for storage start up again in the market given where crude prices have gone? I know you're not really storing on Aframaxes, so you guys are more in the smaller, the smallish side of the market, but given that you are involved in the entire oil supply chain, are you guys seeing more inquiry for tankers being used as storage?

No, we aren't, but the market hasn't set itself up for a contango yet either. But what we did see was when the strategic petroleum reserve announcement came, then we saw immediately for the Gulf of Mexico people were looking for options in order to use them, the tankers as storage. And so that has provided an incremental boost down in the Gulf of Mexico. But the market has not moved to a contango point where people wanted to store oil, unfortunately. If it was then you would quickly see a using up the supply of tankers and we would see higher rates.

Okay, thanks very much.

Thank you.

Sal Vitale, Sterne Agee.

Most of my questions have been answered. I just have a quick question, just looking at the LNG business, big picture. Looks like the supply demand dynamic is pretty favorable at this point. On the demand side, what forces could actually ruin the party? What actually could happen on the demand side that could impact that favorable supply demand going forward?

I think it's really two aspects. One is clearly Japan is going to need more LNG than what they had in the past. And so you're seeing the incremental cargo go out to Japan. And then further out, I think if the world didn't grow as much because we got a world recession as opposed to the developed market, then I think that would cut people's ideas going forward. So there's positives and negatives. Clearly, if the US is able to put in place export of gas, then that would be a further demand jump because people would be able to arbitrage between the US and Pacific prices. But, I am not a particular bull on that. But what has changed is the shale gas.

If shale gas becomes a bigger thing around the world rather than in the United States, then that could change it. But what we are seeing is because of the disparate oil and gas price, you are seeing people want to use more LNG in their electrification. And so with a carbon tax or cap and trade coming in in Australia, that favors gas over coal for electricity generation. So when you see what's happening in the developed markets, it's pretty stable as it relates to power consumption. But when you go to a lot of places, I was on an Asian trip for about two weeks, a few weeks ago, then you really see the demand for raw power generation. And that is something that you really can only get with LNG right now.

I have a similar type question on the offshore side. Given the recent impact to oil demand just from the slowing global economy. I guess, what level of, whether you want to quantify it as the oil price or level of global oil demand, but what level -- at what level would the opportunities on the offshore sides start to be impaired?

I think that's more a function of oil price then it is of whether oil is in demand or not. Now, obviously, oil price is a function of oil demand. But what we are seeing is that countries want to go ahead and develop their domestic reserves. I think you are seeing that as Norway has a great oil industry, so they will do what it takes to encourage oil industry employment and, ultimately, you will see the same thing in other areas. And so it's a great job grower, in order to keep your people employed in the energy side. And certainly that's something that been seen in the United States. And so I think you're going to see non-OPEC oil be developed almost no matter what. It's just a national security question. But it also helps all these countries. And so when you see what's happening in Brazil, in established areas like the North Sea, they will continue to develop, because it's in those countries' interest to have a sustained oil market going forward.

Now, when you talk about what the oil demand growth is, the IEA came out with some numbers this week. It was a little lower, reflecting the uncertainty. But what we continue to see is that it isn't about the developed market. It isn't about the US where the summer season, driving season didn't come in as much. It's about how much will China and India and the rest of Asia grow. And I have to say that it isn't a question of whether they will grow, it's a question of at what pace they will grow. And more and more they are starting to deregulate oil prices, which will allow more oil to be consumed there. So do I think car sales are going to continue to grow in India and China? Yes I do.

And then the final question I have is just on the net asset value. Given the current gap between the current price and the net asset value is close to 50%, have there been periods in the past where it has exceeded that?

Yes, I think during the downturn that we had in '08 and '09, we were at a bigger discount, but obviously, that was a bigger dislocation. We didn't have central banks pumping liquidity around the world. But I think Teekay was in a different position at that time too. We didn't feel we were in a strong enough financial position in order to have share buybacks. So this time I think, no matter where the world goes, I think Teekay has positioned itself in a much stronger position financially in order to take advantage of that. So, obviously, we've seen a lot of companies coming in and announcing buybacks. We already had a buyback. So, right now I feel Teekay is in a good enough position to take advantage of these market dislocations, which is what Vince said in his prepared remarks.

Then just, sorry, the final question is just a housekeeping question. Has there been any material change to the debt maturity profile since the last conference call?

No, there hasn't. And we are making very good progress on financing our new offshore projects. But no change and no substantial changes to our existing portfolio.

Okay, thank you.

[Adam Gerard, Omega].

Question is around the general partner interests. Given how close we are to reaching the high splits in those general partner interests, what is your plan for incremental drop downs or other ways to increase that GP cash flow? And secondly, in this uncertain world, if we feel highly confident that we can reach those high splits in an identifiable period of time, really shouldn't we be more aggressive now in buying stock in front of that higher GP cash flow and take advantage of both the higher absolute value of those general partner's and the higher per share value to Teekay Parent? Thanks.

First of all, I think what we're showing is that we do have good growth in both Teekay LNG Partners and Teekay Offshore Partners. And as you point out, we are right, very close to that inflection point where we get to the 50% splits on the GP and then the GP value up at Teekay really does start to ramp up. And so we are very enthusiastic about that. And so our capital has to go toward taking sure that we continue to feed the growth into those partnerships because the greatest value creation is the GP splits that will give us much greater value, which we have in our some of the parts at about $440 million. But we can also create value in the short-term by buying back shares. And that's something we saw last November, which is why we announced the share buyback program and why we have been systematically buying back shares. Because while we increase the numerator, we want to reduce the denominator. And so the short answer is we are doing both.

Okay, thanks.

(Operator Instructions) There are no further questions at this time. I will turn the conference back to Evensen.

All right, thanks very much for listening and we look forward to reporting to you on our third-quarter numbers. Thank you.

Ladies and gentlemen, this does conclude the conference call for today. You may now disconnect your line and have a great day.