Teekay Corp Ltd (TK) 2011 Q3 法說會逐字稿

Welcome to the Teekay Corporation's third quarter 2011 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) 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.

Before Mr. Evensen begins, I would like to direct all participants to our website at www.Teekay.com, where you'll find a copy of the third 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 third quarter 2011 earnings release and earnings presentation available on our website.

I will now turn the call over to Mr. Evensen to begin.

Thank you, Kent. Good morning from Vancouver, everyone. And thank you for joining us today for Teekay Corporation's third quarter earnings call. I'm joined this morning by our CFO, Vince Lok. And for the Q&A session, we also have our Chief Strategy Officer, Kenneth Hvid, and our Group Controller, Brian Fortier.

If we begin on Slide 3 of the presentation, I will briefly review some recent highlights for Teekay Corporation and our three daughter companies. For the third quarter of 2011, Teekay Corporation generated a consolidated $157 million of cash flow from vessel operations, or CFVO, an increase of 18% from the third quarter in 2010. We reported a consolidated adjusted net loss of $40.6 million, or $0.58 per share in Q3 on a consolidated basis. This was a disappointment. The profits from our fixed rate businesses were not enough to make up for the losses from our spot tanker operations, including in-chartering of tonnage, which took place in previous years.

While the third quarter of the year is usually the weakest quarter on a seasonal basis, it was particularly weak this quarter. In addition, we also looked at our tanker franchise, including the book value of our tanker assets. And after analysis, recorded some noncash write-downs to goodwill and the book value of some of our MR product tankers and older crude tankers. Despite the weak spot tanker markets, our fixed rate businesses continue to grow. And in the past month we have announced significant acquisitions in both our offshore and LNG businesses. Starting with offshore, Teekay and Teekay Offshore have agreed to acquire three existing FPSO units from Sevan Marine for approximately $790 million. And Teekay will also invest $25 million to acquire a 40% ownership interest in a new net debt-free Sevan. This transaction positions Teekay as one of the top global operators of leased FPSO. Also in October, our daughter company, Teekay LNG Partners announced it would form a joint venture with Marubeni Corporation to acquire the Maersk LNG fleet, which is comprised of interests in eight modern LNG carriers, for a total purchase price of approximately $1.4 billion. I'll talk more about both these transactions in a moment.

Since we reported last during our second quarter earnings release on August 10, we've repurchased approximately 770,000 Teekay Corporation shares at a total cost of approximately $18.5 million. Which brings the total amount repurchased to date under our current share repurchase authorization to 5.2 million shares at a total cost of $162 million. Since our current authorization began in November 2010, we bought back approximately 7% of Teekay Corporation's outstanding shares. For the time being, we have suspended further share buybacks, as a result of the need to finance and complete these pending acquisitions.

Our three daughter companies have also been active in the third quarter and fourth quarter to date. Related to its joint venture acquisition of the Maersk LNG fleet with Marubeni, this week Teekay LNG partners completed a follow-on public equity offering, raising net proceeds of approximately $180 million. Teekay LNG partners third quarter distribution of $0.63 per unit is payable on November 14. And based on the expected cash flow accretion from the Maersk LNG transaction, and the delivery of LNG and LPG newbuildings in the last four months of this year, Teekay LNG management announced it intends to recommend a 7% increase to the Teekay LNG distribution, effective for the first quarter of 2010, which will be payable in May.

Just this morning, Teekay Offshore Partners announced its intention to acquire the Piranema FPSO from Sevan Marine directly, for a purchase price of $165 million. And concurrently signed an equity private placement agreement raising net proceeds of approximately $170 million, which will be used to partially finance the purchase. In October, Teekay Offshore Partners acquired the Scott Spirit newbuilding shuttle tanker, from Teekay Parent for approximately $116 million, not including an earnout under which Teekay Parent may receive an additional $12 million. For the third quarter, Teekay Offshore declared a distribution of $0.50 per unit, in line with the previous quarter.

Finally, our tactical management at Teekay Tankers Fleet continues to provide value along with Teekay sponsorship through our commercial and technical management agreement. Based on Teekay Tankers high percentage of fixed contract cover, the Company was able to declare a relatively healthy dividend of $0.15 per share per quarter in one of the worst spot tanker markets in 20 years. And due to two new recently entered time charter out-contracts, Teekay Tankers fixed rate coverage will increase to 60% for the fourth quarter of 2011. And to almost 50% for fiscal 2012. Which will enable it to continue paying an attractive dividend, while remaining exposed to the spot market. For a more in-depth view of the tanker market, please listen to the Teekay Tankers conference call later at 1.00 PM Eastern Standard Time.

The benefits of our daughter company's structure to be able to facilitate profitable growth in a difficult macro environment, were apparent this quarter. And the benefits of our Maersk LNG and Sevan acquisitions will be seen in Teekay in 2012. Our daughter companies are able to grow through the purchase of newbuilding projects, the purchase of existing and on-the-water vessels from Teekay Parent, as well as through the direct acquisition of third-party assets. As our daughter companies grow, the receipt of daughter company dividend and general partnership cash flows are becoming an increasingly important source of cash flow for Teekay Parent. In addition to our usual discussion on the results for the recent quarter, today's presentation will largely focus on our significant transactions with Sevan and Maersk LNG.

Turning to Slide 4 of the presentation, I'll provide an overview of our pending transaction with Sevan Marine. As we first announced in early October, we've agreed to purchase three existing FPSO units from Sevan Marine, the 2007 built Sevan Piranema, the 2008 built Sevan Hummingbird, and the 2009 built Sevan Voyager. The Piranema FPSO, which is operating under a long-term time charter contract with Petrobras in offshore Brazil, will be acquired by Teekay Offshore Partners for a purchase price of $165 million. The contract with Petrobras, which has a firm period ending in March 2018, includes 11 one-year extension options, and is expected to generate between $22 million and $27 million of CFVO annually on a run rate basis.

The Hummingbird FPSO is currently operating under a shorter term time charter contract with Centrica in the North Sea until at least September 2012, and will be acquired by Teekay Parent for a purchase price of $179 million. Under its current contract, this FPSO unit will generate run rate CFVO of approximately $25 million to $33 million and includes extension options for up to 5.5 years.

Finally, the Voyager FPSO is currently undergoing upgrades to prepare the unit for a new five-year time charter, plus extension options with Aeon. Teekay Parent has agreed that technical resources to support the upgrade and finance the completion of Voyager's upgrade for an estimated remaining cost of between $110 million and $130 million. And will then acquire the Voyager for an additional $324 million once it commences operation in the North Sea under its new contract, which is expected to occur in the third quarter of 2012. Once operating under its new contract, the Voyager FPSO is expected to generate run rate CFVO of approximately $75 million annually.

Under the omnibus agreement between Teekay Parent and Teekay Offshore, both the Hummingbird and the Voyager will become eligible for sales to Teekay Offshore once they are operating under a long-term contract with an initial term of greater than three years. This means we must offer the Voyager to Teekay Offshore within one year of it commencing its longer-term contract in the third quarter next year. And the Hummingbird will become eligible for sale to Teekay Offshore once we secure it on a new long-term contract.

In addition to the FPSO acquisitions I've just described, Teekay Parent will also be investing $25 million, equal to a 40% ownership position in the new recapitalized Sevan and Teekay, will also enter into a cooperation agreement which would obligate Sevan to offer future offshore projects to Teekay Offshore at fair market value.

Turning to Slide 5, we highlight a number of key benefits of the Sevan transaction. First, the combination of the three Sevan FPSOs and Teekay's existing offshore businesses places Teekay and Teekay Offshore among the top four operators of leased FPSO solutions globally. And further strengthens our key market positions in North Sea and offshore Brazil. This provides us with an increased profile in these markets and will enhance our ability to win further new business.

Second, we are acquiring a fleet of modern FPSOs at an attractive price. All of the FPSOs have been completed in the past three years and with plenty of useful life ahead. While we paid a fair value for these assets as-is, the opportunity exists for Teekay to add value to the fleet that we are acquiring. In particular, our FPSO project group is assisting Sevan's technical group to complete the upgrade of the Voyager on time and revised budget. And our commercial team needs to find new longer-term employment for the Hummingbird.

Third, this accretive acquisition will add strong fixed rate cash flows to our business mix, further enhancing our profitability and providing additional insulation from the volatile spot tanker market. Fourth, this transaction is a win-win for both Teekay and Sevan in that both Teekay and Sevan benefit from Sevan remaining as a going concern business. The sale of FPSOs to Teekay allows Sevan to recapitalize and become an asset-light offshore engineering services and project development business. Which, when combined with Teekay's offshore operational expertise and balance sheet strength, creates a powerful offshore focus partnership that will benefit both companies. Finally, the cooperation agreement with Sevan enhances the pipeline of future offshore growth opportunities, which would benefit Teekay Offshore directly and also Teekay Parent through future general partner cash flow growth.

Turning to Slide 6, let me review the other important transaction we recently announced in our LNG business. In October, our daughter company Teekay LNG Partners announced it had agreed to acquire AP Moller-Maersk's fleet of modern LNG carriers through a newly-formed joint venture with Marubeni Corporation for a total purchase price of $1.4 billion. The transaction includes 100% ownership in six LNG carriers and a 26% ownership interest in two additional LNG carriers. A significant portion of the fleet comes with long-term fixed rate charters that fit nicely into our existing fleet employment profile. Five of the eight vessels are currently operating under long-term contracts, with average remaining durations of 17 years. And all of these have at least 10 years of extension options. The remaining three LNG carriers are currently operating under short-term time charters. However, one has an option to extend for another 18 years, which we expect to be exercised.

Given the strong rate environment in the spot LNG market at the moment, which is now in excess of $120,000 per day, we're comfortable with additional risk on these shorter term time charters. However, our medium term goal will be to secure new long-term contracts for these LNG carriers. And this is more in line with the risk profile of Teekay's LNG business model. While Teekay LNG and Marubeni will own 52% and 48% of the joint venture on an economic basis, control will be shared equitably. As a result, Teekay LNG will account for its share of the joint venture using the equity method. And the joint venture will not be consolidated on Teekay LNG's, nor Teekay Corporation's financial statements. After a transition period of approximately six to nine months, Teekay Corporation expects to take over technical management of the vessels.

Based on the incremental cash flows from Maersk LNG and the LNG and LPG newbuildings that have delivered to Teekay LNG in 2011 to date, management expects to recommend a 7% increase to the Partnership's quarterly distribution, commencing with the first quarter 2012 distribution. This increase would move Teekay LNG Partners into the 50% split threshold. And that would mean that 50% of any future distribution increases over a level of $0.65 per unit will flow to Teekay Parent as the general partner. As a result, we expect the quarterly GP cash flow to Teekay Parent to increase by approximately $10 million per annum beginning in the first quarter of 2012. At this time, we're not in a position to provide guidance on the expected GP accretion from the Sevan transaction.

Turning to Slide 7, the Sevan and Maersk LNG transactions will further enhance Teekay's already strong portfolio of forward fixed rate revenues. These two transactions are expected to provide approximately $1.8 billion of incremental forward fixed rate revenues, which will bring the total consolidated to $16 billion with an average contract length of almost nine years. We believe this level of fixed rate contract coverage is unparalleled in our industry and has a quality level that sets Teekay apart from other more spot-oriented shipping companies.

With that, I'll 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 Q3 income statement against an adjusted Q2 income statement. Later on, I will also provide our outlook for the fourth quarter.

Net revenues decreased by approximately $5 million, mainly due to lower spot tanker rates and fewer vessel days from in-charter vessel delivery during the quarter, which reduced time charter hire expense by a greater amount, which I will discuss later. These decreases were partially offset by higher project revenues from our shuttle tanker fleet and delivery of newbuilding shuttle tankers and gas carriers during the past two quarters, and lower dry docking activity for our LNG fleet in Q3. As a reminder, a portion of the revenue we earn on the Foinaven FPSO is dependent on various annual operational performance measures, oil production levels, and average oil price for the year. As a result, for accounting purposes, this portion of revenue is typically recognized in the fourth quarter of each year.

Based on the results and performance of the Foinaven FPSO for the first nine months of the year, $4 million of such revenue was recognized in the third quarter, leaving approximately $25 million of unrecognized revenue at the end of the third quarter, to be recognized in the fourth quarter of 2011. Provided our operational performance and the average oil price for the year is similar to the performance in the first nine months of the year.

Vessel operating expenses decreased by $3 million, primarily due to the timing of expenditures and lower maintenance costs relating to our FPSO fleet. Time charter hire expense decreased by $6 million, due to the redelivery of vessels in Q2 and Q3, and an overall decrease in spot in-chartering of shuttle tankers. Depreciation and amortization increased by $3 million due to the delivery of the Scott Spirit and a full quarter amortization of the [Free] Spirit in the Norgas Unikum.

G&A expenses were $49 million, slightly below our normalized run rate of about $50 million per quarter. While not included in the adjusted income statement column, we recorded a noncash impairment charge of approximately $150 million in Q3, mainly related to certain of our smaller product tankers, our older conventional tankers, our equity investment in Skaugen Petrotrans and goodwill related to our conventional tanker business segment. The impairment largely reflects the continued weakness in spot tanker rates and the decline in asset values in spot conventional tanker segment, as seen during the past several quarters. It is important to note that these noncash charges do not affect our operations, our cash flows, liquidity, or any of our loan covenants. But they do reflect the fact that current tanker asset values have fallen, as I will discuss when we come to the sum-of-the-parts slide.

Continuing down the income statement, net interest expense increased slightly, mainly due to the recent delivery of new billings. Equity income decreased by $1 million due to decreased earnings from our Skaugen Petrotrans joint venture. Income tax expense was consistent with the prior quarter at about $1 million. Noncontrolling interest expense increased to $37 million as a result of higher adjusted earnings in our daughter entities, Teekay LNG and Teekay Offshore. Looking at the bottom line, adjusted net loss per share was $0.58 in the third quarter compared to $0.51 in the second quarter. Again, most of the net loss is attributed to the weak spot tanker rate.

Now, turning to Slide 9, we have provided some guidance of our consolidated financial results for the fourth quarter of 2011. Net revenues from our fixed rate fleet in Q4 are expected to increase. We estimate approximately $30 million of additional revenue from the Foinaven FPSO unit, meeting various annual operational performance measures, oil production levels and the average oil price for the year. In addition, the expected acquisition of two Sevan FPSO units, assumed here to occur at the end of November, a full quarter impact of the delivery of the Norgas Camilla, and the delivery of the multigas vessels, the Norgas [Adision] in mid-October, are expected to increase revenues by approximately $12 million in total. These increases are partially offset by the reduction in shuttle tanker project and CoA revenues and fixed rate conventional tankers on the exploration of their time charter contracts.

Net revenues from our spot fleet are expected to decrease, despite an increase in the number of revenue days due to the continued weak spot tanker rates expected in the fourth quarter. So far in Q4, we have fixed approximately 45% of our spot Aframax revenue days at an average rate of $5,000 per day, and 33% for our spot Suezmax revenue days at an average TCE rate of $12,000 a day. With the recent rate volatility, combined with various one-off fleet repositioning days, we expect the full Q4 average Aframax rate to be higher than what we have booked to date for the quarter. As a rough rule of thumb, for each $1000 per day change in spot tanker TCE rates, it results in a $2.5 million change in our consolidated revenues per quarter.

Overall vessel operating expenses in Q4 are estimated to increase by about $9 million to $11 million compared to Q3 as a result of the expected acquisitions of the two Sevan FPSO units in late November, and increased repairs and maintenance in our FPSO and gas fleets. Contract charter hire expense is expected to decrease in Q4 by approximately $2 million to $3 million, reflecting the redelivery of in-charter vessels during Q3 and Q4, and less spot in-chartering activity in our shuttle tanker fleet.

Depreciation and amortization is expected to increase by $1 million due to the Sevan FPSO units and recent newbuilding deliveries, partially offset by the impact of vessel write-downs incurred in Q3, as previously mentioned. We expect G&A to be in the range of $51 million to $53 million, which includes incremental overhead related to the Sevan FPSOs. Net interest expense is expected to increase by $2 million to $3 million, due to the recent newbuilding deliveries and the Sevan FPSO units. Income tax expense run rate is expected to be approximately $1 million. Noncontrolling interest expense is expected to be approximately $30 million to $32 million in Q4, reflecting lower expected adjusted earnings in TOO and TNK, partially offset by the Q4 equity offering completed in TGT and TOO recently.

Overall, we are expecting a stronger fourth quarter compared to the third quarter. Note that we are not expecting the Maersk LNG transaction to close until early 2012. And thus we expect equity income to increase starting in Q1 2012. We will provide further guidance on this next quarter.

On Slide 10, we have provided a breakdown of Teekay's consolidated invested capital by reporting segment as at September 30. I'd highlight that over 85% of our consolidated invested capital is now related to our fixed rate businesses, with only 13% of our invested capital with exposure to the current fleet spot tanker market. Upon completion of the Sevan and Maersk LNG transaction, our capital base will shift even further towards offshore and LNG assets, which generates additional fixed rate cash flows and higher returns.

Turning to Slide 11, Teekay Parent and all the Teekay daughter entities are financially well positioned with substantial liquidity and a strong balance sheet at each. Over the past few years, Teekay's daughter company structure has been a central part of positioning the Company for profitable growth by enabling us to delever our balance sheet and build liquidity so that we can take advantage of attractive investment opportunities, both at Teekay Parent and daughter entity level, such as the Sevan and Maersk LNG transaction. As of September 30, Teekay Corporation had $1.8 billion of total liquidity on a consolidated basis. And approximately $700 million at Teekay Parent. Subsequent to September 30, and not yet reflected in these figures, we recently raised a further $350 million of equity in Teekay LNG and Teekay Offshore in advance of the Maersk and Sevan transactions.

At our daughter entities, we target a leverage appropriate with the length and stability of the contract portfolio at each entity. It's also important to note that at Teekay Parent, $435 million, or just under half of that $894 million net debt at September 30 is related to warehouse newbuilding installments, which is temporary in nature, as this debt will typically transfer with the asset when it is sold to the respective daughter entity.

Turning to Slide 12, I will provide some additional details related to our financing plans for the Sevan FPSO's and Maersk LNG fleet. I'll focus on the Sevan transaction first. First of all, the Piranema FPSO will be acquired directly by Teekay Offshore. And therefore, the headline purchase price of $788 million is effectively reduced for Teekay Parent by $165 million. I'll cover the Piranema FPSO financing in Teekay Offshore in a moment.

The next main consideration from the Teekay Parent perspective is that the acquisition of the remaining two FPSOs is phased in over a period of time. Due to the Voyager upgrade, Teekay Parent will not be purchasing this FPSO unit from Sevan until it commences its charter from Aeon in the third quarter of 2012. In addition, $230 million of the Voyager purchase price is expected to be financed through the assumption of an existing debt facility, which leaves only $94 million to be financed with Teekay's existing liquidity. For the remaining upgrade work for the Voyager FPSO, which we estimate to be $110 million to $130 million, the costs will be phased in over a period of three calendar quarters. And we expect to finance approximately $100 million of this amount with a new debt facility, which leaves only about $10 million to $30 million to be drawn from existing liquidity.

Finally, upon closing, which we expect to be in the fourth quarter 2011, Teekay Parent will acquire the Hummingbird FPSO for $179 million. We are currently in the process of securing a new debt facility to finance approximately $100 million of the Hummingbird purchase price, leaving $79 million to finance from existing Teekay Parent liquidity.

To summarize, of the approximately $623 million total purchase price for the Hummingbird and Voyager, including upgrade costs for the Voyager, we expect to have approximately $430 million of new or assumed debt facilities in place, leaving $193 million to be drawn from Teekay Parent's liquidity between the current quarter and Q3 of 2012. Once the Voyager commences its long-term contract with Aeon and is eligible for sale to Teekay Offshore, proceeds from the sale would rebuild Teekay Parent's liquidity.

To finance Teekay Offshore's purchase of the Piranema FPSO, we are currently in the process of obtaining a new debt facility, which will cover about $130 million of the $165 million purchase price. We will then finance the remaining $35 million using a portion of the proceeds from a $170 million equity private placement that Teekay Offshore announced earlier today. Which can close concurrently with the acquisition of the Piranema FPSO. Of the remaining $135 million of net proceeds from the equity private placement, will be available for allocation to other Teekay Offshore acquisitions, including the Scott Spirit shuttle tanker, which was purchased from Teekay Parent in October. And the DG shuttle tanker newbuildings, which are scheduled to deliver in mid to late 2013.

For the $1.4 billion purchase price for the Maersk LNG carriers, the TK LNG Marubeni joint venture already has a new debt facility commitment of approximately $1.12 billion. Of the $280 million of equity required, TK LNG's portion, based on its 52% economic ownership, is $146 million. This amount will be financed using a portion of the net proceeds from the $180 million public equity offering TK LNG completed earlier this week. Similar to the Teekay Offshore financing, the remaining net proceeds from the offering, which totals approximately $34 million, will be additive to Teekay LNG's available liquidity which can be used for future acquisitions, including the final Angola LNG carrier scheduled for delivery in January 2012.

On Slide 13, we have provided an update to our sum-of-the-parts calculation which indicates Teekay's current underlying value of just under $40 per share. Our sum of the parts value has decreased from $43 per share we reported in August, primarily as a result of lower asset values in our conventional tanker fleet, and depreciation of our fleet of three on-the-water FPSOs. Partially offset by an overall increase in the value of our daughter company equity interests, which mostly relates to Teekay LNG and Teekay Offshore.

Compared to the current Teekay share price of under $27, which has increased by 20% since our second quarter earnings release on August 10, our sum-of-the-parts discount has narrowed to approximately 32% from almost 50% in August. It's important to note, however, the sum-of-the-parts value presented here does not reflect the net present value of the Sevan transaction, nor the expected future increase in Teekay Parent GP cash flows, which will result from both the Sevan and Maersk LNG transactions. For instance, Teekay LNG is expected to increase its quarterly distributions by approximately 7% as a result of the Maersk LNG transaction in Q1. Which will move the Teekay LNG incentive distribution rights into the highest tier, which is 50%.

Accordingly, upon completion of the two transactions, we expect the sum-of-the-parts value to increase, which highlights the compelling value of Teekay shares at current price levels. Although we continue to believe that Teekay share price is negatively affected by the current sentiment in the marketplace towards the conventional tanker sector, the strong growth outlook for our offshore and LNG business, and the beneficial effect on Teekay Parent cash flows from its GP and LP interests in TK Offshore and TK LNG will become interestingly difficult to ignore.

With that, I'll turn the call back to Peter to conclude.

Thank you, Vince. To conclude, we're not satisfied that we reported a net loss for the quarter, due mainly to the seasonal lows in an already weak spot tanker market. Which masks our growing fixed rate business and corporate structure that are sources of strength, value accretion, and profitability. Over the past few years, Teekay's daughter company structure has been an important part of positioning the Company for profitable growth that we've talked about this quarter. And enabling us to delever our balance sheet and build liquidity. In the coming quarters, our main focus is going to be on completing the Sevan and Maersk LNG transactions, executing on our existing offshore newbuilding and conversion projects, and above all, improving the profitability of our existing business operations.

Operator, we're now ready to take questions.

(Operator Instructions) Michael Webber from Wells Fargo.

Maybe just starting with Sevan. Peter, can you walk us through the time lin for closure here? You've got until the 30th and you've got the lock-up on the bond vote through that period. And I believe the equity vote is on the 14th. Can you walk us through the time line, and how the closure of the private placement for TOO impacts that. And whether or not you would need to get an extension on the November 30 date.

Sure. Of the three FPSOs, the Sevan Piranema is going to be acquired directly by TOO. And we expect that to occur at the end of this month. The really governing feature of that is to get the charterer, which is Petrobras, to give their consent. All the money has been raised. And the key part about the private placement is that it will be funded when we get the acquisition of the Piranema FPSO. What we like about the private placement idea is that we don't have to use that money until we get the Piranema.

But from the Sevan side, they have their bond holder meeting today, and they have the shareholder meeting next Monday. And so we like the fact that that's going to go directly to Teekay Offshore Partners. The Hummingbird is going to be bought by the end of the month. We expect things to go to the end of the month. They could move around a little bit, but that's the timing. And with the cash in place and the seller Sevan is putting all the requisite corporate approvals in place since that happened.

So you guys are still pretty comfortable with the 30th then? There's still a little bit of leeway, but you're pretty comfortable with that date?

That's right. And the Voyager, as Vince explained, we're not actually buying it yet, but we are funding it and we have already started funding it. And that's really critically important because what we're thinking, because what happened was that that unit was delayed and so now we see first oil coming in the third quarter of 2012. We've had discussions with Aeon, which is the operator on that field. And so, to the extent that we can give our technical assistance and money, we now see that those modules are being completed on time and on budget. When you back up an upgrade project, you really have to put in place all the requisite parts. So there's a lot of people spending a lot of time on that upgrade.

Just thinking about the FPSOs in general, the Piranema cut in line a little bit, you still have the Foinaven there to drop down. How should we think about that timing? And obviously it would seem dependent on putting some debt on the Piranema whenever you finalize that $130 million facility. And then more broadly, you guys have talked in the past about doing one to two drop-downs a year. Any change to that thought process at all, and how the Sevan FPSOs fit into that. Obviously securing longer term employment and getting the upgrades done dictate when they will be available. Can you maybe just talk a little bit about that pipeline, and specifically the Foinaven and when we should expect that?

Actually what's happened is the eligible assets just increased, so we actually think that's a good thing. Obviously you have to finance them, but you're right, that the Foinaven is eligible. And so the Piranema cut in line. But that's okay. So we're still looking at good growth in Teekay Offshore in 2012. And as you point out, the Foinaven FPSO is one of the first assets that will probably be considered.

Moving to tankers, and obviously, the spot Aframax is a drag on earnings and valuation at this point. Can you talk a little bit about how you think about potentially dropping those down eventually? You've got about $290 million of liquidity sitting at TNK. And you've talked in the past about TNK being a buyer here but you guys might not necessarily be sellers considering our asset value. Can you just give us an update on what your thought process is there right now?

Actually, I think that's changed a little. As Vince said, we had deleveraged the balance sheet. So if we sold anything, we didn't have to build liquidity. So I think that for Teekay Corporation, now that we have some new assets that we put on the books, and the GP cash flows that we know are coming in 2012, I expect we would be more of a motivated seller at this time. Because of the sum of the parts, we actually marked them to market. And, as Vince said, we lost about $3. So from our point of view, we're transparent in marking them to market, which we think people should do. So if we decide to sell them, the good news is we have a pipeline where we can fill them up with more fixed rate assets.

Staying on the tankers here, it looks like you've got eight third-party charter-ins that roll off at some point over the next 12 months. Can you give us an update on the timing of those and when they should hit by quarter?

We don't have exactly when they are rolling off. But, Vince, you can give some more detail on it.

Yes, I think we provided some of those details, Mike, in the appendix to our presentation. We've got a pretty good run rate of a couple of vessels for a quarter, over the next several quarters.

We are positive on the tanker market turning around. And so the key question will be do we want to charter out and how do we want to change the mix as it relates to positioning ourselves for a rebound.

And one more and I'll get back in line. But on Maersk LNG, obviously a pretty big win for you guys. And then certainly adds pretty considerably to your GP cash flows. By our numbers, it seems like you actually have some more room there on the distribution. Can you talk a little bit about what you guys are looking for to maybe unlock more? Obviously you did just move it up by 7%. But if I look at the three LNG assets there that are rolling over the next probably couple quarters, is securing long-term employment on those really what would drive more recognition of that potential cash flow?

That's right. When we've looked at it, we've looked at what we call the long-term sustainable cash flows that you can get on those units. Obviously, we have a backward dated forward curve on LNGs. In other words, if you were to trade it in a short-term market, you would get $120,000. Whereas if you were going to put it longer term, you would get closer to, I would say, $80,000 to $90,000, depending on the duration. So we have to take the short-term duration and play it up against the longer term. The good news is, we have a lot of people that want to charter that, and we have to choose the proper duration. So you're right, that if we put in $120,000 versus $80,000, you get to a higher accretion number. But we wanted to give what we thought was the minimum accretion that we'll get from the project.

And then just finally, can you talk a little bit about that interest that you've seen in signing those three LNG vessels that roll off over the next several quarters? And maybe just an idea about the volume of interest you're seeing already on those?

First of all, we actually think it will only end up being two vessels that will be spot. Because we think the Maersk Meridian, because that extension option is below where the current market is, we expect them to extend it, although we don't have definitive declaration by the charterer. So we have one vessel that's coming due in March 2012, that's the Maersk Methane. And we have a second one, Maersk Magellan, that comes due in the third quarter of 2013. So we already see interest by charterers to lock in the 2013 spot vessel. So that tells you the current strength of the market. There's a clear shortage of LNG vessels. But the question that I ask my commercial people is how long will that shortage last. And that will fit into our model. Just as we do with Teekay Tankers, where we don't go all spot. On Teekay LNG, our bias is to put in place long-term fixed-rate cash flows. That's consistent with what our investors want, which is stable cash flow. But obviously Teekay LNG is getting to the point where it can afford to have a certain amount of vessels spot, especially when you see how high the short-term charter rates are.

Any idea how far forward you guys look to fix those assets, or is it a little bit too early?

It's too early.

Justin Yagerman from Deutsche Bank.

Good morning, this is Josh Katzeff on for Justin. I just wanted to start off with maybe what you're seeing in the bank market. You're clearly out there raising capital for different asset classes. And just wondering maybe what you're seeing with regard to just who is out there, what type of lenders, are these credit agencies or your traditional bank lenders. Maybe if you can talk on margins and amortization profiles.

Sure. We have over 40 banks in our bank group, and so we have a large group of banks to work with. And of course there are some banks on that list that are not quite open at this point in time. But there's still a lot of banks that are open for business and lending to their core clients, such as Teekay, the larger clients. And in particular, I think they are more willing to lend also in offshore and LNG, where you have long-term stable cash flows against those assets relative to spot assets. So we're making very good progress on our financing. And of course you are seeing the margins higher than they used to be. However, partially offsetting that, you do have lower LIBOR rates and swap rates, so the all-in debt cost is not impacted as much overall. So overall, we're making good progress in our financings.

And with regard to amortizations, is that required to be done usually over the contract life for some of these assets? Or how are lenders thinking about that?

In FPSOs, the amortization tends to be a little bit quicker, just given the nature of the assets and the contracts. But given that our intention here is to, for example, on the Hummingbird, to fix it out on a longer-term contract, we will get the longer-term loan to match against that. So it really depends on the length of the contract. Of course in the LNG business, the Maersk LNG assets, they are very long-term contracts so that we'll get longer duration loans against those assets

And with regards to the Hummingbird, it's current fixed portion of this contract expires Q3 2012. At what point are they required to exercise or declare an option? And have you started discussions on whether those options will be declared or whether you might be seeking maybe longer-term new contracts?

The short answer is yes, we have started discussions with Centrica. It has much more to do with the actual field that it's operating on, how long they expect to be producing oil on that field. And so we anticipate that it will come off, that they won't renew all the options, which is why you hear us talking about arranging new employment. I think with Teekay's operating excellence that we have through our Petrojaril unit, that makes the amount of people that want to Charter the Hummingbird much larger than it was when Sevan owned it and people weren't quite sure what the staying power was of Sevan to either operate it or to upgrade it. So a big part of these FPSOs is your operational excellence.

Does that mean this could be a potential drop-down candidate in 2012, or likely 2013?

It all depends when Centrica wants to release it. They recently renewed it from March 2012 until September, and so we're in commercial discussions. So I think pending those commercial discussions, then we'll have a better timeframe for when it will be eligible to be dropped down. But if you want to look at what 2012 will look like, clearly the Voyager will be finished in the third quarter of 2012. It will be on a minimum five-year contract and then that would be clearly eligible. So we're not sure which comes first.

Maybe just switching topics, with regard to the GP interests, the new guidance is that TGP will surpass that 50% profit share split. And TOO is not far away. It's getting close to $0.525 split. Have you thought about maybe monetizing the GP units in any way? You've gotten away from it in the past, but now that you're getting to these higher hurdles, have you thought about maybe a spinoff?

No, we haven't. From our point of view, we think the GP is a clear value driver at Teekay. We are not going to be affected by any changes in the GP law. And so because we're incorporated in the Marshall Islands. So for us, we think owning the GPs, or having the GPs from two different MLPs, both of which have good growth profiles, is really important. I think when you look at the MLP universe, a lot of people have been doing in-market consolidation, whereas obviously we've been doing some in-market consolidation. But the real story about both Teekay LNG and Teekay Offshore is that they are pointed toward strong international energy growth. So we expect that to continue and therefore we expect the GPs to continue to increase value. And there isn't anyone who would ever, in my opinion, look to monetize the GP when you're just up at the 50% split. This is when it gets interesting.

Michael Pak from Clarkson Capital Markets.

I just had a question on the write-downs of the conventional tankers. Can you talk about the test that is required on that? And do you expect a test for your year-end results in 4Q?

Yes, hi, Michael. Under US GAAP, it's undiscounted cash flow analysis, which is the first part of the test. You have to work out your projected cash flows for the asset. And undiscounted cash flows are below the carrying values. Then you go to step two, which is marketing it to fair market value. So you're correct, we typically would do these reviews in the year-end account. However, we started to work a little bit earlier, just given the condition of the spot tanker market and what we've seen over the past several quarters. And it became apparent to us that there was some impairment in some of these, especially the older tankers, just given that they have a limited remaining life in those assets. So this is essentially our year-end review of the carrying values.

So we would not expect any further write-downs at year end, I would assume?

Based on the information that we have now and our intended use of the assets, I'm not expecting any further write-downs in fourth quarter.

Fotis Giannakoulis, Morgan Stanley.

Mike just gave me a pass. I want to follow up a little bit on this question and ask you what kind of flexibility do you have in order to postpone the write-downs. And I'm not asking you so much about TK. I'm asking for other companies that they might be forced to take write-downs in the future?

It is based on management's forecast of earnings for the assets. So it may differ from company to company, from management to management. And relative to what the book value of the assets are. So there's obviously some subjectivity, but it should be obviously consistent with the reviews of the market.

And I want to ask about the tanker market. We have seen the last few days the market tightening. Rates are moving a little bit higher. Inventories, according to refining analysts, they are extremely low in Europe and Asia. Do you think that we can have a rally during these winter months? And if yes, what it will be, what will drive it, and which route do you think that we are going to see higher movement? And how long can it last?

That's asking me to get out my crystal ball. But let me give you a better view about where we think it is. We've been consistent that the third quarter was seasonally weak, but it was hit by a lot of strong head winds. If you talk about Libya, if you talk about the strategic petroleum reserve. And really what happened, in our view, is that the ton mile demand reduced. So while everyone talks about how much oil you would have, the fact of the matter was, because oil prices were in backwardation, you had this drawdown on stocks. And the weather also now is going to be a more positive view. So all the head winds are switching around to being, I would call them, not strong tail winds, but good ones.

For example, we see that Libya is coming back and, therefore, you should see more West Africa oil slowing to the east. Whereas, what was happening was the West Africa oil was flowing up to take away the Libyan volumes. And so that led to shorter routes and so the Chinese were taking more from the AG. If things get back a little bit more to normal, Libya comes in, seizes the Med, then we're going to get back to that situation we were in, which was that we had surplus oil in the Atlantic which had to flow to the Pacific. And that gave us those longer ton miles demand.

If you want to get excited, you should look and see what happened in the LNG side. On the LNG side, you suddenly had a lot more ton mile demand when all those LNG volumes were starting to flow out of the Pacific. Therefore, you saw the big jumps that can occur. I'm not in the business of saying how long it's going to last, but we do believe that the fourth quarter and the first quarter will be better than the third quarter. To the extent that it gets sustained, I think you have to look and see where sentiment is.

I see a lot of owners, when I sit on our commercial desk. I see a lot of owners who are willing to do private deals or do deals below what the last world scale fixture is. But that weakness or those weak (inaudible) can change. And I think they just have to get all the normal things that come in the winter, which is the various delays in the Bosphorus, if we get some ice, that's important. But everyone forgets that it takes longer to cross the Atlantic in the winter than it does in the summer. So we see all these seasonal factors helping us. And so, if you ask me, will things regress back to the mean, yes, I think they will. I think the third quarter was weak. But the idea that it's just about supply of ships versus demand for ships is completely irrelevant. It's how the mix changes in terms of the oil cargoes. So if we get more light sweet moving from West Africa out to China, for me, that's the number one driver.

I understand though that you also talk from the safety that your fleet is mainly Aframax, vis-a-vis the larger vessels where the order book is much bigger. Do you share the same view for VLCCs and Suezmaxes, that the market is relatively balanced? Or in 2012, even after this winter period it will be a balanced market? Or this view is only limited to Aframax where we have a very significantly lower order book?

I think that you're absolutely right, that if you look at the amount of ships that are being delivered now in 2011 and in 2012, it is hardest on the big VLs and on the Suezmaxes. And next year, I think they are getting about 60 ships in each category of VLs and Suezmaxes. However, the Aframaxes looked a little better. I think our commercial guys were pretty good because they moved our ships out to the Pacific, which is more of a bread-and-butter run. What we saw in the Caribbean was that there was less oil being imported into the US. So even though the Aframax has less ships coming into it, it's very important that you position your ships in the right area. But the volatility is really pretty amazing to see Aframaxes jump up to 50,000 a day in the Med, and then basically go back to zero in the space of three weeks. So the good news is that you're seeing that volatility. And, given where we were in the third quarter, it can only really go up. So I would say we're encouraged and we've positioned our fleet in order to take advantage of some of those constant flows.

And very quickly, I understand that this is going to be in effect for the first quarter. Can you remind us how much of your operating days in the fourth quarter have already been fixed right now?

Sure. Vince, you gave that data.

Yes, as of now, it's about 45% of our Aframax days and about 33% of our Suezmax days.

You have to remember that Aframaxes don't fix as far forward as Suezmaxes and VLs. So if we get a bump it helps the Aframax rates faster than Suezmaxes or VLs. So it isn't like the fourth quarter is done for us.

Sal Vitale from Sterne Agee.

Just a quick question on the sum-of-the-parts analysis. I see that you left out the impact, the positive impact of the two transactions. You mentioned earlier, I just want to make sure I heard this right, that you said on the Marubeni transaction, that the GP cash flow will rise by about $10 million per year once it's final, is that correct?

That's correct. Based on the 7% distribution growth that management is recommending. We see $10 million coming up to Teekay Parent annually.

So then just using your methodology and your share count, that would amount to close to $3 per share accretion on the sum-of-the-parts side?

If you put a 20 times multiple on that $10 million, that's $200 million. That's $3 a share. But I just want to caution everyone, it hasn't happened yet. So we give the sum of the parts as it exists now, not what will happen.

And then on the other transaction, on the offshore side, I may have missed this. Did you give any color as to what the GP cash flow will rise by, annualized, once it's complete?

No, you didn't miss it. I didn't give it. And because it's a stage transaction, and because all the parts aren't known, we don't know what the distribution growth will be at TOO. We know that there will be growth, but we haven't given it and therefore we can't compute what the GP value effect is.

Would it be fair to say, just based on some rough back-of-the-envelope calculations that I have done, that it would be by order of magnitude about double that $10 million from the LNG transaction?

We're not giving any guidance at this time on what it will be.

So you haven't given any guidance as to what the accretive EBITDA impact would be.

No, we haven't. We've given what the EBITDA is of the assets, but we have not given guidance on what the financial effects will be on the distribution growth at Teekay Offshore, nor therefore what the effect will be.

So following up on that, I may have missed that. What was that EBITDA figure that you gave?

If you look at the presentation on Slide 4, we talk about the purchase price and then we talk about the annual cash flow that you're getting. So you're seeing that we're taking over those units at six to seven times cash flow.

And this annual cash flow, is that the maintenance reserve, or is that already net of the maintenance reserve?

If you're talking about actual maintenance that we do normally, it is net of that.

Adam Duarte from Omega.

Given your liquidity and where the stock traded relative to the underlying NAV this quarter, and what seemed to be some very accretive acquisitions announced this quarter, I'm curious why you suspended the stock buyback during the quarter. And additionally, what needs to happen in order for you to resume repurchases? And what's your best guess for timing on that?

We just thought it was prudent, given that we had all these various moving parts that were going, that we should suspend the share buyback. We didn't have everything in place on exactly how the Sevan transaction would go. As it happened, we were able to time it out over a longer period of time. And so right now we're going to digest those. I think that's the best way to go forward. As we reliquefy, as Vince was pointing out on Page 12, then that's things we can consider. But it all has to do with how we debt and equity finance the projects.

I think I feel better about the world, now that we've completed the financings that we've done at TOO and TGP, which puts them in a position to have that growth. But the world is an extremely uncertain place and so I think we benefit from it because we were in a position in order to act on these transactions in a weak macro environment. And I think the stability of Teekay puts us in a really good position. And so you have to balance out the ability to get good acquisitions against creating value on the shares outstanding. But we've gotten the share count down, which was an important part. And I think that will help reflect the net asset value. But I really feel good about these acquisitions and their ability to generate profits for Teekay Corporation, as well as, of course, the GP cash flows. And you can create a lot of value through the GP split, as we pointed out just on the Maersk LNG transaction.

And in terms of resuming repurchases, is that a wait and see? It sounds like it could potentially be in the first half of next year, is that right?

I'm not getting drawn on it. We just suspended, but we still have authorization under the existing $200 million. Vince and the finance team are pretty busy these days. That's what we're spending our time on. And we're working on the profitability of the corporation very much. We're not happy with the profitability. I think everyone in the current market can tighten their belt. And Teekay is clearly one of those companies that's working hard at that. So, while we're growing, we're also concentrating on the profitability of the existing operations.

And can you help me understand, at TGP, what's the process and timing for the management recommendation for the distribution increase? And secondly, does the increase change your coverage ratios at all at TGP on a proforma basis?

The management, when the board approved the Maersk LNG transaction, they went and looked and said how much accretion will there be. As we talked about on an earlier question, we're comfortable even if we take these two spot ships out long-term, we're comfortable that they would give us a 7% distribution increase. And potentially more if we keep them on a spot basis. But let's go with the 7%. And that's exactly what any board and management looks like. When you're looking at a transaction, how much money are you going to be able to make off of it? And so we're in a position to give guidance now that the equity and the debt financing has been completed on those projects. And therefore, although the acquisition doesn't close until the turn of the year, we can already see what it is, given the stability of the cash flows.

So is it fair to say that you're highly confident that management's recommendation will be approved at the TGP level?

No, it's fair to say that management has given a recommendation to the board, which we've done in the past, and management must feel confident in order to make that recommendation.

And last one, do you foresee any change in your existing dividend level at the Teekay Parent?

The board has continued to approve the dividend each year. I think the good news about Teekay is that we have the stability of cash flow. And that cash flow's only going to increase over time. So I think that's an important differentiator of Teekay as we look at it. And so the dividend's been at the current level and even though we are reporting losses, which as I said, we're not happy with, but from a cash flow point of view, we're happy with the stability of the cash flow, which goes to the whole integrity of the financial structure.

(Operator Instructions) John Fusek, GCA Advisors.

Question for you guys on Page 12. The financings that you expect to do here, expected debt financings for Teekay Parent, which is $100 million, $100 million and then $230 million. Is some of that, which I assume, do you have expectation of, is that secured debt or public debt? Or can you just provide us a little more detail on that?

Yes, those are commercial bank loans, secured by the assets.

And part of that is assumed?

The $230 million you see in Q3 2012, that would be assuming the existing secured debt facility related to the Voyager. That's in place.

So then the other ones would be against the Hummingbird?

Essentially, yes.

(Operator Instructions) There are no further questions at this time. Please continue.

All right, thank you very much. We look forward to reporting back next quarter. And you can be assured that we're working hard to execute on all these very good growth opportunities that our business development people have put together during the quarter. Thank you very much.

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