Teekay Corp Ltd (TK) 2012 Q2 法說會逐字稿

Welcome to Teekay Corporation's second-quarter 2012 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, 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 2012 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 2012 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, everyone, and thank you for joining us today for Teekay Corporation's second-quarter 2012 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. During our call today, I will be walking through the second quarter of 2012 earnings presentation, which can be found on our website. Beginning on slide 3 of the presentation, I will briefly review some recent highlights for Teekay Corporation and our three publicly-traded daughter companies.

For the second quarter of 2012, Teekay Corporation generated total consolidated cash flow from vessel operations, or CFVO, of $208.4 million, an increase of approximately 26% from the second quarter of 2011. As a reminder, last quarter we changed the format of our operating results table to include our share of the CFVO generated from our equity accounted investments, given their increasing significance, in addition to the CFVO generated by our fully consolidated businesses.

Teekay Corporation reported a consolidated adjusted net loss of $17 million or $0.25 per share for the second quarter of 2012. Just under 50% of the consolidated adjusted net loss of $0.51 per share that we reported in the second quarter of 2011. The reduction in our adjusted net loss for the quarter reflects the contributions from the strategic acquisitions and new building deliveries over the past year, in addition to the progress we have made on our profitability enhancement initiatives for our existing assets.

In late June we completed the previously announced sale of 13 of our 17 conventional Teekay tankers, two Teekay tankers for $454.2 million. As a result of the transaction, which closed late in the second quarter, we will not see the full-quarter effect until next quarter. With completion of this transaction, Teekay Parent's exposure to the conventional tanker market will now be mostly indirect through our minority, but controlling, equity ownership in the significantly larger Teekay tankers.

At our June Investor Day in New York, we announced we had offered to sell the Voyageur Spirit FPSO to Teekay Offshore Partners upon commencement of its charter contract in the North Sea in the fourth quarter of 2012. This transaction is currently being reviewed by Teekay Offshore's conflicts committee. This is another example of a drop-down transaction which supports the growth of our daughter companies, and which also leads to enhanced net asset value to the Teekay Parent level, as our MLP daughter companies grow their GP and LP cash flows. All three of our publicly traded daughter entities were busy this past quarter integrating acquisitions and negotiating charter contracts that will enhance the stability of their future cash flows. In the next few weeks, we will take over technical management of the final vessel of the six LNG carriers acquired by Teekay LNG in February 2012 through its joint venture with Marubeni Corporation, and thereby complete the integration of this purchase.

In June, Teekay LNG took advantage of the strong fundamentals in the LNG shipping market to secure a new forward-start three-year charter for the Magellan Spirit LNG carrier, which will commence immediately after expiration of the current charter in September 2013 at a 20% increase from its current charter rate. For the quarter-ended June 30, 2012, Teekay LNG declared a cash distribution of $0.675 cents per unit, which, based on Teekay Parent's current GP and LP ownership interest in Teekay LNG, results in $22.5 million of cash flow to Teekay Parent for the quarter.

Moving on to Teekay Offshore, Talisman Energy, the charter of the Petrojarl Varg FPSO, declared their three-year option to extend the firm period of this contract to June 30, 2016. Talisman has two remaining three-year options. For the second quarter, Teekay Offshore declared a cash distribution of $0.5125 cents per unit, which, based on Teekay Parent's current GP and LP ownership interests, results in $14.3 million of cash flow to Teekay Parent for the quarter.

In addition to completing its acquisition of 13 vessels from Teekay Parent in June, Teekay Tankers has been actively managing its fleet employment profile and adding to its fixed cover. In the face of a softening global economic outlook, Teekay Tankers' ability to leverage Teekay Parent's chartering relationships to secure favorable time-charter out contracts has been an important competitive advantage. In the past couple of months, Teekay Tankers has entered into additional time-charter contracts, which, when combined with the fixed-rate charter contracts acquired on certain vessels from Teekay Parent, have increased Teekay Tankers' fixed-rate coverage from 29% to 47% for the 12 months commencing July 1, 2012. For the second quarter, Teekay Tankers declared a dividend of $0.115 per share, which results in $2.3 million of cash flows to Teekay Parent for the quarter.

Turning now to slide 4, in 2011 we announced approximately $3 billion of attractive asset acquisitions, and new building and conversion projects in our core businesses. As a result, one of our key areas of focus so far in 2012 is to efficiently execute on our existing development portfolio, rather than to add more projects. As you can see from the table at the bottom of this slide, we have a substantial number of projects that are currently in progress, with roughly one project targeted for completion per quarter through to early 2014. The ability to deliver these projects on time and within manageable cost parameters is critical for achieving our targeted return thresholds. On today's call, I would like to provide a brief update on the project execution of our three largest current projects, which are shown in bold print on the table.

Turning to slide 5, I will begin with the Voyageur Spirit FPSO upgrade project, which Teekay assumed joint responsibility for in 2011 through our transaction with Sevan Marine. I am pleased to report that the upgrade work on the Voyageur Spirit FPSO is now largely complete, and sail-away from the Nymo shipyard in Arendal, Norway is expected to take place later this month. With the unit scheduled to commence its charter contract with E.ON in the North Sea during the fourth quarter of 2012, this past June Teekay Parent offered to sell its interest in the Voyageur Spirit FPSO to Teekay Offshore Partners at an offered price of $540 million. The Teekay Offshore conflicts committee is currently reviewing this offer, and we are optimistic that the sale of the Voyageur to Teekay Offshore can be completed around the time of production start-up.

Turning to slide 6, we are also nearing completion of the Cidade de Itajai FPSO conversion project. Upon completion, this converted FPSO unit will operate for Petrobras on the Tiro and Sidon fields in the compost base in offshore Brazil. As a result of our strong relationship with the Jurong shipyard in Singapore, we were able to secure an option on a partially converted Aframax hull from the yard, which we used to successfully bid on this field development. Work commenced in October 2010 following contract signing, and in February of this year we diversified our interest through the sale of a 50% interest in the $380 million project to our Brazilian joint venture partner, Odebrecht. As you can see from the series of photos at the bottom of the slide, this unit has come a long way since the end of 2010.

With conversion work on the FPSO unit nearing completion, a naming ceremony for the vessel was held at the end of July, and the unit is currently scheduled to sail away from the shipyard in the next two weeks. Following its ocean transit and field installation, the Cidade de Itajai FPSO is expected to begin operating under its contract with Petrobras later in the fourth quarter this year.

Turning to slide 7, I will provide an update on our largest project to-date, the Knarr FPSO newbuilding. Steel cutting on this $1 billion FPSO commenced in October 2011 at the Samsung heavy industries shipyard in Korea, and construction on its massive turret, which is being developed by Framo Engineering, began a couple months later. Following keel laying in May 2012, assembly of the Knarr FPSO hull has been progressing on schedule. The photos at the bottom of the slide were taken during a management team's sight visit in June, and you can see that both the hull and the turret are quickly taking shape.

Although the hull is expected to be completed in September, the lion's share of the complexity and time requirement of an FPSO construction project is the topside processing equipment. For the Knarr FPSO, topside's integration and mechanical completion is expected to be in December 2013, at which time the FPSO unit is scheduled to sail for the North Sea. Following installation on the Knarr field and first oil late in the first quarter of 2014, the Knarr FPSO will commence its contract with BG.

The projects I've summarized over the past few slides are among the more complex projects that Teekay is working on at the moment. Our ability to efficiently execute on these and other projects simultaneously illustrates the depth and capability of our growing project development competency.

I will now 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, as we do each quarter, we have shown an adjusted income statement for the current quarter against an adjusted income statement for the previous quarter. Later on, I will also provide our outlook for the remainder of the year.

As expected, net revenues decreased by $14 million, mainly due to lower averaged realized TCE rates for our conventional tanker fleets in Q2 compared to Q1, more scheduled dry dockings in Q2, and the impact of vessel re-deliveries. Vessel operating expenses increases by $6 million due to increased repairs and maintenance work on our FPSO fleet, partially offset by lower costs in our conventional gas and shuttle fleets. Time-charter hire expense decreased by $12 million, due to the re-deliveries of the [in-chartered] vessels in both Q2 and Q1, and less spot in-chartering in our shuttle fleet.

Depreciation and amortization was $115 million, consistent with the prior quarter. G&A expenses decreased to $50 million in Q2. For the first half of 2012, we are in line with our normalized run rate, and we expect further savings during the second half of the year as a result of our restructuring activities.

Net interest expense was in line with the prior quarter. Equity income increased by $6 million, due to the full-quarter impact of the Maersk LNG acquisition completed at the end of February, including a charter rate increase in April for one of the vessels within the joint venture. Non-controlling interest expense decreased to $35 million as a result of lower adjusted earnings in Teekay Offshore and Teekay Tankers, partially offset by higher adjusted earnings in Teekay LNG.

Looking at the bottom line, adjusted net loss per share was $0.25 in the second quarter, which is an improvement from the previous quarter's adjusted net loss of $0.30. This is despite the lower spot tanker rates, and heavier drydocking activity in Q2.

Turning to slide 9, we have provided some guidance on our consolidated financial results for the third quarter of 2012, as well as some general guidance on Q4. Net revenues from our fixed fleet in Q3 are expected to decrease compared to Q2, mainly due to Summer maintenance relating to our FPSO fleet, and the expiration of time-charter out contracts in our conventional tanker fleet. This is partially offset by fewer dry docking days in our gas fleet, and increased project revenues in our shuttle tanker fleet. Net revenues from our spot fleet are expected to decrease, primarily due to a reduction in average TCE rates, and a reduction in revenue days. Spot revenue days are expected to decrease by a net 230 days in Q3, due to re-deliveries of in-chartered vessels and scheduled dry dockings, partially offset by vessels coming off time-charter out contracts.

So far in Q3, we have fixed approximately 40% of our spot Aframax and Suezmax revenue days at average TCE rates of $11,500 per day and $14,000 per day, respectively. However, spot TCE rates are currently below these average, currently. As a rough rule of thumb, for each $1,000 per day change in spot tanker TCE rates, it results in a $2 million change in the consolidated revenues per quarter.

Looking ahead to the fourth quarter, we expect net revenues for our fixed rate fleet to increase due to the completion of seasonal maintenance in the FPSO fleet and incremental revenue that will be recognized on the Foinaven FPSO contract. This revenue is tied to certain annual measures, and is typically recognized in the fourth quarter of each year. In addition, the Voyageur Spirit FPSO is scheduled to complete its upgrade and commence its charter contract during Q4. Overall, vessel operating expenses in Q3 are estimated to increase by approximately $12 million to $15 million compared to Q2, due to life extension work on the Foinaven FPSO and seasonal maintenance in our FPSO and shuttle tanker fleets.

In addition, we expect higher repairs and maintenance costs in our conventional fleet due to a heavier dry dock schedule in Q3, as I mentioned earlier. However, for the fourth quarter, we expect vessel operating expenses to decrease from Q3 levels, following the completion of the heavier maintenance period in Q3, partially offset by the expected delivery of the Voyageur FPSO. Time-charter hire expense is expected to decrease further in Q3 by approximately $4 million to $5 million, reflecting our re-deliveries of in-charter vessels during Q2 and in Q3. There are no scheduled re-deliveries during the fourth quarter.

Depreciation and amortization in Q3 is expected to remain consistent with Q2. For the fourth quarter, depreciation is expected to increase with the delivery of the Voyageur FPSO unit. We expect G&A to be in the range of $49 million to $51 million for Q3, and as discussed earlier, we anticipate G&A will trend lower in Q4 as a result of the previously announced restructuring activities.

Net interest expense for Q3 and Q4 is expected to remain relatively consistent with Q2. Equity income is also expected to be consistent with Q2. Income tax expense run rate is expected to be approximately $2 million in Q3, as well as in Q4. Non-controlling interest expense is expected to be approximately $28 million to $30 million in Q3, reflecting lower adjusted earnings in Teekay Offshore and Teekay Tankers, partially offset by higher adjusted earnings projected in Teekay LNG.

In summary, the third-quarter results are expected to be weaker than Q2, mainly due to seasonal factors. However, the fourth-quarter results are expected to be stronger for the reasons mentioned earlier.

Turning to slide 10, as with our project development portfolio, we are also executing on Teekay's financial objectives. We continue to benefit from our access to both the debt and equity capital markets, which allow us to finance acquisitions and new projects, while also enabling deleveraging at Teekay Parent through drop-down transactions. In May, Teekay LNG Partners completed its first Norwegian bond offering, issuing NOK700 million, or approximately $125 million of bonds for general partnership purposes, including future acquisitions.

Just last month, Teekay Offshore Partners completed another equity private placement, raising proceeds of $45 million, that will be used to fund future installment payments on the four newbuilding shuttle tankers. We have also been making significant progress with our commercial lenders in arranging new debt financing for our projects. We recently completed a new $300 million construction loan facility for the Knarr FPSO. We are already working on a longer-term post-delivery debt facility for this asset. We are currently working with our lender on the Voyageur Spirit debt facility to have it upsized by $100 million, increasing the total size of this facility to $330 million. We have also received significant interest from lenders to finance Teekay Offshore's four shuttle tanker newbuildings that will operate under charter contracts with BG in Brazil when they deliver next year.

With the sale of assets to the Teekay daughter entities and third parties, we have been making notable progress towards our objective of deleveraging Teekay Parent's balance sheet. During the second quarter, Teekay Parent's net debt reduced by approximately $260 million, largely due to the transfer of debt to Teekay Tankers as part of the sale of 13 conventional tankers, partially offset by installment payments made on several of the projects Teekay Parent is currently warehousing for eventual drop-down. With the sale of the Voyageur Spirit FPSO to Teekay Offshore Partners, Teekay Parent's net debt will reduce even further, which will create greater financial flexibility.

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

Thank you, Vince. Turning to slide 11, as we presented at our recent Investor Day in New York, Teekay's overarching objective is to grow our net asset value per share. While I won't walk through our latest sum of the parts calculation, which can be found in the appendix to this earnings presentation, we remain focused on our initiatives to enhance our underlying asset value, both on an absolute and per share basis, by being an effective asset manager, project developer, and operational leader. As an asset manager, we continue to drop down assets to our daughter companies, which are set up to be asset owners. Accordingly, we recently offered to sell the Voyageur Spirit to Teekay Offshore, which, when completed, will delever the Teekay Parent balance sheet further, and enhance our GP and LP cash flows.

We are also actively reviewing new project tenders and asset acquisition opportunities in each of our core businesses to ensure continued cash flow growth beyond our recent acquisitions and project investments. As a project developer, we are focused on executing on our strong project portfolio, and ensuring our projects are delivered on schedule and able to achieve targeted return hurdles. And, as Vince mentioned, this also involves efficiently executing on project financing objectives. Finally, as an operational leader, we have been focused on the integration of the recently acquired Maersk LNG carriers, in addition to our ongoing efforts to enhance the profitability of our existing assets.

Thank you, and operator, we are now ready to take questions.

Thank you.

(Operator Instructions)

The first question comes from Justin Yagerman of Deutsche Bank, please go ahead.

Good morning. This is Josh on for Justin.

Good morning.

Starting off in the LNG sector, congratulations on the Magellan charter. Can you talk about some of the opportunities you're seeing out there? The types of tenders you're seeing? Is this more for conventional LNG or is this for regasification? If you can provide any sort of guidance -- where you're seeing yields on these projects? And for competition?

Sure. They are really two different markets. What we are seeing is that there is a lot of tendering activity coming out and you really have to look at where the market is. The market, up until 2015, we think is dominated by what is happening in Japan, with what we call the Fukushima effect, which has caused charter rates to be higher. But if you look in the longer-term charter market right now, you can see a big backwardation in rates.

We saw, for example, that Japan -- it is not as hot in Japan this summer as it was last summer. So you have gas being priced at below $14, whereas it was up at about $18. That is caused less gas to move out to Asia. So, you've seen charter rates -- I guess I would say the boil has come off. So we've seen short-term charter rates come down, but on the long-term charter rates, we have seen them be under $100,000. What we are really focused on in our newbuilding tendering activity is when a lot of liquefaction plants come on in a post-2015 timeframe. That is where we are seeing most of the tendering activity.

So the newbuildings that we are talking with yards about, are for projects that come on post 2015-2016. That is when I think things will really get exciting in the LNG shipping space, because there will be a lot of new projects coming on. We, of course, have to adjust for project delays or expected delays, but we are quite excited about post-2015 2016. That has also been reflected in the FSRU market. We bid on several projects but we have not won any. That has to do more with our return hurdles.

But I've been pleased about that, because what has happened is that the market has changed. It was dominated by conversion projects, whereby people were converting existing ships that were anywhere from a 125,000 to 145,000 cubic. Now what we are seeing is people want FSRUs at 160,000 all the way up to as high as 300,000 cubic. These are more purpose-built FSRUs, and that makes sense because the size of LNGs has moved up to 155,000 to 173,000. So when people come in with a full load of LNG, they want to be able to efficiently discharge it into the FSRU rather than have to spend more time because the size of the FSRU wasn't big enough. So that is why we're concentrating more on the newbuilding market, both as it relates to LNG conventional carriers as well as FSRUs.

Got it. Switching topics over to the tanker side -- you presented your new tanker design at the Investor Day. Can you provide any more thoughts on orders or order timing?

Sure. We are out talking with yards as well as customers. I think a lot of people are talking about what they are calling eco-friendly designs. But let's talk about what it really is, which is that you save a lot on bunker consumption. Because as much as $0.75 of every dollar that we get goes towards bunkers, if we can save 15% to 25% on our bunker consumption under various load capabilities, that is a lot of money. But we are testing it out, we are talking with a number of shipyards, we are talking with customers. And that is how we are developing that project, which we would hope sometime later this year we might be able to see some orders for.

Interesting. I guess on the secondhand to resale market there was some press out recently that Teekay was in talks with another owner. Is there any intent on purchasing VLCCs or VLCC resales?

We look at a lot, but we don't buy that much. That is as much as I will say.

All right, fair enough. One more before I turn it over -- is there any update on potentials for the Foinaven drop-down?

No, there is not. We are continuing to work with the charterer of that unit, BP, on getting permission to drop it down.

Okay. Great -- appreciate the time.

Thank you.

Thank you. The next question comes from Michael Webber of Wells Fargo, please go ahead.

Good morning, guys; how are you.

Good. How are you?

Good. I wanted to jump in and talk about the Voyageur. Correct me if I'm wrong, with that $540 million evaluation as new, it looks like a pretty relatively healthy multiple. I think you guys bought it at 5.9, and that looks like about 7.2 times EBITDA. Can you talk a little bit about how -- A, you came to that evaluation? And what factored into that ramp and multiples? You have some competitors that are valuing FSRUs at 9 times, so it doesn't look like it's egregious by any stretch; it is just a little more elevated from where you purchased it. Give me a little color on how you got to that $540 million?

We did as any seller would do. We looked at what we thought the net asset value was, compared to what it would be on a -- to any buyer, and that is really valuing up the contract. We will sell it for more than what we bought it for, but that is because Teekay added a lot of value in the upgrading of it as well as the financing of it. Then, Teekay Offshore, which will have its call tomorrow, will provide more color on how they look upon the transaction. I think it is more interesting to see how Teekay Offshore looks at the transaction. But you're right, that is the first time that we've put out the number $540 million.

Right. That makes sense. Within that $540 million, you guys mentioned in the release, Peter, that the Voyageur is getting close to sailing now. Are those upgrades coming in on budget? Is there any sort of [bleed-through] there or are they on budget?

No, they are on budget. Little under budget.

That's helpful. In terms of delivering in Q4 -- do you have any more specific timing on that? Is it going to be toward the earlier end of the quarter?

No, we are waiting for E.ON to tell us when the field development is going to be ready to accept the unit.

All right. That's helpful.

Peter, just want to stick with the offshore stuff for second. You mentioned in the release, the commentary, what read like a desire to clear out you're current pipeline before taking on any more construction risk. That can be read a couple different ways. Was that statement specifically about not starting any new construction before you deliver your current project? Is that just a reflection of the timing, in terms if you were to do something new on the FPSO side, you wouldn't start building it until after the Knarr? Or was that more a reflection of you wanting to preserve some liquidity and address some other issues as you go through the next year or two in terms of buybacks and dividends and things like that?

It is a combination of things. First of all you have to look at what your human resources are capable of. The first thing we looked at is, I said let's make sure that we efficiently execute on our projects; and Peter Litson, who heads up our FPSO unit, he got handed a lot last year with both the Sevan transaction and you have to integrate. Then we had the Banff, which we have to bring back on station. So what we said was, let's not look at any of more near-term opportunities, let's look at some longer-term opportunities.

What is very important in any sort of project mentality is to see what is the timing of projects and how it fits into your human resources. It isn't really a question of financing resources. We didn't want to stretch our people, and so we are really looking at projects that have a startup from 2015 to 2016. We're also looking at concentrating on the rollover of some of our existing projects.

Sure. All right. That's helpful and makes sense.

You touched on this a bit on the deck, but with regards to the Anglo-Eastern tie-ups, and then the cost savings there. You are expecting to see some incremental benefit in the 4th quarter -- is that still the case you guys are still looking at in terms of the guidance? I think you guys are talking to $10 million to $20 million in terms of annual cost savings once that is up and running. Has there been any change in that since Investor Day?

Yes, the guidance we gave in Investor Day, Mike, was annual savings of about $10 million. Fourth quarter we are expecting $2 million to $2.5 million for the quarter. That hasn't changed.

That's helpful. Also, you mentioned you are taking over technical management of the Maersk LNG [SS] pretty soon. Should we expect any sort of lumpy cost impact there in terms of the actual changeover there? Or will that be relatively smooth?

That will be smooth. First of all, we are paying Maersk LNG. We are paying them since the acquisition. We have actually taken over five of six vessels. So, you won't see that in the financials.

Actually the joint venture, that is where the costs are, and the joint venture is paying Teekay for those services.

Got you. Okay. That's helpful. One more, then I'll turn it over.

It looks like the charter termination with TOO, with an add back of about $14 million -- how should we think about that going forward? There is obviously some other charters there between Teekay and TOO, with some vessels essentially being sold. Should we expect a couple more of those in the next couple quarters? Or how should we think we think about those kind of charters?

I think we are looking at, obviously, we are you losing money. So what you are talking about is the owned assets down at Teekay Offshore, which are chartered to Teekay Parent. Those are at higher rates, as we said, about $27,000, and we have one expiring at the end of the year, the Torben Spirit; and if TOO chooses to sell it earlier you will get a termination. But it really comes off of Teekay Offshore Partners deciding what they're going to do with that vessel. Are they going to continue to trade it, do they want to sell it, or do they want to try to make it into a floating storage unit?

Got you. That's all. Thank you for the time.

Thank you.

Thank you. The next question comes from Greg Lewis of Credit Suisse, please go ahead. Mr. Lewis, please go ahead.

I am sure Greg will get back in the queue.

The next question comes from Brandon Oglenski of Barclays. Please go ahead.

Good morning, everyone. With the recent decline that we have seen in the tanker market, does that in any way back you off of where you thought you'd be run rate profitable at the Parent level next year?

No, it doesn't. The tanker market for Teekay Consolidated is probably about 15%. So it is far more important that we deliver in on our projects that we have on the offshore and LNG toward getting back to profitability than whether the tanker market goes up or down. It's been said $1000 moves it up $2 million on a quarter. But when we're putting in these big assets, it generates good cash flow, that is far more important.

Thinking about that, with the projects that you have coming online later this year and potentially early next year -- are their going to be any acceptance periods where you might running higher costs than anticipated? And maybe less revenue as the projects are delivered to the customers?

I'm not sure I understand that. We generally capitalize up the costs until it comes online with the customer.

Okay. Not an early period cost that can be ramped higher than anticipated?

No.

Okay. Looking forward -- and I think the question has been asked another way. Where is going to be the priority at the Parent level? I know you said on the Offshore side you want to wait until you get some of these projects on the water. But is it going to be more on the tanker side that you're looking at? Or should we be thinking more on the gas side, which I think you've alluded to? Looking longer-term, where is going to be the next projects that Teekay Parent is looking for as you de-lever?

Teekay is developing projects for all four companies that we are looking at. At Investor Day we gave -- what we said was that we don't see Teekay Parent owning gas assets, offshore assets, tanker assets. But it will definitely develop assets for that. We are looking at a few new things, but they have to have higher hurdle rates.

For example, we talked about wind farm installation vessels. For me it all starts with getting good contracts for that. So we are not going to be in the, I would say, speculative tanker market going forward. We can make more money developing projects both for Teekay Parent as well is for its daughters.

Thank you.

Thank you.

Thank you.

(Operator Instructions)

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

Thank you, and good morning.

I would like to ask you about your evaluation right now. I see you estimate about $44 to $45. The stock is clearly trading at a very steep discount to your intrinsic value. Are there any plans of continuing your share buyback program? Or paying more dividend towards these things that you are you going to keep using your balance sheet in order to finance user growth?

Hi, Fotis.

As we said, our focus is on the net assets and growing that $44 or the net asset value per share. As you see, the biggest thing we can do is to generate higher LP and limited partner and general partner cash flows from our MLPs going forward. We are in a deleveraging mode. And at that point that we switch back, then I think you will see Teekay look more aggressively on what it will do with its surplus capital. At this point, we do not have surplus capital going forward. But when we do, then we will start to look at what's the most efficient way to employ that -- whether that is new projects or returning it to our shareholders.

May I ask about the banking situation? We've seen in other sectors mainly dry dock and container ships. Banks trying to approach stronger owners to take control of assets that are over-leveraged. Have you seen any of these opportunities where you can take control of assets without investing any capital?

We have seen those opportunities. So, those are what you could call stressed or distressed opportunities. We have seen them, but we have not actually -- the first thing we look at is not whether we can do a good financial transaction, it is our outlook for the markets. I have to say, and Bruce will talk about it more in about an hour, our outlook for the tanker market has been that it will be weaker until late 2013, 2014. There has been no reason to take over assets, and you haven't seen the asset valuations improve.

So from our point of view, we have looked at opportunistic in-charters, but we really haven't seen anything. Where we did act, of course, was the Sevan transaction, where you had a company that, unfortunately, had too much leverage. It was intrinsically a very good company; it had good people and we thought that would be the right kind of feel that we could do. So we acted very quickly there.

As I said earlier, we look at a lot. People come to us but we are not buying much at this point given our market outlook.

My last question is in regard to your LNG operations. You have one of the largest fleets in the world but we haven't seen you in any of the FSRU bidding processes. Is this an expertise that you are planning to develop? Or could we see you in the future tendering for any of the FSRU contracts?

First of all, we have been tendering for FSRU projects. What we haven't done is win them. So we are probably, you could say, been more cautious but we think that is the right way to go. We have one FSRU that we jointly own with Exmar. So I would say we have the expertise in-house.

But as I said earlier, that FSRU -- I think that actually has been a benefit because a lot of these early-stage FSRUs were smaller, 125,000 to 145,000. You have to look at how the market is changing, and the market has changed toward newbuilding FSRUs. So you may very well find that we go ahead and order some FSRUs, but our general, as part of what we see is the market opportunity -- but, in general, we have been quite successful at Teekay LNG without having to take excessive risks. And FSRUs -- it isn't a commoditized market.

We have been really pleased at how the technology has been coming along. So we think that technology has gotten to a matured state. So, when we look at the FSRUs, you have to decide, are you going to have a dedicated, more barge-type of FSRU? Or are you going to have one that trades? If you can save by not putting an engine room in, or a certain kind of engine, you can save easily $50 million on the CapEx. So, we are concerned about the long-term value when we order a unit.

Shall we assume that if you decide to place an order for an LNG carrier or an FSRU, that will have a contract attached? Or are you going to go ahead, sending a speculative order at the beginning until you find an attractive contract?

We don't consider it speculative. As I said earlier, we see a wall of projects and opportunities coming in late 2015 into 2016 projects. You can take your pick, from Australia, to the US. So, if we were to order, it would be with the idea that we would get a charter later on for it. Because we can see that those units are going to be needed. Again, we see that the LNG market is preferring more Atlantic Max, 160,000 to 170,000. We're seeing lower boil-offs of 0.1 rather than the 0.15. I think if we ordered now, we would order a better spec at a lower price than some of the people who have already ordered.

Okay. Thank you very much for your time.

Thank you.

Thank you. The next question comes from Michael Webber of Wells Fargo. Please go ahead.

I just wanted to hop in with a follow-up question.

Peter, at the Investor Day, wind farm installation assets went from an opaque side project to something that seemed that you were going to be allocating capital towards in the near to intermediate term. If memory serves me, you quoted a year. You could be pulling up capital within a year. Any new developments there? And then, maybe just a little commentary around how that process works, and whether or not you are working with more than just the one partner that you had about a year and a half ago?

Sure. I'm not sure that we committed to employing it. But what I was quite careful about saying is that you need to have a customer. We are a little different from other shipping companies that just order with this idea that they will go get a customer. When you have more specialized units, you have to have a baseload capacity in terms of a customer willing to give you a charter for a certain amount. That goes for the FSRUs, as well as for wind farm installation vessels.

We have the ships, but we have been working on perfecting the design and working with customers to make sure that what we order works for one customer as well as for follow-on projects. As soon as we can put all of those things together then we have a project that we will announce. If we can't put those things together, then we move on.

Fair enough. Thanks guys.

Thank you.

Thank you. The next question is from Greg Lewis of Credit Suisse. Please go ahead. Mr. Lewis, is your line on mute?

Hello, good morning. Sorry for falling off the call earlier.

I just have a quick question on the Foinaven. We are seven months into the year. Do you have any guidance, or how should we think about the performance of that through the first seven months in terms of potentially what that payout in the fourth quarter could be? Is it in line with the performance of last year, year-to-date? Is it behind? Is it above? If you could just provide any color in terms of the performance of that FPSO and maybe give us some insights into what that potential payout in the fourth quarter could be?

Yes, of course the performance is based on production as well as the average Brent oil price, as well as a few other operational measures. It will, of course, vary according to what those drivers are for the rest of the year. We do have in the third quarter -- I think I mentioned in my remarks that we have a planned shutdown for life extension work on the Foinaven in the third quarter. So, that would reduce the average production for the year. And I think, based on where Brent oil prices are currently, the average oil price for the year might be a little bit lower than 2011. So that could lower that amount. So I think last years fourth quarter, we had the fourth quarter additional payment was about $35 million or so. I would expect the 2012 amount would be a little bit lower than that, in the range of $25 million or $30 million, I would say.

Perfect, Vince. Thanks for the time.

Thank you, Greg.

Thank you. There are no further questions at this time. I'll turn the call back to Mr. Evensen.

Thank you very much; we look forward to reporting to you next quarter. Thank you.

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