Teekay Corp Ltd (TK) 2012 Q3 法說會逐字稿

Welcome to Teekay Corporation's third-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.

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 third-quarter 2012 earnings presentation. Mr. Evensen and Mr. Lok will review this presentation during today's conference call.

Please allow me 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 2012 earnings release and earnings presentation available on our website.

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

Thank you, Ryan. Good morning, everyone, and thank you for joining us today for Teekay Corporation's third-quarter 2012 earnings call. I'm joined this morning by our CFO, Vince Lok; and for the Q&A session we have our Chief Strategy Officer, Kenneth Hvid; and our Group Controller, Brian Fortier.

During our call today, I will be walking through the third 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 third quarter of 2012, Teekay Corporation generated $192 million of total consolidated cash flow from vessel operations, or CFPO, an increase of approximately 11% from the third quarter of 2011.

Teekay Corporation reported a consolidated adjusted net loss of $20 million, or $0.29 per share, for the third quarter of 2012, an improvement from the $0.58 per share consolidated adjusted net loss that we reported in the third 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; the redelivery of in-chartered conventional tankers during the same period; and the progress we've made on our profitability enhancement initiatives. And this improvement is despite the loss of around $9 million per quarter in cash flow, due to the Banff FPSO being off-hire since December of 2011.

In early October of 2012, we completed a NOK700 million, or approximately $123 million US dollar equivalent, 3-year unsecured bond offering in the Norwegian bond market, at a fixed, all-in US dollar rate of 5.5%. This was our first Norwegian bond offering at Teekay Parent, following previous issuances in this market by Teekay Offshore and Teekay LNG, which provides further diversification of our capital sources.

On the project side of our business, which I will focus more in a moment, the Cidade de Itajai FPSO conversion was recently completed, and following sea trials, the unit is expected to sail this weekend from the shipyard in Singapore for offshore Brazil. Teekay Parent also recently agreed to sell the Voyageur Spirit FPSO to Teekay Offshore for $540 million, with the transaction expected to close in December, upon production start-up on the new field.

Our publicly-traded daughter entities have also been active during the fall of 2012, executing on their respective business plans. Teekay LNG Partners is currently actively bidding on several LNG and floating storage and re-gas projects, with start-up dates in the 2015 to 2017 timeframe. With its September equity raise, Teekay LNG has available liquidity of $559 million and is well-positioned for investment in one or more quality growth opportunities without the need to issue equity. For the quarter ended September 30, 2012, Teekay LNG declared a cash distribution of $0.675 per unit, which, based on Teekay Parent's current GP and LP ownership interest in Teekay LNG, will result in $23 million of cash flow to Teekay Parent for the quarter.

As mentioned a moment ago, the Teekay Offshore Board recently agreed to acquire the Voyageur Spirit FPSO from Teekay Parent. This accretive acquisition is fully financed, including a new $330 million debt facility secured by the unit. For the third quarter, Teekay Offshore declared a cash distribution of $0.5125 per unit, which, based on Teekay Parent's current GP and LP ownership interest, will result in $14.6 million of cash flow to Teekay Parent for the quarter.

Teekay parent has continued to tactically manage its fleet employment profile. In the face of a softening global economic outlook, Teekay Tankers has been adding to its fixed coverage. In October, Teekay Tankers extended an existing time-charter-out contract at an attractive rate, increasing the Company's fixed coverage for fiscal 2013 from 38% to 42% in fiscal year 2013. For the third quarter, Teekay Tankers generated cash available for distribution, or CAD, of $0.12 per share, down from $0.15 per share in the second quarter of 2012. Cash available for distribution decreased in the third quarter, due to a combination of seasonally-weak spot tanker rates, a higher-than-usual dry-docking schedule, and lower time-charter revenue. For the third quarter, Teekay Tankers declared a cash dividend of $0.02 a share, which reflects the higher reserves for debt principal payments following the Company's 13-vessel acquisition in June.

Turning to slide 4, with the one-year anniversary of our Sevan transaction approaching at the end of this month, I'm pleased to note that this important transaction is yielding tangible results. As a reminder, last year we agreed to acquire all three of Sevan's cylindrical FPSOs and invest in a 40% equity interest in the recapitalized Sevan. I want to take a moment to update you on the progress of each of these investments.

Last November, we agreed to fund the remaining capital upgrades to prepare the Voyageur Spirit FPSO for a new contract with E.ON in the North Sea and then acquire this unit from Sevan once it was operating on the field. In September, after completing upgrades, which primarily related to the top-side processing equipment, the unit left the shipyard in Arendal, Norway, and arrived on the Huntington field in early October. The moorage on this unit has now been completed, and we and E.ON are in the process of pulling in risers.

The five-year time-charter contract with E.ON is expected to commence shortly, following first oil, which is targeted for mid-December, at which time the sale to Teekay Offshore will be completed. In addition to the firm period, the time-charter contract with E.ON includes extension options for up to a total of 15 years. Factoring the approximately $130 million of capital upgrade payments funded by Teekay, the assumption of Sevan's $230 million debt facility secured by the Voyageur Spirit and payments to Sevan bond holders, Teekay Offshore's $540 million purchase price is expected to be approximately $90 million above Teekay Parent's cost.

Moving on to the Hummingbird Spirit, this FPSO was acquired by Teekay Parent as part of the Sevan transaction, but it came with a shorter-duration contract. During the past few months, we successfully negotiated with Centrica to extend the current contract to December 2013 at a higher rate. This contract also has five additional three-month extension options, which, if all exercised by Centrica, would extend the contract out to March 2015. However, we are already working on new long-term charter contract to begin once the Centrica contract expires.

Finally, the Piranema Spirit FPSO, which was acquired directly by Teekay Offshore as part of the Sevan transaction, is operating under a contract with Petrobras, with 5 years currently remaining and 11 one-year extension options. After acquiring the unit, we made improvements to the operation of this FPSO, which eliminated a $7,000-per-day penalty starting in June 2012, and results in approximately $2.5 million of additional run rate cash flows annually.

Our equity investment in Sevan Marine has also yielded results. After using the proceeds from the sale of its FPSOs to clean up its balance sheet, Sevan has stabilized its cash flows and is now operating profitably. The new, asset-light Sevan has been allowed to focus on its core engineering competency, and during the past year has been successful generating new business, including feed studies with Dana Petroleum in the Western Isles Project and Statoil on the Skrugard field, and a licensing agreement for use of its cylindrical-hull technology on the Western Isles Project.

Prior to November, Teekay Petrojarl and Sevan were often competing on offshore projects in both the North Sea and Brazil. Now through the cooperation between these two businesses, Teekay Petrojarl and Sevan now have the broadest offering in the FPSO space, able to offer competitive solutions using either ship-shape or cylindrical-hull technology.

Turning to slide 5, during the last quarter's earnings call, I provided an overview for the numerous projects underway at Teekay and our current focus on project execution. During the third quarter and fourth quarter so far, we've continued to make good progress. The ability to deliver these projects on time and within manageable cost parameters is critical for achieving targeted returns. And, through the drop-down sale to our daughter companies, frees up capital and resources to deleverage Teekay Parent's balance sheet and focus on new growth projects in the future.

I will provide brief updates on a few of these projects I touched on during last quarter's earnings call. However, I would like to take a moment to discuss the status of the Petrojarl I FPSO. In late October, we received notification from Statoil that commercial services of the Petrojarl I will no longer be required on the Glitne field in the North Sea beyond April of 2013. Overall, we view this as a positive development, since production on the Glitne field has been in decline, and the Petrojarl I was generating only modest cash flow. This development allows us to start planning the redeployment of the Petrojarl I into more lucrative employment ahead of schedule, and we currently have strong leads on several attractive project opportunities. The recontracting of the Petrojarl I FPSO is aligned with one of our core strategic areas of focus, which is improving the profitability of our existing assets.

Turning to slide 6, I will update you on a couple of these notable cost-savings initiatives that are currently underway. In our conventional tanker operations, the establishment of Teekay Marine Limited, or TML, has been completed. This new subsidiary company, which is 51% owned by Teekay and 49% by Anglo-Eastern Group, was formed to provide efficient technical management for Teekay's conventional tanker fleet. The new company combines Teekay's operational leadership and customer service with Anglo-Eastern's economies of scale and access to marine resources. The transition of technical management to TML commenced in September, and the transfer of all employees and systems is now complete. Through this initiative, we have consolidated operations to Singapore and Glasgow from four locations previously, significantly reducing our overhead costs.

In September, we also commenced a reorganization of our onshore shuttle tanker operations based in Stavanger, Norway. This reorganization is expected to be completed by mid-2013. Once the cost-savings initiatives in our conventional tanker and shuttle tanker businesses are completed, we expect to realize an annual run rate G&A cost savings of approximately $15 million. In addition, we are also exploring other opportunities to generate vessel operating cost savings going forward.

Turning to slide 7, I will provide an update on the Cidade de Itajai FPSO conversion project. In late August, the shipyard encountered issues during sea trials, which resulted in a two-month delay in delivery. The delay will have no material financial impact to Teekay, and the Cidade de Itajai conversion has now been completed, and new sea trials on the unit are currently underway. The unit is now scheduled to depart the shipyard in Singapore on November 10 for its field in the Campos Basin of offshore Brazil. Start up in Brazil is scheduled for early Q1 2013, at which time the Cidade de Itajai will commence a nine-year time charter with Petrobras. Under the omnibus agreement between Teekay Parent and Teekay Offshore, Teekay Parent intends to offer its 50% interest in the Cidade de Itajai FPSO to Teekay Offshore following first oil in the first quarter of 2013.

Turning to slide 8, I will provide a brief update on the Petrojarl Knarr FPSO new building, our largest FPSO project. In September of 2012, the hull was launched from the drydock at the Samsung shipyard in Korea, and installation is now proceeding on the unit's topside equipment and turret. I will note that the lion's share of work and complexity on an FPSO construction project is in the topsides. Following topside integration and mechanical completion, the Petrojarl Knarr FPSO is scheduled to sail for the Knarr field in the North Sea, and is expected to commence its time-charter contract with BG following first oil in the first half of 2014.

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.

Today I will review our third-quarter results and later on I will provide our outlook for the fourth quarter. Starting with slide 9, I will review our consolidated results for the quarter, comparing an adjusted income statement for Q3 against an adjusted income statement for Q2, which excludes the items listed in Appendix A to our earnings release.

Please note that we have also adjusted both our Q3 and Q2 income statements for the impact of the pre-delivery activity of the Voyageur Spirit FPSO, which is treated as a variable interest entity, or VIE, for accounting purposes, which is consolidated into our accounts even though we will not acquire the vessel until it commences operations. You will notice that the VIE results are non-cash to Teekay and have no impact to our bottom line, as the net VIE result is backed out of the non-controlling interest line.

Starting at the top, net revenues decreased by $10 million, mainly due to higher level of scheduled maintenance activity in our FPSO fleet, which is typical during the summer season in the North Sea; a decline in spot Suezmax rates, a heavier dry-dock schedule; and in-charter re-deliveries in the conventional tanker fleet. These were partially offset by higher project revenues from the shuttle tanker fleet and higher revenue from the LNG fleet as there was a scheduled dry-dock for one of our LNG carriers in the second quarter.

Vessel operating expenses increased by $7 million, due to the North Sea maintenance season for the FPSO and shuttle tanker fleets, and a heavier dry-dock schedule for the conventional tanker fleet in Q3. Although vessel OpEx increased in Q3, the increase was much smaller than we had expected, as a result of better cost management and some timing differences. Time-charter hire expense decreased by $4 million, due to the in-chartered vessel deliveries over the past two quarters, partially offset by the higher spot in-chartering in our shuttle tanker fleet. Depreciation and amortization decreased by $2 million, due to vessel sales and the completion of dry-dock amortization on certain vessels.

G&A expenses came in slightly below our expected range and were consistent with the prior quarter. Net interest expense was slightly lower in the third quarter, due to higher capitalized interest on our new buildings under construction. Equity income increased by $5 million, due primarily to higher equity income from our MALT LNG joint venture. Non-controlling interest expense decreased to $34 million as a result of lower adjusted earnings from Teekay Tankers, partially offset by higher adjusted Q3 earnings and the September equity offerings in both Teekay Offshore and Teekay LNG.

Looking at the bottom line, adjusted net loss per share was $0.29 in the third quarter, a slight decline from the previous quarter's adjusted net loss of $0.25. However, overall, the third-quarter results came in better than expected.

Turning to slide 10, we have provided some guidance on our consolidated financial results for the fourth quarter of 2012. Starting with our fixed-rates rate, revenue from the Foinaven FPSO is expected to increase in Q4 by a total of $29 million. $25 million of this is the additional revenue we recognize in the fourth quarter of each year under the Foinaven contract, upon meeting certain annual operating performance measures, oil production levels, and is based on the average oil price for the year. An additional $4 million of revenues is expected from the Foinaven, due to the unit returning back to service after its planned shutdown in Q3. This is partially offset by a net reduction of $2 million, due to lower project revenues in our shuttle tanker fleet, partially offset by the Navion Saga FSO returning to service after its scheduled dry-docking in Q3.

Spot revenue days are expected to increase by about 90 days as a result of the vessels that underwent scheduled dry-dockings during Q3 returning to service in Q4. So far in Q4, we have fixed approximately 40% of our spot Aframax and Suezmax revenue days, at average TCE rates of $15,000 a day and $13,000 per day, respectively, compared to $12,200 per day and $13,700 per day, respectively, in Q3. 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 our consolidated revenues per quarter.

Overall, vessel operating expenses are expected to decrease by approximately $2 million in the fourth quarter, due to the completion of our scheduled summer maintenance, which is partially offset by some of the life extension work on the Foinaven FPSO, previously scheduled for the third quarter and now deferred to Q4. Time-charter hire expense is expected to decrease by a further $2 million in the fourth quarter, reflecting the redelivery of an in-chartered vessel during Q3, combined with lower spot in-chartering expected in the shuttle fleet. There are no scheduled re-deliveries during the fourth quarter.

Depreciation and amortization is expected to remain consistent with Q3. We expect G&A to be in the range of $48 million to $50 million for Q4. Net interest expense for Q4 is expected to increase by $1 million, due to the impact of the Teekay Corp Norwegian bond issue in October. Equity income is expected to be consistent with Q3 and income tax expense is expected to be approximately $2 million to $3 million in Q4. Non-controlling interest expense is expected to be approximately $35 million to $37 million in Q4, reflecting higher expected adjusted earnings in Teekay Tankers and the full-quarter impact of the September equity offerings in Teekay Offshore and Teekay LNG.

So in summary, Q4 is expected to be meaningfully stronger than Q3. Please note that this guidance does not yet include any income from the Voyageur Spirit FPSO, and thus there is additional upside, should first oil be reached during December for that unit. The Voyageur Spirit is expected to contribute annual EBITDA of approximately $70 million; however, we also expect an increase to non-controlling interest expense as a result of the unit being owned in Teekay Offshore. The unit is fully financed, so there is no need to issue further equity as a result of the already-completed September equity offering and [TLO], and the related $330 million debt facility is on track to be completed in December. There is also additional upside earnings and potential going forward, should Teekay LNG be successful in making an accretive acquisition with the $180 million of equity that TGP raised in September.

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

Thank you, Vince. Turning to slide 11, as I mentioned at the start of the call, 2012 is the year of execution for Teekay. After committing to approximately $3 billion of investments in 2011, we are now primarily focused on executing on our current project portfolio and our initiatives to lower operating costs and enhance the profitability of our existing businesses. As the graphic on this slide illustrates, Teekay has a lot on the go and our projects span the globe. This requires an internationally-minded Teekay team with the knowledge and capabilities to efficiently execute on multiple projects simultaneously, leveraging key relationships with shipyards, vendors and customers in all of our operating regions from Singapore to Brazil to Norway, to name just a few.

Thank you for joining us on the call today. Operator, we are now ready to take questions.

Thank you.

(Operator Instructions)

Justin Yagerman from Deutsche Bank.

Good morning, guys.

Hi.

So I guess the first question is more of a strategic question. Peter, you just summed up by saying you will be executing on current projects in the portfolio, and it feels like a lot of the bidding that's being done right now for new projects is at the daughter level.

So how should we think about new projects coming in to the parent-level company? What are you guys looking for? You didn't touch too much on LNG here in the presentation. What kind of projects fit your criteria to really get you over the hump to want to do new stuff at the parent level right now?

Well, that's right. The -- our concentration on the parent level right now is to de-lever the balance sheet. So when the Voyageur Spirit gets dropped down, that will be about $500 million in de-levering.

Then we have the Knarr FPSO, which will move through in 2014. So we are back on a path of rearming the gun, as I like to say, up at Teekay Parent, and that's by executing on these projects and dropping them down, and that includes the Cidade de Itajai, although that's much smaller. And so the focus on the new project is for the daughter companies. When we look at new LNG projects or Offshore projects, we always look at whether they will be accretive in the daughter companies, because that's who we are working for.

And on the LNG side, as I mentioned, we are seeing a lot more tendering activity, but it's for liquefaction plants that are going to come on in 2015 to 2017. And we are really excited about that opportunity. What we are seeing in the near term is, of course, that LNG prices in Asia have come down from the summer from $18 down to about $13. And that's meant that a little bit of the steam or froth has come off of that market, and so you have seen fixtures both drop in the actual rate that they are getting and the actual amount of fixtures. But that doesn't affect us at Teekay LNG Partners, because everything we have is fixed out.

The other thing we are trying to look at is that the daughters can do direct acquisitions. And that's why Teekay LNG Partners raised its money to look at a near-term acquisition and not wait for the tendering activity. And in -- of course, Teekay Offshore Partners, they have the shuttle tankers, which they bid on directly and which will be delivered in succession over the back of 2013.

So if I go back and talk about what's happening at Teekay Corporation, they are benefiting from the GP cash flows and we are really not looking to add fixed assets up at Teekay Corporation.

Okay. And so, looking a couple of projects you will be working on. When you think about the Petrojarl I, what type of charter do you guys want to get, in order to get that asset to a place where you can potentially drop it down and use that as another de-levering opportunity?

Well, the Petrojarl I has been redeployed something like 10 or 11 times since it was delivered. So it has this benefit of being a unit which is acceptable on the North Sea. And because it's an older unit, it has a replacement cost that it competes against new buildings. We are quite confident we will get a much -- well, we are very confident we will get a better rate than what we had on the Glitne field. But it competes favorably, because the alternative is to order a new building.

Are there upgrades that would be needed to make that asset more competitive?

Yes, there is always upgrades that you put in place that are usually field-specific. And since it's been out on the Glitne field for awhile, we would make upgrades, but that is, of course, covered in the new contract.

And Peter, looking at the Petrojarl Knarr, you guys had talked about a little bit about JV possibilities there, didn't hear anything new there. Is that something you are still looking to market, or are you intent on going it alone on that asset?

I don't think we have given specificity on whether we would bring in partners on that. Right now, we are concentrating -- we put in place a pre-delivery financing, and we are waiting for BG to declare whether it will be a 6-year or 10-year asset. And then we will put in place post-delivery financing, and then we will look at whether we drop it all down into Teekay Offshore or whether we look for partners.

Okay. And then, the last question -- just on vessel OpEx, given that was -- at least some of the beat was, our estimate -- curious if you could go into a little bit more detail on how the relationship with Angelo-Eastern is benefiting Teekay Parent and where you see the real advantages to that scale that they added.

Well, I will talk about the advantages, but actually we haven't seen the benefit of Teekay Marine Limited yet, in our numbers. That's something that's going to flow through, mostly, a little bit in the fourth quarter, but much more in 2013. So the savings that we had in this quarter were really by our guys working the assets much harder, especially on the operating cost that we had in Sevan.

Vince, would you add anything?

No, that's right. I think as we've said before, Anglo-Eastern provides us with additional scale, but also access to a bigger pool of seafarers. And so, over time, we hope to achieve additional vessel OpEx savings, in addition to the G&A savings.

Fair enough. Thanks a lot, guys, appreciate the time.

Thank you.

Thank you. Michael Webber, Wells Fargo.

Good morning, guys, how are you?

Fine.

I wanted to jump back in first and talk about the FPSOs, and I will follow up first on the Petrojarl I. We had that rolling off in 2014. Did that terminate early, or are we just vacating options there?

In terms of putting it back out on the market, can you maybe give some sort of EBITDA range in terms of what you guys might expect? I think we're using $10 million to $15 million now, and is that still viable?

Yes, it did terminate early. We had planned on 2014. But Statoil put a rig out on the field, drilled it, and got a dry hole. So then they realized that they would cease production earlier.

And the amount of EBITDA that we will get on the contract really depends on which opportunity we take. So we are not in a position to give guidance on that right now.

Fair enough. Is there going to be a termination payment associated with ending that contract early?

No.

No, okay. On the Voyageur -- I think we had kind of a November timeframe baked in, I think that's what you guys went out with at the investor day, and it's December now. Was there a significant delay there or I guess a material delay there, or is that just kind of a slight movement? What's the movement -- what's happening with the Voyageur?

Well, we are ready, but the subsea that E.ON is responsible for, they are having a few issues with. And therefore, we are little dependent on when they get to hook it up. And so, they have had some rough weather out there. And so -- unfortunately, the date is moving around a little bit.

And we might miss the mid-December. But in any case, we are there, we are hooked up, we are pulling in the risers. But they do have some subsea -- not material, I want to go ahead -- not material issues, but they do have some subsea issues with hooking up, so that's E.ON's responsibility, but it could delay the first oil.

Got you. So that mid-December time frame is kind of floating at this point, too?

It is.

Okay. And I guess along those lines, I guess my follow-up question to that -- I guess the idea behind not raising the TLO's distribution now, or announcing now and waiting until Q1 -- is that just kind of a nod to the incremental possibilities of delays there or some lingering risks? And maybe just a little -- I guess some color on your thought process around delaying that TLO move.

No, that's just our -- the way we do business, which is we wait for the cash flow and then we raise it. We don't preempt it. And so when we earn the cash, we increase it. And that's what I indicated in the release for Teekay Offshore.

Yes, okay. I guess one more -- with the Knarr, on the FPSO. You already touched on the Knarr briefly in Justin's question, but you mentioned first oil in kind of mid-2014, kind of base one 2014 -- is that still on pace to deliver at the beginning of the year? Has that timeframe changed at all?

Well, the timeframe is floating, because BG is thinking about whether they should make any changes to it. So that's why we've widened out the field start up to say first half of 2014. So it will either be at the beginning of that year or toward the middle of the year.

Okay. And that --

And that depends on BG. If they come and say they want to make some variations, then that will make it later, rather than earlier. And that's just a normal part of when you are building an FPSO.

Right. But nothing from the construction, from the yard, it's nothing coming from that end.

No, that's going very well, especially as a new build. Yes.

Okay. I guess maybe moving a higher level. I wanted to talk a bit about the Kroner bond you did as the parent.

Obviously, you've got some kind of built-in levers here to de-lever. So I guess -- I would kind of like to get the thought process around -- kind of aside from getting a foot hold in that market, as to why the -- what the thought process was in terms of adding that incremental debt as a parent, and potentially uses. And then how that factors in to your buyback math potentially in the first half of next year?

Well, the Norwegian bond -- as you know, we have been successful in accessing that market in TGT and TOL, and so it's following that success. Quite simply, we wanted to access that market as a parent to gain some financial flexibility.

As you know, we have the Petrojarl Banff FPSO that's out of commission right now and requires some upgrades. We may need some upgrades on the Petrojarl I for redeployment. So it just really gives us additional financial flexibility towards that.

Okay. In terms of potentially returning value to share holders down the line, does raising that money at a higher yield in the equity -- does that factor in to your thought -- to the guidance you guys -- I guess the soft guidance that you guys gave at your investor day around potentially buybacks as early as the first half of next year and potential dividend outside the back half of 2013, 2014? Did that factor in it at all, or is this purely just from a short-term flexibility kind of rate?

No, we didn't give any guidance on that, first of all, and we actually measure ourselves more by net debt. So if we raise a little bit of debt and put it in as cash to have financial flexibility, as Vince said, that doesn't affect any of our plans.

Got you. I guess -- just going back to the buyback for the dividend -- it wasn't necessarily guidance, but it was definitely a talking point at the investor day. Can you maybe talk about how you think about buybacks here and/or dividend up-slide? And has that changed at all since we all got together in June in New York?

Well, again, I would say we didn't give guidance on it. So all I'm saying is, Teekay has been quite clear that we levered up, and we are in the process of deleveraging, moving down. And there is a lot of movements going forward, especially the financing of -- the long-term financing of the Knarr. And so that's what we are putting in place. And so that's why we put the share buyback on hold for awhile.

Got you. All right, that's helpful. One more from me, and I will turn it over.

On the LNG side -- because of this all, you have talked about FSO use there for awhile, and we've seen some of your competitor goes out and win business kind of using some new build slots. And we are starting to get to a point where the new build deliveries would start delivering kind of in the time frame you guys have talked about, starting to warm up to just having some LNG exposure. Is it reasonable to think that you could see -- that you guys could place LNG new build orders sometime within the next year?

Yes. That's what Teekay LNG has said. When I was on that call, I said that's something we are looking at, which is ordering LNG new buildings.

I think it's a better window to order right now. Steel prices have come off, supplier equipment doesn't have the tightness in the supply chain. And, frankly, shipyards are more eager.

But, as we have been pretty public about, we wouldn't want an LNG carrier in 2013 or 2014. We want it when the equity gas is coming, in 2015, 2016, 2017. And now, with the Panama Canal opening, you know, we are seeing the Atlantic max, which is more 170,000, 173,000 cubic, and that just freights better than 155,000, 160,000 cubic.

So we are doing what Teekay does, which is go out, listen to the customers, hear what they want, and then go and look at the specs that will meet that customer requirement. We are more conservative, I would say, and so we have a build-to-suit type of strategy, or -- understand the customer requirements and then order against that. But the -- and on the FSR use, we bid on a lot and we've lost it, but that's okay, because that means that we are always looking for the most profitable type of unit.

And I would just say that the FSRUs are changing as well. It used to be something where you would convert an existing one, and now people are once again asking for a bigger cubic on the floating storage. People were converting 125,000, 145,000 cubic, but with the standard size being more like 160,000 to 173,000 cubic, you want a big enough storage vehicle so that when you pull up, you don't have to wait there for an extra three or four days.

So there is real economics involved with this. So I'm quite pleased that we can go and do new FSRUs straight out of the yard, rather than look to conversions.

Right. And I guess along those lines, Peter, having a new build order book with those larger asset -- has that gotten in the way a little bit of some of that FSRU tendering activity to-date? And do you think new build orders should significantly help that?

I didn't understand the question.

The lack of an order book at TGP, and then a lack of slots, those larger slots -- has that gotten in the way of any of those FSRU tenders to-date, and do you think placing some would potentially help?

No. I would just say that we have been more conservative in our bidding.

Okay.

That's all I would say. And you know, there is a lot that is involved in an FSRU. And maybe we have taken some of our knowledge on bidding on FPSOs and moved it over to the gas side as well.

Yes. Alright. That's helpful. I will jump back into the queue.

Thanks.

Thank you. Omar Nokta, Dahlman Rose.

Thank you, good morning. I just wanted to bounce back on to the Petrojarl I. It's obviously gone, you said, to maybe ten or more fields over the past several years.

The -- should we expect a downtime for upgrades? Is that a couple of quarters that we would expect, or is this more like a two-year type of situation?

No. When it goes in between fields, it generally, I would say, would be out for six months, maybe worse-case nine months, and then during that time we would capitalize the upgrades that would go on. So you won't see it as much.

It was only making -- the Glitne field was producing around 4,000-barrels of oil a day, and that unit can produce 30,000 to 40,000 a day. So it was underutilized. So that gives us the chance to redeploy it onto a field where you can get much higher production, and therefore get much higher EBITDA.

Got you. And I think the vessel -- was it originally delivered, I think it was in the mid-90s?

No, it was 1986. It was the very first FPSO. It came into the North Sea. I'm going to date myself here, but -- (laughter)

How much life do you think there is left on the vessel?

We see that with upgrades, we could last another ten years comfortably.

Okay.

Because, as I repeat myself, not all FPSOs are compliant with the -- in the Norwegian sector of the North Sea. So it has a scarcity value. And because some of the fields that people are looking at, you can't afford a new build on. It's the perfect kind of unit for a smaller-type of field, which is why it's redeployed successfully so many times. And, as I said in my prepared remarks, we've got some good, strong leads that we are working on.

Got it. Thanks, Peter.

Also, just -- you mentioned the projects you are seeing in the LNG segment. Is there any opportunities that you see in LPG? You've obviously operated some of the smaller ships at Teekay LNG. Do you see yourselves getting into that market, maybe on a bigger scale?

Yes. We continue to look at the LPG market. We think it's interesting.

We're down in the ethylene side of things, a little bit conservative, working with Scalgan. But we see that as good niche opportunity. You have to be very careful about which sizes that you go into, and we would certainly never be in a size smaller than where we are on the ethylene side. If we did anything it would be more mid-size, large-size.

Okay. And so are you saying maybe that -- maybe not conventional LPG, would be more something along the sides of ethylene or some of the semi-refrigerated tankers? Is that more your specialty that you are looking for?

Yes, we have the crews. So it's just a matter of getting the customers. And so if we go out and talk to people, and as you know, a lot of times it's a bi-product of the LNG production. So if we find the right opportunity with contracts -- yes, we would look at that.

Got it. And then just one final thing. In more kind of strategic -- you know, five years ago, you had a pretty sizable in-charter conventional tanker fleet and you have obviously scaled it down significantly here. Do you envision, looking out, of ever ramping that business back up, and if you did, I presume it would be at Teekay Tankers? Is that -- obviously, you want to keep Teekay asset-light going forward. I guess, looking ahead, do you ever see yourselves ramping that business back up again?

Well, I never say never, it is not the intention of Teekay Parent to go back into the in-chartering side. Teekay Corporation, if you go back and look at it five years ago and now -- tankers is 15% of what we do. So we are much more focused at Teekay Corporation on growing our Offshore and LNG business. And there is a wealth of opportunities there.

So I don't see Teekay Corporation getting back into the in-charter business. You can ask Bruce in about an hour of what he would do on the Teekay Tanker side, but he is already starting to in-charter some chips there, more on a short-term basis. That's something that Teekay Tankers has, I guess I would say inherited from Teekay Parent.

I got it. Thanks a lot, Peter.

Thank you, Omar.

Thank you. Brandon Oglenski, Barclays.

Hi, guys, this is Keith Moore, filling in for Brandon.

Hi.

Just want to kind of start out with some higher-level questions. Maybe -- at the analyst day, you spoke about the growth initiatives outside of FPSOs and things. Can you maybe give us an update where you are with some of those?

Sure. We talked about two -- at analyst day, we talked about two real things that are outside of our core markets. And they were our wind farm installation vessel and the -- well, I guess the One Spirit conventional tanker, as well. And on the wind farm, we continue to develop it. I'm pretty adamant over the fact that we have to have a customer. So we are waiting for -- so we go out and listen to the customer, get the right specs, and if we do that and get a customer contract, then you might find that we will order.

Similarly on One Spirit conventional tanker, which is a fuel-friendly -- if anyone is interested, there is a great video on our website showing that. We're -- we continue to talk to customers, as well as shipyards. So if we were to complete an order, you would find that as something Teekay Tankers would do.

Okay. That's some good color there. I appreciate it.

And then I guess -- going into the quarter a little bit, when we -- I think we expect a little bit more expense on the assets operating in the North Sea. Maybe you could talk a little bit about the normalized expense there, going forward. Should we maybe expect third quarter next year to be similar to this year, or is this -- is what more of a normalized expense there?

Yes. There is some seasonality to some of the OpEx for the offshore fleet, just because they typically do more maintenance during the summer months. So we did expect Q3 OpEx to be higher, as I mentioned. But we did manage to reduce our costs, and just better manage our costs.

There are some of that -- there was some of that work on the Foinaven being deferred into Q4. So there are some timing differences. So we are expecting Q4 OpEx to be down a little bit, about $2 million. So that's a good sort of run rate for the winter months.

For the summer months -- yes, for next year Q3, all things being equal, you would expect maybe the OpEx would be a little bit higher, if we were actually able to do more than maintenance. But, overall, I think we've moved into these business units -- that we reorganized our business units so that they have full P&L. And what we are seeing is those business units are better managing those costs and making better decisions, both technically and commercially. So hopefully that will yield results going forward.

That's great. I'll keep it to two questions. Thanks, guys.

Thank you.

Thank you.

(Operator Instructions)

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

Okay. Thank you very much. Those were great questions and we enjoyed answering them.

We look forward to reporting to you next quarter. Thank you.

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