Teekay Corp Ltd (TK) 2012 Q4 法說會逐字稿

Welcome to Teekay Corporation's fourth-quarter and fiscal-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 fourth-quarter and fiscal-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 fourth-quarter and fiscal-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 fourth-quarter and fiscal-year 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, and our Group Controller, Brian Fortier. During our call today, I will be walking through the fourth-quarter and fiscal-year 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 fourth quarter of 2012, Teekay Corporation generated $218 million of total consolidated cash flow from vessel operations, or CFVO, an increase of approximately 3% from the fourth quarter of 2011. On a fiscal-year basis, Teekay Corporation generated $821 million of total consolidated cash flow from vessel operations in 2012, an increase of approximately 18% from 2011. Teekay Corporation reported a consolidated adjusted net profit of $2.9 million, or $0.04 per share for the fourth quarter of 2012, a slight improvement from the $0.02 per share consolidated adjusted net profit that we reported in the fourth quarter of 2011. I should note that in our reported GAAP earnings, we incurred a large vessel impairment charge in the fourth quarter, mainly relating to certain conventional tankers in Teekay Tankers, which Vince will discuss in detail later on the call.

On a full-year basis, the Company's results highlight the continued progress made during the year toward improving profitability. For fiscal 2012, Teekay Corporation reported an adjusted net loss of $54.9 million, which is almost a 50% reduction from the adjusted net loss of $103.1 million we reported in 2011. The improvement reflects a combination of profitable growth, including contributions from the strategic acquisitions and new building deliveries during 2011 and 2012, and profitability-enhancement initiatives that Vince will discuss in detail later. And this improvement comes despite the continued weak spot rates, and approximately $9 million per quarter of lost cash flow due to the off-hire of the Petrojarl Banff FPSO for repairs following damage from the December 2011 storm event.

Teekay continues to execute on its growth projects, and I'm pleased to report today that this past Saturday, February 16, the Cidade de Itajai FPSO achieved first oil on its field in the Campos Basin of offshore Brazil, and commenced its nine-year time charter with Petrobras. We also continue to execute on our financial priorities. In late December, Teekay Parent completed a $200 million three-year corporate revolving credit facility secured by a portion of its common unit holdings in Teekay LNG and Teekay Offshore.

Our publicly traded daughter entities have also been active during the quarter, executing on their respective business plans. In December 2012, Teekay LNG Partners [passed] based on the attractive fundamentals in the LNG industry for the post-2015 period, ordered two fuel-saving 173,000 cubic meter LNG carrier new buildings from Daewoo, or DSME, of South Korea. The new buildings will be constructed with M-type electronically controlled gas injection, or MEGI, twin engines, which are expected to be significantly more fuel efficient and have lower emission levels than engines currently being utilized in LNG shipping. The Partnership expects to secure long-term contract employment for both vessels prior to their scheduled delivery in the first half of 2016.

In early February, Teekay LNG completed its accretive acquisition of a 50% interest in EXMAR LPG, a new joint venture with Belgium-based EXMAR, which controls a fleet of 25 LPG carriers. This acquisition partners Teekay LNG with what we consider to be the leading player in the attractive mid-size LPG sector. The new joint venture is a natural extension to Teekay LNG's already sizable gas shipping business, and provides another channel for future distributable cash flow growth. For the quarter ended December 31, 2012, Teekay LNG declared a cash distribution of $0.675 per unit. The cash distribution received by Teekay Parent based on GP and LP ownership interests in Teekay LNG totaled $23 million of cash flow for the quarter.

Moving to Teekay Offshore, our other master limited partnership. During the quarter, installation for the Voyageur Spirit FPSO unit continued to progress at the Huntington field in the UK sector of the North Sea. Although there have been delays due to weather conditions, the unit is now expected to achieve first oil in March 2013, at which point the unit will be acquired by Teekay Offshore. Financing for the accretive $540-million acquisition is already in place, with a new $330-million debt facility secured by the unit and equity proceeds from Teekay Offshore's September 2012 follow-on equity offering, and a $40-million equity private placement to Teekay Parent making up the balance.

In January 2013, Teekay Offshore completed a new unsecured bond offering in the Norwegian bond market, raising total US dollar equivalent proceeds of $233 million. This was Teekay Offshore's third bond offering in the Norwegian bond market, and approximately $66 million of the proceeds will be used to repurchase a portion of Teekay Offshore's existing Norwegian bond expiring in November of 2013. For the quarter ended December 31, Teekay Offshore declared a cash distribution of $0.5125 per unit. The cash distribution received by Teekay Parent based on GP and LP ownership interests in Teekay Offshore totaled $14.6 million in cash flow for the quarter.

For the fourth quarter, Teekay Tankers generated cash available for distribution, or CAD, of $0.13 per share, up slightly from $0.12 per share in the third quarter. The increase in the fourth quarter was due to a combination of slightly stronger spot tanker rates, and a reduced dry-docking schedule, partially offset by lower time-charter revenues. For the fourth quarter, Teekay Tankers declared a cash dividend of $0.03 per share.

In line with Teekay Tankers' goals of fleet renewal and growth, Teekay Tankers has elected to move to a fixed dividend policy, commencing in the first quarter of 2013, dividend payable in June of 2013. Teekay Tankers' dividend will be set at an annualized level of $0.12 per share, payable quarterly. As the tanker market recovers, Teekay Tankers will be able to retain an increasing amount of its cash flow for reinvestment in its fleet, and the Company is actively reviewing future growth opportunities, including ordering new, fuel-efficient tankers, and the acquisition of quality on-the-water tonnage.

Turning to slide 4. On a consolidated basis, Teekay's fixed rate cash flows continued to grow in 2012. This was largely due to the acquisition of the Piranema Spirit FPSO and Hummingbird Spirit FPSO from Sevan Marine at the end of 2011. Teekay LNG's acquisition of a 52% interest in six LNG carriers from AP Moller-Maersk in the first quarter of 2012, as well as several LNG, LPG, and shuttle tanker new buildings, which delivered during late 2011 and early 2012.

During the past several years, we have made significant investments in our fixed-rate businesses. Mostly our offshore and gas businesses, which have resulted in a compound annual growth rate, or CAGR, of 21% over the last four years. Looking ahead, with a significant pipeline of growth projects, primarily in our gas and offshore businesses, delivering through to 2016, we are expecting further fixed-rate cash flow growth over the next few years.

Turning to slide number 5, Teekay has several growth projects currently in execution across all of our business areas. This slide provides a graphical overview of our growth projects delivering over the next few years. With all the projects currently underway, efficient and focused project execution is a top priority. The ability to deliver these projects within our targeted timeframe and at expected cost levels is critical for achieving our targeted returns. The completion of these projects will increase our consolidated fixed-rate cash flows, and asset sales to our daughter Companies will further improve Teekay Parent's financial strength and flexibility through increased liquidity and a delevered balance sheet.

I won't cover all the projects on this slide, however, I'd like to take a moment to provide you with brief updates on a few of the projects shown here, which I touched on during last quarter's earnings call. As noted at the start of the call, our third Brazilian FPSO unit, the Cidade de Itajai FPSO, has now achieved first oil, and has commenced its nine-year time-charter contract with Petrobras. Under the existing omnibus agreement with Teekay Offshore, Teekay Parent intends to offer its 50% interest in this FPSO to Teekay Offshore in the next 30 days.

During the fourth quarter, Teekay Offshore announced the acquisition of a 2010-built hi-load, dynamic-positioning, offshore loading unit from Remora AS. And Teekay Parent announced it would acquire a 49.9% interest in Remora, both subject to finalizing a 10-year charter contract with Petrobras in Brazil. I can now report that the time-charter contract is expected to be signed in the next 30 days, at which point the unit will undergo approximately $17 million of required upgrades to meet the specifications of the Petrobras contract. The unit is expected to commence charter in early 2014, following the completion of capital modifications, delivery of the unit to offshore Brazil, and operational testing.

In December, the BG Group exercised its option to extend the firm period for the Petrojarl Knarr FPSO time-charter to 10 years. Construction of the Petrojarl Knarr FPSO is on track for delivery in the first half of 2014, and we are currently in the process of arranging long-term financing for the unit.

We also continue to add new projects. In January 2013, Teekay Offshore signed a letter of intent with Salamander Energy to supply a floating storage and off-take, or FSO unit, in Asia for a firm charter period of 10 years commencing in mid-2014. Teekay Offshore intends to convert one of its existing shuttle tankers, the 1993-built Navion Clipper, for an estimated cost of approximately $50 million, and is in the process of finalizing contract terms with the charterer. Importantly, all of these projects, whether completed directly at the daughter entities or warehoused at Teekay Parent, supports the growth in distributable cash flows at Teekay Offshore and Teekay LNG, which will translate into increased general partnership and limited partnership cash flows to Teekay Parent.

I'll now turn the call over to Vince to discuss the Company's financial results.

Thanks, Peter. Good morning, everyone. Turning to slide 6. Before I discuss the financial results for the quarter, I would like to take a moment to highlight some of the key initiatives we've undertaken during the past two years to improve Teekay's profitability. First, we have added profitable growth, primarily in our fixed-rate gas and offshore businesses. This includes the acquisition of two FPSO units from Sevan in November of 2011, and six LNG carriers from Maersk in February of 2012. These acquisitions, combined with the delivery of LNG, LPG, and shuttle tanker new buildings during this period, have both increased our consolidated fixed-rate cash flows and provided further economies of scale in our operations.

Secondly, in addition to adding profitable growth, we have also undertaken initiatives in each of our business units to enhance the profitability of our existing assets. This includes rechartering existing assets at higher rates in our gas and offshore business, reducing our vessel operating expenses -- and an example of that is in our shuttle tanker fleet where we reduced our vessel OpEx by more than 20% since the start of 2011. We have also reorganized our onshore operations in our conventional tanker and shuttle tanker businesses to lower the cost structure of these businesses, which will yield run rate G&A savings of over $15 million per annum. And we have realigned our internal business units with our external daughter Companies' structure to drive greater P&L responsibility.

Finally, we have continued to redeliver out-of-the-money, conventional tanker [in-charters] with 16 vessels redelivered during the past two years. As a result, our time-charter [in] expense has reduced by over $83 million in 2012 compared to 2011. And we expect this trend to continue in 2013, with five more vessels being redelivered, further reducing our exposure to the weak spot tanker market.

I'm pleased to report that our focus on profitability is achieving tangible results. Although we are reporting another consolidated net loss in fiscal 2012, turning to slide 7, you can see that we have made considerable progress over the past few years towards returning to run-rate profitability. For fiscal 2012, we reported an adjusted net loss of approximately $55 million, down from an adjusted net loss of over $100 million in 2011, and over $120 million in 2010. The fact that we have accomplished this against the backdrop of continued weakness in spot tanker rates, speaks to the success of the various profitability initiatives I discussed in the previous slide. It is important to note also that, had the Petrojarl Banff FPSO unit not been off-hire due to the December 2011 storm incident, Teekay's consolidated adjusted net loss would have been only approximately $19 million in 2012, as roughly $36 million of the Company's 2012 consolidated adjusted net loss was due to the lost cash flows from the Banff FPSO.

Looking ahead, we anticipate a return to a modest consolidated run-rate profit for Teekay Corporation in 2013, despite the expected continued weakness in spot tanker rates and further off-hire of the Banff FPSO until the fourth quarter. While the return to run-rate profitability in 2013 will be contingent on achieving the full benefit of our cost reduction initiatives, and successfully executing on the multiple growth projects expected to deliver in 2013, we believe we have undertaken -- we have taken prudent steps with our Business to achieving this objective.

Turning to 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 income statement for the fourth quarter against an adjusted income statement for the third quarter, which exclude the items listed in Appendix A to our release. We have also removed the pre-delivery activity of the Voyageur Spirit FPSO, which is treated as a variable interest entity, or a VIE, for accounting purposes, which is consolidated into our accounts even though we will not acquire the vessel until it commences operations. Later on, I will also provide our outlook for the first quarter of 2013.

Starting at the top of the page, net revenues increased by $52 million, due primarily to $25 million of incremental revenues from our Foinaven FPSO contract, and the recognition of $27 million of revenues from customer-funded front-end engineering and design, or FEED, studies, related to FPSO and FSO projects. The amount relating to the Foinaven FPSO is recognized in the fourth quarter of each year, since it is based on various annual operational performance measures, oil production levels, and average oil price for the year. The $25 million of incremental revenue for Foinaven was about $10 million lower than last year's fourth-quarter amount, mainly due to both planned and unplanned maintenance shutdowns during 2012. The Foinaven does not have any scheduled maintenance shutdowns in 2013, and therefore, we expect higher revenues from Foinaven this year, assuming a similar average oil price. The FEED studies I mentioned earlier are engineering work customers contract us to perform, typically in preparation for FPSO and FSO projects for which the revenues and costs are both recognized for accounting purposes when the studies are completed.

Vessel operating expenses increased by $31 million, mainly due to $28 million of costs for the FEED studies completed in the quarter, which I just mentioned. In addition, maintenance costs increased slightly in our shuttle and FPSO fleets, which were partially offset by decreases to operating expenses as a result of recent vessel sales and lay-ups. Time-charter hire expense, depreciation and amortization, and G&A expenses were generally consistent with the prior quarter. Interest expense decreased by approximately $3 million as a result of recent equity raises in TOO and TGP being used to repay revolvers as a result -- as well as higher capitalized interest on our new buildings under construction. This was partially offset by additional interest expense related to Teekay Parent's Norwegian bond issuance in October.

Equity income decreased by approximately $4 million in Q4 due to lower equity income from our EXMAR, Sevan Marine, and [Tirasadone] joint ventures, due to some higher than usual expenses in some of the JVs. Income tax recover increased by $5.7 million, due primarily to a restructuring of our Norwegian operations resulting in lower ongoing tax expenses, and to reductions in certain of our freight tax accruals. Non-controlling interest expense increased to $37 million as a result of higher adjusted earnings in Teekay Offshore, and the full-quarter impact of the equity issuances I mentioned earlier. Looking at the bottom line, adjusted net income was $0.04 per share in the fourth quarter, an increase from the previous quarter's adjusted net loss of $0.29, primarily due to the incremental revenues earned from the Foinaven FPSO contract.

Now turning to slide 9. During the fourth quarter, we recognized a non-cash vessel impairment charge of $429 million, primarily related to certain Suezmax conventional tanker vessels owned by Teekay Tankers. Given the majority of the non-cash impairment charge is recorded in Teekay Tankers, and Teekay Parents' economic interest is approximately 25% in Teekay Tankers, the overall financial impact to the shareholders of Teekay Corporation, net of non-controlling interests is approximately $135 million. The impaired Suezmax vessels were acquired by Teekay as part of the OMI Corporation acquisition in mid-2007, which in retrospect was at a high point in the cycle for vessel values as you can see from the asset value graph.

Early in 2012, we estimated that a recovery in the conventional tanker market could begin in the latter part of 2012 or early into 2013. Over the course of the last year, the market sentiment and our views on this have changed. And by the fourth quarter of 2012, it was apparent that such a recovery would likely not occur in this timeframe. As such, the delayed market recovery has contributed to a reduction in our estimated future cash flows from our conventional tanker fleet.

As a reminder, vessel impairment analysis under US GAAP is a two-step test. The first step is comparing estimated, undiscounted future cash flows to the current vessel book values on an individual ship basis. If the estimated future cash flows on an undiscounted cash flow basis is less than the current book value, even if by a relatively small amount, the vessel would fail step one, and therefore, would be required to be written down to fair value under step two. With lower estimated future cash flows and a relatively high book value, these vessels failed the step one test in the fourth quarter, and given the large decline in vessel values as shown in the graph, the resulting impairment charges required for these vessels under the step-two test were significant. In addition, we had a number of other smaller impairment charges for the quarter, primarily on older tonnage, including vessels recently sold. It is important to note that the non-cash impairments recorded this quarter do not impact our operations, cash flows, liquidity, or any of our loan covenants.

Turning to slide 10, we have provided some guidance on our consolidated financial results for the first quarter of 2013. After normalizing for the $27 million from FEED studies in Q4, revenues from our fixed-rate fleet are expected to decrease by a net $32 million in the first quarter from the following -- $19 million from the Foinaven FPSO revenues, which are trued up and recognized in the fourth quarter; net of higher expected oil production in Q1 for the Foinaven; $9 million from the shuttle tanker fleet due to lower project revenues in vessel sales and lay-ups; $7 million from the fixed-rate conventional tanker fleet due to the expiration of time-charter out contracts; and $2 million from a scheduled dry-docking of one LNG carrier. These decreases are expected to be partially offset by a $5 million revenue increase from the Voyageur Spirit FPSO receiving first oil, which we are assuming to be mid-March for this purpose.

Spot revenue days are expected to decrease by 80 days in the first quarter due to the vessel sales and redelivery, as I mentioned earlier. So far in Q1, we have fixed approximately 60% of our spot Aframax and Suezmax revenue days at average TCE rates of $10,800 per day and $13,300 per day, respectively. 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 remain consistent after adjusting OpEx in Q4 related to the FEED studies, as increases from the delivery of the Voyageur Spirit FPSO are offset by reductions in our existing fleet. Time-charter hire expense is expected to decrease further in Q1 by approximately $2 million, reflecting lower spot in-chartering in our shuttle fleet.

Depreciation and amortization is expected to decrease by $9 million related to the effect of the vessel impairment charges taken in Q4, as well as from vessel sales, partially offset by the Voyageur Spirit FPSO addition. We expect G&A to be at about $51 million in Q1. Net interest expense for Q1 is expected to be about $2 million higher due to the impact of the new Norwegian bond issued in Teekay Offshore in January. Equity income is expected to increase by $4 million, reflecting the recently completed LPG joint venture with EXMAR, and the first oil being achieved for the Itajai FPSO in Brazil. Income tax expense is expected to be approximately $2 million in Q1, and non-controlling interest expense is expected to be approximately $34 million to $36 million in Q1 as a result of higher expected earnings for TGP.

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

Thank you, Vince. Turning to slide 11, I would like to conclude today's call by highlighting the key priorities at each of our businesses for 2013. For Teekay Parent, 2013 will be another year of execution, with a primary focus on the FPSO new building and conversion projects delivering this year, completing repairs for the Banff FPSO for restart in the fourth quarter, and making progress on future redeployments for some of our existing FPSO units. Through the sale of eligible FPSO units to Teekay Offshore and the support of Teekay LNG growth initiatives, Teekay Parent will continue to focus on growing its two MLP daughters to enhance its GP cash flows. We will also continue to execute on the cost saving initiatives Vince discussed on today's call, and complete our current and upcoming asset financings and refinancings. Importantly, Teekay Parent will always focus on maintaining the high standards for health, safety, environment, and quality, as well as operational key performance indicators across all of our fleets.

For Teekay LNG, the focus in 2013 will be on growth, with a primary focus on new, point-to-point LNG and floating storage re-gasification units, or FSRU, projects. Teekay LNG will also consider accretive, on-the-water acquisitions with contracts. Growth will also be a priority for Teekay Offshore in 2013, with a focus on delivering the partnerships' four shuttle tanker new buildings and the commencements of their charters with BG in Brazil, completing the hi-load DP unit from Remora, and completing the required capital modifications for its contract with Petrobras, as well as bidding on new FPSO and FSO projects with post-2015 deliveries.

Teekay Tankers will focus on strategically positioning for an eventual market recovery, and will consider investments in fuel-efficient tanker new buildings or acquire quality on-the-water tonnage to meet its fleet renewal and growth goals.

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

(Operator Instructions)

Justin Yagerman, Deutsche Bank.

So, I guess the first question is on the dividends here at Teekay Tankers? And, a bit of a departure from what you were thinking prior and how you've been proceeding. I guess from my standpoint, the question is why not just set a floor and allow it to float upwards if the market were to recover? Am I to take this as a signal that you are looking at accumulate cash for buying? Or, you need more cash on your books to act as an operator if you want to charter in a lot of tonnage? Or, are you just really pessimistic about the market?

Well, that is a whole bunch of choices. Actually, it is the first one, which is that we are going to accumulate cash in order to reinvest in either newbuildings or buy assets. Our traditional way of financing growth has been to issue equity in follow-on offerings. But, given where the share price is and given our prospects and our confidence in regressing back to the mean, we don't think that follow-on equity issuances at today's low share price is the right thing to do. Instead what we do -- what we think is the best is to fix the dividend and use the extra cash in order to invest in future growth. Because we remain confident that the tanker market will recover, but now is not the time to issue equity.

Okay. So, I just -- given the write-downs and where we are from an asset value standpoint, do you think now is an attractive point? Or, do you think that you need to see more asset value downside as we continue to see weakness at least on the crude side? How do you think about what type of assets you're looking to buy, crude or product? And, what are you going to do with the cash?

Well, Bruce will talk more about it in about an hour, but I would say from our viewpoint as well as from my membership on the Board of Directors at Teekay Tankers, that we actually see things as bumping along the bottom here. We can't see that things are going to go down much more, and so, we are looking at a lot of opportunities. I would say we have looked at a lot of opportunities over the last two years, and we actually have not done much. Instead, what we have done is fix out more of our tonnage longer term, and that has turned out to be the right move. And so, I would love to say that we think the market will immediately recover, but we don't see that. As Vince said, that led to the vessel impairment charge, and so -- but, we do see that we are moving into an interesting time in order to be able to acquire assets countercyclically. And, I guess I would just add back that Teekay Tankers was set up as a cash flow vehicle, but it isn't very good at countercyclical investing. And, what you have to do now is countercyclically invest, and so, to raise money down at the bottom isn't the right thing. Instead our shareholders need to be able to have the leverage that will come when the tanker market returns, and in the meantime, we will position the Company in order to get future growth.

Fair enough. And, congrats on the contract on the Knarr. I wanted to see now that we know that it is a 10-year contract if we could get any returns, EBITDA? More color in terms of how we should think about modeling out this contract? And, how it will impact the P&L?

Yes. I think we've given previous guidance, Justin, on the Knarr. The rough, average EBITDA per year is about -- actually, it is about -- it is over $140 million, $130 million per year on a 100% basis. And, it is scheduled for delivery in the first half of 2014. So, we are excited about the 10-year contract. It allows us to move forward with the long-term financing.

Great. And, the last question and I'll turn it over to someone else, $200 million revolver secured by equity at daughters. Did you look at unsecured? What was the difference between the costs? And, what you're paying on the revolver?

Well, first of all, it isn't our plan to utilize this revolver. It's just to get some extra insurance. So, we plan -- it is just to increase our liquidity. And, no, we did not look at unsecured. I think given what has happened in the financial markets with other competitors, that is really not something that we would look at.

If it is part of our strategy to diversify our sources of capital. If you look back, we did the Norwegian bond on an unsecured basis in October, and we felt that using our LP units, which are if you look at TGP and TOO -- they are valued at over $1.6 billion right now. So, it is a valuable asset, and this corporate revolver just gives us a lot more financial flexibility.

Great, thanks. Vince, what is the rate on the $200 million?

I'd prefer not to disclose that at this time.

Fair enough. All right. I appreciate the time, as always.

Michael Webber, Wells Fargo Securities.

Good. I will save the impairment and dividend questions for the TNK call. But, Peter, I want to talk a little bit about the Knarr. Obviously, it's the biggest variable that is moving through your balance sheet. I would like to get a sense on how close you are to finding a JV partner for that project? And, maybe within the context of what is happening with the Banff now? That is going to be off-line for two years. If you had to pick an FPSO to be off-line, it would be the Banff. But, when you think about an asset the size of the Knarr, it certainly colors that operational risk in a different light. Maybe a little bit of color in terms of how you think about the operational risk associated with the Knarr? And then, where you are at in terms of finding a JV partner?

Sure, well, first of all, the Knarr is proceeding well. We have had a timeline of having BG select what the term of the contract would be. Now that they have selected 10 years, we can move ahead with the debt financing side of it.

Yes.

And, as we get closer to first oil, we actually de-risk the project. So, we're going to put in place the debt financing, and as we de-risk the project and get to first oil, we can either drop the whole project down to Teekay Offshore, or we could look for joint venture partners as other people have. We haven't decided which is the best. It would bring a lot of accretive growth to Teekay Offshore, and therefore, help the GP cash flows. But, as you point out, and as Vince talked about with the $130 million, $140 million of EBITDA, it does represent some concentration risk. So, we are open to looking at things, but whether we drop the whole vessel down to TOO or bring in some partners, in either case, it will delever Teekay Parent and make Teekay Parent debt-free.

In terms of the concentration risk, there are other ways besides selling part of it to achieve that. We could, for example, put in place loss-of-hire insurance or business interruption insurance. And, that is something we would look at naturally if we retain 100% of that project.

Got you. No, that sound like you have a fair amount of options there. Maybe sticking with the large FPSO segment for a second. Given that kind of backdrop in terms of what you laid out, and now you're thinking about the Knarr moving through your balance sheet. What else is out there from a large FPSO perspective that could potentially be warehoused at the Parent? What do you think you could bite off right now in 2013 without a JV partner for the Knarr? Just lay out potential new projects at the Parent level for 2013? Or, what is a reasonable assumption for new CapEx there in 2013?

Well, we have several FEED studies already underway on FPSOs that would deliver into 2016-2017. If those ultimately culminate in contracts, then those -- then, we would -- they would result in new projects. We are very careful about which projects we go after. We want projects that either fit into the Sevan design or basically fit into the Knarr design rather than do one-off by project. So, we are restricting our marketing, if you will, to Brazil and the North Sea and projects which fit into those designs. So, if you will, we are kind of going with a sister vessel concept.

Sure, that make sense. In terms of those FEED studies that you are involved with right now, are any of them large enough that they couldn't fit directly down TOO?

Our preference would be for TOO to do them direct. If we're lucky enough, and we get a lot of contracts, then maybe we would have to have Teekay help. But, that is not our priority game plan. Our game plan is to have TOO, which now is starting to get a market cap and a liquidity basis, that it is able to do more warehousing itself. So, for example, they ordered -- they have the four BG shuttle tankers. They are doing the Remora deal. They are doing the Salamander deal. And, if we do some of these new FSOs, which we are also bidding on, those would be done directly at Teekay Offshore.

Got you. Are you in a position to give a timetable around those FEED studies and bids on new FPSO projects?

No.

Just one more for me, and I will turn it over. You mentioned the Foinaven and that tariff earlier in your remarks, and I may have missed it, but have you give an update in terms of where the contract negotiation stands around -- I believe it's around Ovation? And, where the Foinaven specifically fits with the [near] drop-down pipeline now?

No, we are continuing to discuss with the charterer the successful transfer of it from Teekay to Teekay Offshore Partners. So, we don't have an update on that. But, we need the approval of the charterer, and frankly, they and we have been more concerned with these unplanned shutdowns.

Fair enough. And, I would assume that that annual deadline that got kicked out in middle of 2012 could be extended again in '13 without much of an issue?

I think that is right.

Okay. Thanks for the time.

Fotis Giannakoulis, Morgan Stanley

I want to ask about your tanker operation. It seems that at the Parent level, it has been reduced significantly. Is there a plan to close it down at least at the Parent level and just operate through your daughter Company? And particularly, I went want to ask about the chartering in tonnage provided that you think that the market will start moving higher?

Well, we have said when we drop down to 13 vessels from Teekay Corporation to Teekay Tankers that Teekay tankers was going to be the growth vehicle for our tanker business, and none of that has changed. And, therefore, what Vince was talking about is actually just leaving the existing tanker operations to roll off, which are mostly in charters, but we do have four Suezmax tankers still upstairs at Teekay Parent. But, we are not planning on adding more assets long-term up at Teekay Corporation -- on the tanker side.

Does this mean that the Teekay Tankers will be involved at some point at the chartering in tonnage?

They are already chartering in tonnage on a short-term basis, selectively. And, Vince will talk about that in about an hour. So, the good news about Teekay Tankers is it's able to charter out at higher levels than it in-charters, so it is successfully making a spread. But, given the size of Teekay Tankers, I don't think it would ever be in -- do things on the scale that Teekay Corporation did.

Okay, thank you for that. And, can you give us a little bit more details about the impairment charge that you took? Is this something that you decided? Or, it was something that your auditors asked them to do? And what was the mechanism that you decided the amount of impairment?

No, it is not something that our auditors asked us to do. It's one of these things that is an ongoing assessment that management does every quarter, and you have to really look at what your future estimated cash flows are based on what market information you have. And, in terms of the size of the write-down, it really is mainly related to seven Suezmaxes, which have very high book values as a result of when we acquired them in 2007 and current fair market values. So, even though the cash float test failed by just a small amount, you do actually have to write down to estimated fair market values based on today's low values. So, that is in summary the investment chart -- or, the impairment charge.

Thank you for that. And, my last question is, I just want to go back a little bit about your new facility, and the fact that it is being backed by assets from different daughter Companies. What was the rationale? Was it pricing? The rationale that you decided to use a different asset from a different Companies to secure this facility? And, why the daughter Companies did not issue a facility at their level?

Well, again, this is obviously a very valuable part of Teekay Parent's investment portfolio, and we decided to use these assets as collateral to secure these revolvers. And, I think giving that security, yes, it gave us some better terms on the revolver. And, as Peter said, this isn't something that we have drawn on, but it does give us a lot more financial flexibility going forward.

I think the main point is that if we had needed the money, we probably would have done an unsecured bond. But, we don't need the money, and we plan on it being undrawn. And, therefore, it is just basically insurance that we are buying.

Okay, thank you very much for your time.

Brandon Oglenksi, Barclays Capital.

Good afternoon. It is Keith Morey on for Brandon. Just wanted to touch on the cost initiatives here. Are you thinking that that's more of a back-ended toward 2013? Or, do you see that being a smooth progression?

Sorry, I couldn't hear the question. Hello?

Do you believe that on the cost initiative side, that it will come more in the back-end of the year? Or, is it going to be a smooth transition throughout the year?

Well, some of the cost initiatives have already occurred. For example, the reorganization of our conventional tanker shore-based operations was completed in the fourth quarter in 2012. Our shuttle tanker reorganization is during the first half of 2013, so it should be fully in place by mid-year. And, in terms of vessel operating expenses, we've already achieved significant savings on the shuttle tanker side. So, I guess it depends on which initiatives you are referring to. But, I would say in terms of the remaining cost initiatives, most of them should be completed by the middle of 2013.

Okay, that is helpful. And then, Peter, I know in the past you had mentioned that the tanker market -- the Aframax, the smaller size vessels maybe looked a little bit like they could recover first? Do you still see that occurring? Or, do you see a different view now?

Actually, we do, as I am fond of saving, we think the pig is through the python on Aframaxes. In other words, the vessels that are being delivered are equaling out to the vessels that are being scrapped. And so, the charter discrimination that you are seeing on older tonnage is leading vessels to be scrapped earlier. And so, basically, we see flat fleet growth on the Aframax side in the coming years. If you contrast that with Suezmax and VLCCs, those will still grow by mid-single-digit numbers, 5% or 6%. And so, that leads us to believe that our Aframax franchises as well as our LR2 franchises, which is coded Aframax tankers, actually will see good incremental growth demand. Particularly, LR2 tankers where you are seeing greater naphtha runs and greater -- longer runs or longer haul refined products, they will move into more of the LR2 tonnage, which is why we are excited about that. And, I encourage you to tune into Teekay Tankers where Bruce will talk more about that.

Absolutely, thank you.

There are no further questions at this time.

Thank you all very much. So, you have seen our 2013 road map, and we look forward to reporting on it 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.