Teekay Corp Ltd (TK) 2014 Q3 法說會逐字稿

Welcome to Teekay Corporation's third quarter 2014 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 participating this to our website at www.teekay.com, where you will find a copy of the third quarter 2014 earnings presentation. Mr. Evensen and Mr. Lok will review this during today's conference call. Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from results projected by those forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the third quarter 2014 earnings release and earnings presentation available on our website. I will now turn the call over to Mr. Evensen to begin.

Thank you, Ryan. Good morning, everyone and thank you for joining us today for Teekay Corporation's third quarter of 2014 earnings call. I am 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, we will be taking you through the earnings presentation, which can be found on our website. Beginning on Slide 3 of the presentation I will briefly some review recent highlights for Teekay Corporation. For the third quarter, Teekay Corporation generated $252 million of total consolidated cash flow from vessel operations or CFVO, an increase of 29% from the same period of the prior year. Because of operational and start up issues on three of our offshore units, we did not achieve full utilization on some of our assets and this resulted in lost revenue and CFVO.

Vince will cover this point in more detail in his remarks. Teekay Corporation reported a consolidated adjusted net loss of $12.6 million or $0.17 per share for the third quarter compared to a consolidated adjusted net loss of 36 main dollars or $0.51 per share in the same period of the prior year. The improvement in our results is mainly due to contributions from several acquisitions and organic growth projects that delivered during the past year.

The restart of the [vamped] FPSO in late July, 2014 after being off line for repairs, stronger spot tanker rates and savings resulting from the redelivery of several charter and conventional tankers since the second quarter of 2013. In late September we announced our new dividend policy, which represents the next step in Teekay's transformation into a pure play owner of two general partnerships. Following the dropdown sale of the Knarr FPSO, and based on our projected cash flows from our general and limited partnership-ownership interest in Teekay Offshore and Teekay Gas, we intend to increase Teekay's annualized cash dividend to between $2.20 and $2.30 per share, which represents an increase of approximately 75% to 80%.

In addition with our existing project backlog of approximately $5 billion of known growth capital expenditures at Teekay Offshore and Teekay LNG, we expect that Teekay's dividend will continue to grow by approximately 20% per annum for at least the next three years, following the Knarr dropdown and the initial dividend increase. Also in September, Teekay Parent formally offered to sell to the Knarr FPSOs to Teekay Offshore for its fully built up cost for approximately $1.16 billion. The offer is currently being reviewed by the Conflicts Committee of Teekay Offshore's board of directors. The Knarr FPSO is anticipated to achieve first oil in December of this year, which I will talk about more in detail later.

Turning to slide four I will review some recent highlights from our three publicly traded daughter entities, which continue to execute on their respective business plans. For the third quarter Teekay LNG Partners declared a cash distribution of $0.6918 per unit based on GP and LP ownership interest in TGP. The cash flows received by Teekay Parent totaled $25.3 million for the quarter. Last week Teekay LNG Partners agreed to acquire from I.M. Skaugen the Norgas Napa, a 2003 built LPG carrier, along with a five-year charter back to Skaugen at a fixed rate, plus potential upside through a profit sharing component. This immediately accretive this on the water acquisition is another example of how Teekay LNG can deliver near term growth in addition to the existing $2.5 billion of organic growth projects.

In September Teekay LNG Partners LPG joint venture with Exmar took delivery of the third of the 12 mid-sized LPG carrier new buildings as part from the LPGA joint venture's fleet renewal and growth strategy. Prior to this, in August, the Exmar LPG joint venture sold one of its older LPG carriers for which Teekay LNG realized an $8 million gain based on its 50% ownership interest. Driven by strong market fundamentals, the pace of business development opportunities for Teekay LNG continues to be strong both in LNG transportation, as well as floating storage and re-gas unification - gasification or FSRU.

Teekay LNG is currently biding on several projects, which are expected to start up beginning in 2017 when new liquefaction facilities are scheduled to come online. Looking at the results for our other MLP, for the third quarter Teekay Offshore Partners declared a cash distribution of $0.5384 per unit. Based on our GP and LP ownership interest in TOO, the cash flows receive evidence by Teekay Parent totals $17.7 million for the quarter. During the quarter, Teekay Offshore continued to secure growth in both its offshore production and offshore logistics businesses. In early October Teekay Offshore, through its 50/50 joint venture with Brazil-based Odebrecht Oil and Gas signed a letter of intent to provide Petrobras with an early well test FPSO unit for the Libra pre-salt oil field in the Santos Basin offshore Brazil.

The FPSO will be converted from an existing Teekay Offshore shuttle tanker for a fully built up cost of approximately $1 billion on a 100% basis. The unit is expected to commence operations under a 12-year, fixed fee based web contract with Petrobras in early 2017. This will be the second FPSO project for Teekay Offshore Partners joint venture with Odebrecht, and just last weekTeekay Offshore's wholly-owned subsidiary, ALP Maritime, agreed to acquire six long distance towing and anchor-handling vessels for an en bloc price of $220 million. This acquisition combined with the four existing state of the art new buildings is strategically important as it positions us as the clear leader in the long distance dynamically positioned towage segment with a total of 10 vessels. The acquisition provides us with greater scale to bid on a broad range of projects and larger presence in the growing global ocean towage and offshore installation market.

In August, Teekay Off shore's new FPSO, the 6 ton Salamander, which was converted from the partnership's 1993 billed shuttle tanker, the Navion Clipper, commenced its 10-year charter with Salamander Energy is. This conversion is another example of how for a relatively small additional investment Teekay Offshore can extend the economic life of an older shuttle tanker. In spite of the lower oil price Teekay Offshore continues to see robust demand for its services, which predominantly is focused on the offshore production side of the oil and gas value chain.

The partnership is presently involved in several customer funded front end engineering and design or feed studies, which greatly increases the likelihood of being awarded future projects. Looking at the Teekay tanker column on the right in the third quarter the Co. declared a fixed dividend of $0.03 per share based on its total ownership of Class A and Class B shares. Teekay Parent received a cash dividend of approximately $756,000. Teekay Tankers generated cash available for distribution or CAD of $0.19 per share in the third quarter, up 90% from the same period of the prior year mainly due to higher average realized spot tanker rates.

Teekay Tankers was once again commercially active during the third quarter securing two additional in-charter Aframax tanker contracts. With the well-timed addition of these new in-charters, Teekay Tankers' total in-charter fleet has increased to 10 vessels. During the quarter crude tanker rates in the Suezmax and Aframax continue to improve reaching their highest third quarter level since 2008. Rates were supported by stronger seasonal oil demands, an increase in long-haul crude tanker movement from the Atlantic to Pacific and a (inaudible) oil price curve which encouraged crude oil stockpiling.

Finally, in October Teekay tankers invested $10 million in additional shares of Tanker Investments Limited or TIL, increasing ownership to over 9% as TIL shares continue to trade at a significant discount to its net asset value. Turning to Slide 5, I'll briefly update you on the Knarr FPSO project. Since arriving in Norway in September the unit has been undergoing testing, and I am pleased to report we've now received our required Norwegian regulatory approval and the unit is currently in transit to its field in the North Sea.

Following field installation and testing, the unit will commence a 10-year charter with BG. Although December, 2014, continues to be our anticipated time frame for commencement of the Knarr charter contract, this timing remains subject to favorable weather conditions during field installation and offshore testing. As I noted in my opening remarks Teekay Parent has formally offered to sell the Knarr FPSO to Teekay Offshore for its fully built up cost. The proposed sale of the Knarr FPSO is an important milestone in Teekay's transformation into a [peer-play] general partner as it will both increase the GP and LP cash flows we receive from Teekay Offshore, and significantly de-lever the Teekay Parent balance sheet. And with that I will turn over the call to Vince to discuss the Company's results.

Thanks, Peter, and good morning, everyone. Starting with Slide 6, I will provide an overview of our consolidated results for the quarter comparing the adjusted income statement for the third quarter 2014 with the adjusted income statement for the second quarter of 2014, both of which exclude the items listed in Appendix A to our earnings release. You will notice this quarter that we have simplified the slide by removing the reconciliations of GAAP net income; however, a full reconciliation of adjusted net income to GAAP net income can be found in both Appendix A to our earnings release and the appendix to this presentation.

For the third quarter our consolidated adjusted net loss was $12.6 million or $0.17 per share, which is an improvement from the Q2 adjusted net loss of $20.1 million or $0.28 per share. I won't go through each line item in detail, but the main factors contributing to the improvement were the Banff FPSO returning to operation in late July, higher average spot tanker rates earned by conventional tanker fleet and revenue increases in our shuttle and FSO fleets.

Despite the reduction in our net loss compared to Q2, our Q3 results were lower than we had previously expected mainly due to lower income from three of our offshore assets, the Foinaven FPSO, the Banff FPSO in the high load DP unit. Firstly, the compressors on the Foinaven FPSO were repaired in July, and since then the unit has been capable at producing at maximum capacity; however, due to issues with the subsidy flow lines, which are the responsibility of the charterer, the Foinaven (inaudible) was not able to produce at maximum capacity. As a result, the Foinaven FPSO generated lower than expected revenues during the third quarter. Secondly, the Banff FPSO experienced a slight delay in the start up in July, and incurred higher than expected start up costs and depreciation expense in the third quarter. And, lastly, the high load DP unit operational testing period has been extended, which resulted in no revenue being recognized for the unit in Q3.

In addition, given the extended testing period we do not expect to recognize any revenues from the high load unit in Q4. In aggregate, these three items negatively impacted our consolidated Q3 net income by about $12 million or $0.17 per share, which is equivalent to our entire adjusted net loss in Q3. Given that both the Foinaven and Banff FPSOs are currently owned at the Teekay Parent level any variances relating to these assets have an exaggerated impact on Teekay's consolidated earnings. Looking ahead to the fourth quarter on Slide 7, we have provided some guidance on our consolidated financial results for the fourth quarter of 2014. Revenues from our fixed rate fleet are expected to increase as a result of the following. Additional revenue of $20 million to $23 million from the Foinaven FPSO, due to the fourth quarter recognition of the annual operational and oil price tariff revenue for 2014. A $9 million increase from the Knarr FPSO, assuming first oil is achieved on December 15th and the $2 million increase related to a full quarter of operations of the Banff FPSO.

These increases are partially offset by a $4 million expected decrease in revenue from the conventional tanker fleet, from vessel sales and out charter redeliveries and a $2 million decrease from the Hummingbird FPSO due to lower expected oil price tariff revenue for the fourth quarter. Spot revenue days are expected to increase by approximately 560 days as a result of new TNK in-charters and out charters re-delivering to us at the end of their contract. So far in Q4 we have fixed approximately 42% and 49% of our spot Aframax and Suezmax revenue days at average TC rates of $18,000 per day, and $17,200 per day, respectively.

Current spot tanker rates are averaging in the low to mid-30,000s for both Aframax's and Suezmax's, and if they continue at these levels we expect rates in Q4 to average higher than in Q3. Overall vessel operating expenses are expected to remain consistent with third quarter, as increases from the Knarr FPSO commencing its operations are offset by expected decrease in operating costs for the Foinaven FPSO and the Banff FPSO. Time-charter hire expense is expected to increase by $6 million, as a result of the additional in-charter conventional tankers being added to the TNK fleet during both Q3 and Q4, and these vessels are earning a significant positive spread at current spot market rate levels.

Depreciation and amortization is expected to increase by $4 million related to depreciation on the Knarr FPSO and amortization of additional dry docking costs incurred in Q3. We expect G&A to be approximately $33 million to $34 million in Q4. Net interest expense in Q4 is expected to increase by $4 million primarily due to the Knarr FPSO and impact of TOO revolver financings recently completed. Equity income is expected to increase $2 million compared to Q3. Non-controlling interest expense is expected to range from $55 million to $57 million in Q4, which is higher than Q3, primarily as a result of higher expected earnings in Teekay Tankers. In summary, we are expecting a stronger Q4 compared to Q3, mainly as a result of the additional revenues expected from the Foinaven FPSO, higher expected spot tanker rates, the Knarr FPSO and the full quarter of operations for the Banff FPSO.

Turning to Slide 8, we have provided a comparative summary of Teekay Parent's Q3 and Q2 free cash flow. You will notice the format is very similar to what we had presented at our September Investor Day, with our total free cash flow separated into the OPCO cash flow of Teekay Parent's legacy operating assets and the GP cove cash flows, comprised of the dividend payments from our daughter entities, which will provide the basis for future Teekay dividend payments under our new dividend policy. In Q3 OPCO cash flows improve by $10.5 million compared to Q2, primarily due to the Banff FPSO returning to operations in July and lower repairs and maintenance on the Foinaven's compressors.

We expect further improvements in OPCO cash flow in the fourth quarter due to the additional revenue of $20 million to $23 million from the Foinaven FPSO, as well as having the Banff FPSO operational for a full quarter. GPCO cash flows declined slightly due to the higher corporate G&A expenses as a result of timing differences, partially offset by higher dividends from TNK as a result of the additional shares that Teekay Parent received as part of its sale of a 50% interest in its conventional tanker operations to TNK. Corporate G&A is currently running below our annual run rate guidance of approximately $20 million per year. We expect GPCO cash flows to increase once the drop-down of the Knarr FPSO is completed. As a result of the above, total Teekay Parent free cash flow per share increased from $0.07 per share in Q2, to $0.21 per share in Q3, and is expected to increase further in Q4. I will now turn the call back to Peter to conclude.

Thank you, Vince. Turning to Slide 9, we have updated a slide we presented at our Investor Day in September. Since that time our two MLPs have both secured new accretive on-the-water growth projects. The six long distance towing and anchor-handling vessels in Teekay Offshore and the purchase and charter back of one LPGA carrier by Teekay LNG, which adds approximately $250 million of committed growth CapEx to the existing pipeline of accretive growth projects.

With these new acquisitions our combined CapEx commitment to Teekay Offshore and Teekay LNG increased over $6 billion. With both of our MLPs in the early stages of the 50% incentive distribution rights, this growth is going to be a key driver of future distribution increases at Teekay Corporation once our new dividend policy is implemented. Moreover, our ability to secure additional on-the-water acquisitions will provide near term accretion that will enable us to exceed the illustrated growth target we outlined at our Investor Day. Thank you for joining us on the call today. Operator, we are now ready to take questions.

(Operator Instructions). We will pause for a moment to allow everyone an opportunity to signal for questions. And our first question comes from Michael Webber from Wells Fargo. Please go ahead.

Good morning, guys, how are you?

We're fine, thanks, Mike.

Good morning.

Good morning. Peter, I just wanted to first touch base on the Knarr. There is not too much that's new here from the Investor Day, which was just about a month ago or six weeks ago, but it seems like it's like night and day in terms of the environment, both in the energy complex and the MLP kind of sphere. Can you talk to, I guess, the time line for the Knarr. Any impact - what impact, if any, the dropdown would see from the choppier equity markets and the softer energy environment, and then maybe run through what tools you have at the (inaudible) Teekay to facilitate that dropdown with a softer currency.

Sure. Well, obviously, we are watching what is going on in the equity markets and the softening on the MLP side. But actually when you put everything together we are seeing that debt rates remain low, and the fact we financed this unit with mostly debt means that we have a lower average cost to capital. So while our equity cost to capital may be a little bit higher , when we put it together we haven't changed our weighted average cost to capital that we see for that Knarr. In terms of the Knarr, we can only control what we can control. And we are focused in on executing on the Knarr, and we carry enough liquidity both at TOO and at Teekay that we can time when is the best time to raise the equity for the Knarr. So we haven't changed our view on dropping it down, but we are obviously looking at the equity markets. But I think when the things we can't control, oil price and other things get through, people will see that our growth pipeline still gives us good accretive projects and that's what our investors want, which is a steady increase in the dividends going forward and obviously the Knarr is a central part of that.

Got you. Okay. And not to put words in your mouth, but is it fair to assume the rough timeline laid out at the Investor Day, there has been no change there even with the volatility we have seen recently?

Well, I have to say which time line? But we, as I said in the slide, we are weather dependent. The unit is that being towed now, and so as soon as we get the right weather window we will moor it up, pulled the risers and then we'll be in (inaudible).

Right. Right. Now is it talking non operational, but I think you answered the question in the first (inaudible).

Oh, non operational in terms of the equity markets? Yes.

Yeah. Okay.

I would refer to my earlier comments.

Okay. Good. I wanted to touch on the growth pipeline, and you guys did a good job of weighing that out at the Investor Day, and talking to committed CapEx applied to the first three years of your growth ramp and then beyond. It may be a bit early, but can you maybe talk to what you are saying in terms of North Sea and Brazil? And any change you have seen in the past month that specifically has had a bit of weakness in the North Sea, but you are further down that chain and could be relatively well insulated.

Yeah, I think That's the key point. Obviously, we have seen people talk about E&P spending as a whole, but the drop has come on the exploration side. But because of all of the drilling that has taken place over the last five years, we haven't seen any drop in our pipeline. I have been around the world in the last few weeks speaking with our customers and they are committed to putting into production. In particular, down in Brazil we've got a pretty good pipeline on what projects Petrobras is going to put in place going forward, and they haven't changed what they have going forward. We bid on two projects. We only wanted one project, so we haven't been able to - we haven't missed anything we didn't want. As I said in my comments, we are doing some front end engineering studies both in North Sea , as well as focusing in on new fields that will come up for bid in Brazil in 2015, and I think we feel good about our chances.

Got you. Kind of the flip side to that coin, and just this last time I will turn it over, the entire kind of group of competitors that you guys typically run into, it seems that just about everybody is under a degree of pressure and you guys are probably in the firmest position. I am just curious, as you look over the next couple quarters, can you talk to the likelihood or feasibility of large scale M&A? Are there people you guys run up against for FPSOs, FSRUs, carriers that are under the same amount of pressure but don't have the same footing you do whether there is an opportunity there?

Obviously, we have employed M&A in the past, but I don't see that that's going to be a big driver of what we are doing. What we really like about our franchises is they are well positioned for growth projects. In particular if you look on the gas side, we have our MEGI LNGs, which we are seeing greater customer adoption there. So we are seeing that the MEGI people are seeing saves fuel compared to the DFDE, which, of course, saves fuel over the [steam], so we think we have the sweet spot. So if I have to choose between ordering a MEGI and buying an on-the-water DFDE, I going to order the MEGI, because that's what our customers are saying to us. And on the FPSO side, we really like our Sevan technology.

The Sevan technology with the cylinder is very good in terms of its weather keeping characteristics, which customers are appreciating, as well as the fact that because it doesn't have a [turret] it sets up well. We are biding that both on FPSOs, as well as in floating accommodation. So I guess that is a long winded way of saying it would have to be a good deal for us to buy from our competitors. Something more interesting on the M&A side is we think we will get opportunities to buy on-the-water assets from oil companies, from our customers, and so that's a much greater focus for us. And I think that because of the pressures that we are seeing on customers with return on invested capital becoming more important, we might very well be able to use our operating excellence in order to buy assets and gas and offshore from our customers and that is preferred by us.

Got you. That's very helpful. All right, guys that's all I've got. Thanks for the time.

Thank you, Mike.

Our next question comes from Emmett (inaudible) from Deutsche Bank. Please go ahead.

Great. It is actually Amit Mehrotra from Deutsche Bank. Thanks very much for taking my question. I just want to first ask about some of the operating issues and delays that came up in the quarter. I fully understand that some of this is out of your control and some is new technology, but maybe you can give us some color on when you first came to know about these issues, and then really in just a broader context, talk about the operating risks of the Company's, I guess, highly technical assets vis-a-vis the pretty bullish dividend growth outlook?

Sure. Well, I think it starts with the fact that we have a wide ranging portfolio in both the LNG side as well as in the FPSO side. The LNG side has been doing extremely well, both on a safety as well as an operating side where we have close to 100% utilization. So it's much more focused in on the offshore side, and you are right. There are things we can control and things we can't control, so as fields get older you have to work the assets harder, and that been reflected in what we have seen on the Foinaven. But we've worked very hard with our customers and we get it - we get back. The whole idea is that are you going to take some short-term pain for some long-term increased production?And what is happening on the Foinaven is people have stopped production and taken some short-term loss in revenues, but in doing that we'll get a much longer production profile. So call it an investment, if you will, in time and, of course, money, but that's what we are trading off. We may not lose some revenues, as Vince said about $12 million in the quarter, but at the end result, you end up taking that oil a little bit later, and we think that the offshore production chain becomes better as a result of that. Obviously, we don't want to have some operating snafus but that's the way it is.

Yeah.

(Inaudible) of the high load, that is a new technology, and so it's a matter of working with our customer to get that integrated into their logistics chain, and that's taken a little longer than both ourselves and Petrobras had thought.

You have to look at it from the portfolio perspective. I would say the Foinaven contract is quite unique compared to the other contracts we have in our FPSO fleet. Our other FPSO contracts are pretty much fee based, so the Foinaven is unique in that it has the oil price tariff as well as the production tariff. And then on top of that it is owned at the parent company levels, so it has an exaggerated impact on the consolidated results. The high load to put it in context is a relatively small investment. It is about $60 million. Again That's a sort of timing delay.

Okay. That's helpful. Just a couple of follow-ups here. I just had a question on the Company's sort of trading level. I mean since your very successful analyst meeting, you know, the market value of the Company has declined by almost $1 billion, and I think the value has been hit, you know, somewhat unfairly in my view by concerns over the decline in oil prices. Can you just sort of address those concerns? The business is removed from sort of near-term fluctuations in oil, but if you can address those concerns I think it would have a follow-up to that.

Sure. Well, as I said earlier, there's things I can control and things that I can't control, and I can't control the share price or whether money is moving in and out of energy but we have noticed the Alerian MLP index has been declining. And even though it's been said there is a lot of fee based revenue and you have good pipeline. I think that will - I was pretty amazed at the snap back. I think people have to get used to some volatility, and people hadn't seen that volatility in the MLPs in quite a while. So I think that at the end of the day, as people execute on their plans, increase their distributions, then investors will come back to us because the MLP market still represents a great way to get a superior dividend in pretty much a low growth world. So I actually think there will be more people gravitating to the MLP market, and that's what I heard going around and seeing investors post-Investor Day. And so I think that is what people see. What I think is probably also taking place is a fight to quality among the MLPs. The MLPs were moving up as an index, and we certainly saw that with some of the shipping MLPs in our competitors, and now we are seeing people are going to - people who are more quality. And certainly see ourselves as being that in the offshore and marine sectors.

Okay. And just one last one. You know just given the expected improvement in the parent company's balance sheet over the next few quarters, I mean could that sort of open up the potential to use some low cost to debt financing for something like a smaller or medium sized share buyback, you know, given kind of like the current pro forma dividend yield for the parent company is actually higher than any potential cost to debt financing?

Yeah, we are aware of that. We are not really executing on financial engineering that way. As I said, I actually think things will bounce back, and people will see it as the distribution increases go forward. So that isn't part of our play book right now.

Okay, thanks very much.

Thank you. Our next question comes from Sunil Sibal from Seaport Global Securities. Please go ahead.

Hi, good morning, guys.

Good morning.

Many of my questions have been already addressed. A couple of ones. When we look at FPSO Foinaven, the second - or the fourth quarter $20 million or $23 million increase, I was wondering if you could break it down into the seasonal increases you typically see in the fourth quarter versus any impact of better production profile going forward, or in other words what - if you could give us a sense of what is a good run rate for that going forward, say in '15?

Yes. The $20 million, the $23 million that we guided for this year is quite similar to what we had last year, because last year's production was also negatively impacted, and I guess for this year, in the latter part of 2014, were also negatively impacted by the lower rent [oil] price. On a run rate basis, I think you would expect that fourth quarter number to be closer to about $30 million. Of course, that depends on what the (inaudible) price would be in 2015, but that would be a better run rate figure I would say, or normalized figure I should say.

Okay. And then on at FPSO of the (inaudible), the - tell me the increase you see this quarter and how much of that can really be carried forward on a run rate basis into 2015?

Are you referring to the Banff FPSO?

Yes.

Yes. That's probably a good run rate, because we started a little late in July in the Banff, so a full quarter revenue would add another $2 million, which is what we are expecting in the fourth quarter; however, as a reminder, the Banff contract does have a rate reset effective January 1, 2015, so we would expect the Banff FPSO revenue to increase 2015, quite meaningfully.

Okay. Got it, thanks. And then just one clarification from a previous question with regard to the Knarr dropdown. So I guess the dropdown timing, as you said in the slide deck, is dependent on whether in addition to the weather any timing changes with regard to what happens on the MLP equity market if we see the market more stressed out, you know, even from current levels?

Well, we actually can, as we did with the Voyageur, previously, we can actually raise the money ahead of when the unit comes into production, or have a year until after the unit comes into production, in which case we just generate the cash flow upstairs instead of getting it through GP and LP. We will take the EBITDA upstairs, so we feel confident about that, and we don't feel like we are in a position where we have to raise the equity. As I said earlier, the cost to debt is low so if our cost to capital goes high, then we may defer that, or we drop it down with seller financing.

Okay. Very helpful. Thanks, guys.

Thank you.

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

Yes. Hi, guys. My questions have been answered. Thank you very much.

Thank you, Fotis.

Our next question comes from TJ Schultz from RBC Capital Markets. Please go ahead.

Hey, guys, good morning. Just to stay on the Knarr, just one thing. I guess one thing you could control is to maybe drop it in two (inaudible) rather than one to make it more manageable for the MLB. Is that potentially back on the table, or is it still, right now, the plan to do it all at once and have Teekay Parent take back some form of TOO unit?

Our preference would be to do it all as one, but if the equity market continued to be volatile to the downside then we might have to reappraise that. But, as I just said, we could always just do it with seller financing and raise the money later. It doesn't really matter to us up at Teekay whether we get the money in seller financing whether we get it in GP and MLP. It is still an abundance of cash flow. In fact, we'll generate more TFBO if we retain the Knarr, or 50% of the Knarr, upstairs rather than downstairs. It doesn't change our view on the dividends, but we, as I said earlier, we saw the bounce back on the Alarian, and we know that equity prices in the rest of the market, measured by the S&P 500, are close to all-time size, so I don't think anything has changed as it relates to the attractiveness of dividends.

Okay. Good. Understood. Just any quick update on the FPSOs beyond the Knarr; I guess the Banff reset. Is the expectation a dropdown first half of next year? And then any color on BP's consent for the Foinaven, just given the issues there? Thanks.

So it remains our plan to dropdown all the rest of the FPSOs, completing them and in 2016. We haven't given a specific road map of when they would be dropdown, but that remains our plan. I think the upside of having the issues on Foinaven is we have a much closer dialogue with BP and that will enable us to dropdown the unit.

Okay. Thank you.

Thank you, TJ.

Our next question comes from Keith Mori from Barclays. Please go ahead.

Thank you, gentlemen, for taking my call. A quick question around Foinaven, the operational issues, will that be covered under the contract with the charter, or would that be kind of an additional expense that we should expect for the fourth quarter?

Those contract issues that we had have already been expensed through our P&L. The contract issues that are on the Foinaven are not our responsibility, so it will not incur extra cost to us.

And I guess a little around the softer markets and capital raising here. You know when I look at 2015 on your Slide 11, you show about $949 million worth of committed growth CapEx here. Could you maybe give us an idea how much of that ready capital has been raised and how much still needs to be financed through the capital markets?

As usual we would secure debt financing on these assets prior to their delivery. If you look at what is there, the high load already has a committed debt facility in place that we can draw once the contract starts. The new item is the $220 million acquisition of the on-the-water tugs, and we already have a term sheet in place to finance a big part of that. And in terms of the FAUs, we have commitments already on the first unit for debt financing, and the second unit doesn't deliver until the end of 2015 and we are working on that as well. We are in good shape in terms of the debt financing side and, as Peter alluded to, we will monitor the equity markets very closely.

All right. Well all of my other questions have been answered, so I will let the call wrap up. Thank you.

Our next question comes from Matt Niblack from Hite Hedge Asset Management. Please go ahead.

Thank you. Turning back to the LNG shipping market, what is your view, long-term, on whether many of these projects in Australia are likely to get canceled given what might be a low accrued environment for some period of time, and when exactly do you think, given the [volatility], you know, with the macro environment in the last month or two, the shipping market may come back into balance?

Those are two unrelated questions so let me take them first.

Yes.

On the Australian side, obviously, everyone knows about the cost overruns that have been incurred on those, so what we are watching our customers do is actually switch over from on land to floating LNG, similar to what you saw Shell do on Prelude, now you can see Browse FLNG. As far as we see it from our discussions with customers from a shipping point of view, we don't see any change in a lot of change in a lot of those projects that are already on the map. Looking further out, then you may defer some FID, but actually the Australian gas is looking pretty good with their crude cocktail. And let's not forget it's very close to the import centers of China and Japan and Korea. I think that's what we see. In terms of what we are seeing on the LNG side there is short-term pain out there. It doesn't affect us because we are sold out, but there are 370 vessels in the fleet, and 123 on order. Of the 123 on order, all of our ships that we have were can see delivering into the favorable window. If you have a ship open now, and there is 31 of the 123 ships that don't have employment, so if your ships are coming in '14, '15 or even into '16, I think you have an issue. And also it's the kind of ship, as I said earlier. So we think the market is standardizing down on 174,000 cubic, rather than the 155,000, 160,000 units that were previously ordered. Why is it standardizing there? Because that's the biggest that can go through the Panama Canal. I think you might see some deferral of some of the projects beyond what has already been announced in the U.S. Gulf. We have always been of the view that the brown water sites, the ones where they already had the terminals, the tanks that were built for what they thought was regassification, they would be flipped as you are watching Chiniere do and they would become export terminals. I think that still will happen. The jury is out on whether some of the Greenfield sites where they don't have all of that logistic infrastructure, will go forward. Obviously, that's a function of gas prices and towing, so I think that-

But then -

So I think that if you have the right kind of ships you will find employment. And something we are finding on these tenders that we are bidding on for 2017 and 2018, is they are specifying the MEGI design or the over the DFDEs design. And so even if you have a ship and its open it isn't the preferred ship.

Right. And so do you still think the market comes into balance and stays in balance or short in the 2017, 2018, 2019? I know some of the announcements on project delays and projects that are at risk?

We haven't seen out of what we see in 2017 and 2018 already has FID, they were already building those so 2017, 2018 is not in doubt. Those were already going forward. The big question is 2019, 2020. Obviously, we announced our big deal in Russia. That deal is going forward despite the negative financing environment in Russia, and so - because it's low cost gas. And so you are right that the cost will dictate new projects going forward, but there is still a healthy demand out there. As far as the market going into balance, my view is that the 174,000 will be eligible for the long-term charter market, and if you are in some of the smaller ships those will become what we call trading ships. That's the same thing we have seen in other markets. So our MLP is focused on long-term projects and we think we have the right ships for that.

All right. Thank you very much.

Thank you.

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

All right. Thank you very much for all of the good questions, and as I said, we can control what we can control, and Teekay's executing on its plan and our customers still are very much interested in our gas and offshore projects in the Teekay operations. So thank you very much.

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