Teekay Corp Ltd (TK) 2015 Q1 法說會逐字稿

Welcome to Teekay Corporation's first-quarter 2015 earnings results conference call.

(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'd like to direct all participants to our website at www.Teekay.com where you will find a copy of the first-quarter 2015 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 first-quarter 2015 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. Thank you for joining us today for Teekay Corporation's first-quarter 2015 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 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 review some recent highlights for Teekay Corporation. For the first quarter of 2015, Teekay Corporation generated $320.9 million of total consolidated cash flow from vessel operations or CFVO, an increase of 21% over the same period of the prior year.

Teekay Corporation reported consolidated adjusted net income of $15.7 million or $0.22 per share for the first quarter of 2015 compared to $3.5 million or $0.05 per share in the same period of the prior year. Teekay Parent generated strong free cash flow of $31.5 million or $0.43 per share in the first quarter, an increase of 49% over the same period of the prior year, largely due to the expected step up in the Banff FPSO contract rate effective January 1 and partial contribution from the Knarr FPSO, which achieved first oil and commenced its charter contract at a partial rate on March 9. Looking ahead to the second quarter of 2015, we expect Teekay Parent's free cash flow to increase further, mainly due to a greater contribution from the Knarr FPSO.

Following first oil in March, the Knarr FPSO commenced its charter contract with BG Group at partial rate while the unit completes certain operational testing in preparation for full production. We currently expect to complete the sale of the Knarr FPSO to Teekay Offshore prior to the end of the second quarter following the completion of operational testing and an increase in its charter contract to full rate. I will provide additional details later in this presentation.

Importantly, we expect to implement the new Teekay Parent dividend policy effective in the second quarter of 2015, which is payable in July 2015. Primarily as a result of the cash flows from the Knarr FPSO and its eventual drop down sale to Teekay Offshore, we expect an initial increase to Teekay's dividend to be approximately 75% to $0.55 per share, which equates to an annualized dividend of $2.20 per share with future increases linked to the growth of dividend cash flows we receive from our daughter entities. With a robust pipeline of approximately $6.7 billion of known growth projects at our two MLPs, Teekay Parent's dividend is positioned to grow from this new higher base as our MLPs deliver on their respective growth projects and increase their distributions over the next few years.

Turning to slide 4, I will review some recent highlights from our three publicly trade daughter entities. For the first quarter, Teekay LNG Partners declared a cash distribution of $0.70 per unit and reported 1.04 times coverage ratio. Based on our GP and LP ownership interest, the cash flows received by Teekay Parent from TGP totaled $26.3 million for the quarter. In January, Teekay LNG's LPG joint venture with Exmark took delivery of the fourth of its 12 mid-size LPG new buildings as part of the LPG joint venture's fleet renewal and growth strategy.

Before moving on to Teekay Offshore Partners, I want to highlight the picture at the top right hand side of the slide, which shows the installation of an M-type electronically controlled gas injection or MEGI engine in the world's first MEGI LNG carrier, the Creole Spirit, which delivers in the first quarter of 2016. The Creole Spirit is the first of nine MEGI LNG new buildings which will be delivered to TGP between 2016 and 2018. Following delivery, the Creole Spirit will commence a five-year charter contract with Cheniere Energy exporting LNG primarily from Cheniere's Sabine Pass LNG liquefaction facility.

Turning to our other MLP, Teekay Offshore Partners declared a cash distribution of $0.5384 per unit and reported a relatively strong 1.10 times distribution coverage for the first quarter of 2015. Based on our GP and LP ownership interest, the cash flows received from Teekay Parent from TOO totaled $18.1 million for the quarter. Teekay Offshore continued to make progress on several projects during the first quarter which are expected to contribute to cash flow growth in future quarters.

During the past three months, Teekay Offshore's wholly owned subsidiary ALP Maritime completed the acquisition of four of six of on the water long-distance towing and offshore installation vessels it agreed to acquire last October. All six vessels were acquired for an on-block price of approximately $220 million, and the remaining two vessels are expected to deliver in the second quarter.

We're pleased to report that these vessel acquisitions have gotten off to a strong start with three vessels that delivered in the first quarter recording 100% utilization. ALP expects to build a strong contract backlog for these high-quality vessels over time.

During the quarter, Teekay Offshore took delivery of the Arendal Spirit, its first unit for maintenance and safety or UMS which arrived in Brazil on May 2 in preparation for the expected June 2015 start-up of its three-year charter contract, not including a three-year extension option with Petrobras. For the first quarter, Teekay Tankers declared a fixed dividend of $0.03 per share based on our total ownership of class A and class B shares. Teekay Parent received a cash dividend of about $900,000.

Reflecting continuing strength in the spot tanker market, Teekay Tankers experienced the strongest quarter in six years during the first quarter of 2015, generating free cash flow of $53 million or $0.46 per share. This represents an increase of 31% from the fourth quarter of 2014.

Crude spot tanker rates have remained counter seasonally strong into the second quarter of 2015 due to record high Saudi Arabian oil production and a relatively light refinery maintenance schedule as refiners continue to take advantage of positive margins. During the quarter, Teekay Tankers completed the acquisition of five modern tankers for approximately $230 million. This well-timed acquisition delivers into the strongest tanker market in seven years and further increases Teekay Tankers' operating leverage to the strengthening tanker market.

Turning to slide 5, I will take a moment to update you on the status of the remaining FPSO assets at Teekay Parent. As I touched upon earlier, in March the Knarr FPSO achieved first oil and commenced its charter contract with BG Group at approximately 70% of its full charter rate, pending the completion of certain operational tests. Since that time, we've made steady progress on the Commissioning process, including successfully producing and discharging the FPSO's first cargo to one of Teekay Offshore's shuttle tankers, and we are now completing the final testing phase which mainly relates to the startup of the gas export system.

We currently expect to complete the sale of the Knarr FPSO prior to the end of the second quarter, subject to completing the 72-hour interim performance test and commencement of the full charter rate. Teekay Offshore's purchase price of the Knarr FPSO, which is based on a fully built up cost of approximately $1.25 billion, is expected to be financed through the assumption of an existing $780 million long-term debt facility, a combination of vendor financing from and new Teekay Offshore units expected to be issued to Teekay Parent and a portion of the approximately $121 million of proceeds from Teekay Offshore's recent preferred unit public offering.

Turning to the Foinaven FPSO, the subsea issues which are the responsibility of the charterer have largely been resolved, and the unit is now producing approximately 37,000 barrels of oil per day, up from an average of 21,700 barrels of oil per day in the fourth quarter of 2014. We're currently working with BP to stabilize production at this higher level and obtain approval to transfer ownership from Teekay Parent to Teekay Offshore. With these changes, the Foinaven FPSO will become eligible for drop down sales to Teekay Offshore.

Turning to slide 6, in January 2015, the Banff FPSO commenced a charter rate stepup under its existing multi-year contract, resulting in an increase in cash flow from vessel operations or CFVO of approximately $9 million compared to the fourth quarter of 2014. With this rate stepup, the Banff FPSO becomes eligible for drop down to Teekay Offshore, and we expect to offer the Banff for drop down sometime during the second half of 2015.

Finally, the Hummingbird Spirit FPSO continues to operate under a firm contract with Centrica until March of 2016 with options under the current contract to run through March of 2017. The existing charter is too short to qualify for drop down under the Omnibus Agreement. However, we're currently in discussions to extend the existing contract as well as also pursuing new contract opportunities for the Hummingbird Spirit following the expiry of the current charter. Once we've secured a longer term contract, the Hummingbird will also become eligible for drop down.

With Teekay Corporation's new dividend policy linked to future growth of its daughters entities, the drop down of these remaining Teekay Parent legacy FPSO assets will be an important contributor to future dividend growth at both Teekay Offshore and Teekay. With that, I will turn the call over to Vince to discuss the Company's financial results.

Thanks, Peter and good morning, everyone. Starting with slide 7, I will review our consolidated results for the quarter comparing the adjusted income statements for the first quarter of 2015 and the fourth quarter of 2014, both of which exclude the items listed in appendix A to our earnings release. A full reconciliation of adjusted net income to GAAP net income can be found in both appendix A of our earnings release and the appendix to this presentation.

Looking at the bottom line, consolidated adjusted net income was $15.7 million or $0.22 per share in the first quarter of 2015 compared to $30.7 million or $0.42 per share in the prior quarter. The main factors contributing to the first-quarter results include the commencement of the charter contract for the Knarr FPSO on March 9 with Q1 results for the unit included in Teekay Parent results prior to the Knarr's expected drop down sales to TOO later in Q2, stronger average spot tanker rates and an increase in TNK's owned and in charter spot tanker fleet and lower repairs and maintenance cost for our FPSO fleet, some of which is due to timing of expenditures.

These positive factors were partially offset by the $20 million of incremental revenue recognized in the fourth quarter for the Foinaven FPSO related to its annual operational and oil price tariff revenue, timing of certain G&A expenses, and lower income tax recoveries recognized in Q1 compared to Q4 primarily associated with freight taxes. Overall, if we normalize the extra $20 million of Foinaven revenue recognized in Q4, the Q1 results were actually stronger than the previous quarter.

Turning to slide 8, we have provided some guidance on our consolidated financial results for the second quarter of 2015. Revenues for the fixed rate fleet are expected to increase as a result of a $38 million increase from the Knarr FPSO, a $3 million increase from the long-distance towing and offshore installation vessels and a $2 million increase from the delivery of the Arendal Spirit UMS assuming a mid June contract startup.

These increases are expected to be partially offset by decreases in the shuttle tanker revenues, mainly due to the expiration of the Amundsen Spirit's time charter in early Q2, the sale of the Navion Savonita in late Q1, the Rangrid leaving the CoA fleet which will be converted to an SSO for the Gina Krog field and unscheduled off hire due to required repairs for the [Bossa Nova]. Some of these reductions are expected to be offset in future quarters with the ramp up of the shuttle tanker contract supporting the Knarr field and the new EnQuest CoA contract as mentioned in our earnings release.

Spot rate revenues are expected to increase by 385 days in Q2 due to TNK vessel acquisitions and additional in charters. So far in Q2, we have fixed approximately 50% of our spot Aframax and Suezmax revenue days at average TCE rates of 32,600 per day and 36,500 per day respectively compared to 30,700 per day and 39,900 per day respectively in Q1.

Vessel operating expenses, depreciation and interest expense are all expected to increase due to the Knarr FPSO, the TNK vessel acquisitions, the ocean towing vessels and the Arendal Spirit UMS. Time charter hire expense is expected to increase further in Q2 by approximately $1 million, reflecting the additional in charter conventional tankers in TNK. We expect G&A to decline to approximately $34 million to $35 million in Q2, which is our expected run rate.

Equity income is expected to decline by $8 million due to the scheduled expiration of the charter contract for the Methane Spirit LNG carrier in mid March and the off hire dispute related to the Magellan Spirit LNG carrier. Income tax expense is expected to be approximately $2 million in Q2, and non-controlling interest expense is expected to decrease by $15 million to $17 million in Q2 relative to Q1, primarily as a result of lower expected earnings in Teekay Offshore and Teekay LNG. Overall, we expect net income to be relatively consistent with the first quarter as a result of the positive contribution from the Knarr FPSO which is partially offset by temporary revenue decreases in the shuttle tanker fleet.

Turning to slide 9. We have provided a comparative summary of Teekay Parent's free cash flow for Q1 2015 and Q4 2014. Our total free cash flow is separated into the OPCO cash flows of Teekay Parent's legacy operating assets and the GP 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 Q1, OPCO cash flows decreased to negative $6.9 million from positive $3.5 million in the prior quarter primarily due to the $20 million of incremental revenues recognized in Q4 from the Foinaven FPSO contract, partially offset by the contractual rate step up on the Banff FPSO which was effective January 1 and the commencement of the Knarr FPSO contract at partial rate on March 9.

GP cash flow from the daughter distributions was consistent with the prior quarter and corporate G&A was higher in Q1 compared to the prior quarter mainly due to the timing of recognition of certain short-term and long-term incentive compensation expenses which are typically higher in the first quarter of each year. We expect to be in line with our annual run rate guidance of approximately $20 million per year.

As a result of the above, total Teekay parent free cash flow per share was $0.43 per share in Q1 compared to $0.62 per share in Q4, which is above our current quarterly dividend of about $0.32 per share. Looking ahead, we expect our OPCO cash flows to increase in Q2 from the further contributions of the Knarr FPSO to our OPCO cash flows, and we expect our GP cash flows to increase shortly after the drop down of the Knarr FPSO to TOO.

Based on the expected increase in Teekay Parent's cash flows and significant delevering of the Teekay Parent balance sheet as a result of the Knarr FPSO drop down, we remain committed to the new Teekay Corporation dividend policy announced last September. As Peter mentioned earlier, commencing with the Q2 dividend payout in July 2015, we are targeting an initial stepped up quarterly dividend of $0.55 per share or $2.20 per share annualized, which represents an increase of 75% from the current dividend.

As previously announced, future Teekay Corporation dividend increases will be linked to increase in distribution and dividend cash flows received from our daughter entities. With that, I will turn the call back to Peter to conclude.

Thank you, Vince. Wrapping up today's call on slide 10, we have provided an update on our visible growth pipeline, which is currently comprised of approximately $6.7 billion of accretive projects. With both of our GPs in the 50% incentive distribution rights tier, this growth is going to be a key driver of future distribution increases at Teekay Corporation upon implementation of Teekay Parent's new dividend policy as Vince just noted.

Many of our investors that I've met recently asked me about the effect of the lower oil price on our future growth, and I tell them that we're encouraged by the level of tendering activity that we see for new transportation and production requirements at both of our MLPs. It is lower as you would expect but still significant and enough to satisfy our growth requirements. In addition, and as somewhat of a surprise, we're seeing more opportunities for the acquisition of quality on the water assets with fixed rate contracts, which all three of our daughter companies have executed on in the past.

Finally, our ability to find good reemployment or conversion of our existing offshore assets is enhanced in a low oil price environment as we work with our customers to lower offshore field production costs by using those existing assets rather than building new units. When you combine those factors with Teekay's reputation for operating efficiently and project execution, I remain confident we will find enough growth for our daughter entities, which is the future driver of future dividend growth for Teekay Corporation. Thank you for joining us on the call today, and Operator, we're now ready to take questions.

(Operator Instructions)

Our first question comes from the line of Sunil Sibal of Global Hunter Securities.

Congrats on a good solid quarter.

Thank you.

Couple of questions from me. On the lower R&M that you guys achieved during Q1, I think in your comments you indicated that some of it was specific to Q1. I was just wondering if you could break it out and how should we think about that going forward in the current environment?

Yes, as we indicated on slide 8, we are expecting the Q2 OpEx to come back up a little bit. But of course, some of that is due to vessel acquisitions and deliveries, including the Knarr for a full quarter.

So in terms of the timing of FPSO maintenance, it does vary from quarter to quarter depending on maintenance plans. We do expect -- so that $12 million increase in Q2 reflects part of that timing difference I mentioned earlier.

Okay that's helpful, and then on the financing for Knarr drop down, seems like in addition to that $815 million debt that will come with the vessel, the rest will be broken down between vendor financing and PO units that Teekay will take. Any clarity on how that distribution between those two buckets would look like?

Yes, the first point is that the Knarr is already fully financed as you mentioned. The debt facility associated with the Knarr is $780 million now, there was a reduction during the first quarter, and the rest of it with the vendor financing provided by the parent including the fact that the parent has indicated that we will take back up to $200 million -- at least $200 million of common units.

We have a lot of flexibility in terms of what the permanent financing is for the vendor financing. In addition as you know, TOO issued $125 million of preferred equity in April. And TOO has many other sources of capital, so we have a lot of flexibility going forward in terms of the long-term financing.

I would just add that given where TOO's share price is, we don't anticipate doing a public offering. That's where the sponsor Teekay Corporation is stepping up and assisting our daughter company.

Okay that's good color, and then I think you guys mentioned on the water asset acquisition facilities opportunities. Is this more on the LNG side of things or more on the crude side of things that you're seeing opportunities?

It's actually both on the offshore and the LNG side. We think that there's going to be a good opportunity, which we hadn't foreseen in this lower oil price environment to buy good infrastructure assets particularly from our charterers rather than necessarily buying them from our competitors.

Okay, and then the last one for me is any impact that you're seeing from the Shell BG merger announcement, your read of that merger in terms of impact on the business?

I think it's good for us. We have a lot of business with BG, and of course we just in the fourth quarter agreed to charter five of our new MEGI LNGs to Shell. So I think we've met with both Shell and BG, and we think that's on the whole good for Teekay.

All right guys, very helpful. That's all I had, thanks.

Thank you. Your next question will come from the line of TJ Schultz of RBC Capital.

Hi. Peter, thanks for the comments. I guess just following up on the financing for the Knarr, I think you're pretty clear not wanting to do public equity at TOO at these levels, but just trying to think about the longer-term financing plan. Is it something where you think you just let TOO play out in distributions increase in there and you wait for a better valuation, or are you looking at alternative financing options within TOO?

No, we actually think speaking for Teekay Corporation that an investment in Teekay Offshore is today a good investment. And so that's why Teekay Corporation is more than willing to take back units as part of that deal, but we also want to make sure it's an accretive deal. And I think people in the current market when they see that the distribution will go up, that we continue to execute on our operating plan, then I think as we've seen in past times, people will come back to Teekay Offshore given its big portfolio of stable contracts.

And having been out and met with investors, there was a lot of I would call it uncertainty about deepwater and offshore oil production. People were looking at what the costs were on new projects and associating that with costs on older projects. And a lot of our fields have very low marginal costs, and I think people's idea that you were going to see all these contracts go away wasn't the reality.

The reality is that there is low marginal costs, you're starting to see that with oil companies talking about how they've been able to lower their cost because as the oil price comes down, the tax expense also drops. And so we're actually quite pleased with the that, and that's why we think it's a good investment to take back units at these levels, and that's as much as I will say on it.

Okay, the number you've said is at least $200 million. Is that a range, is that the ballpark number we're thinking about that Teekay would take back, or is there upside there?

We could take back more. It's a combination of seller's credit and units, and we're in the -- we think it's a good investment, we could move that up. We're trying to do the right thing to maximize out the accretion as well as the general partner cash flow, which is what you would expect from a sponsor.

That all makes perfect sense. And then just beyond the Knarr, it sounds like the Banff would be second half of 2015. And sorry if I missed this, but what are the latest thoughts on the Foinaven as far as timing?

Yes, well as I said in the prepared remarks, we're working with the charterer on that one in order to get the contract in a better position in order to drop it down. We don't as we stand have permission, but a big part of getting into the contract was to fix the technical issues.

And now that we fixed the technical issues, then I would say that people are now willing to focus in on that. But probably given the Arendal Spirit and given the ALP Maritime, given the Banff, I'd expect the Foinaven just from a drop down schedule to be in 2016.

Okay thanks, Peter.

Thank you.

Your next question will come from the line of Michael Webber of Wells Fargo.

Good morning guys, how are you?

We're good, thank you.

I wanted to zero in on the dividend again because it's worth revisiting. So the drop down's not complete, and it seems like you guys had a little bit of flexibility in terms of tweaking the equation a bit to bump the distribution to the Teekay level in July as opposed to later, and I'm sure it's appreciated.

When we think about the cash flows associated with the Knarr and the fact that you guys came in at $2.20, as we think about the rest of the year and that asset goes on full contract, how should we think about that cash flow flowing through the Teekay Parent dividend? I guess should we think of it in terms of there being potential upside to the $2.20 or do you think that growth beyond the $2.20 level is primarily going to stem from additional assets?

I will say a few words and Vince will follow in. When you actually look at owning the Knarr upstairs, it actually generates more cash flow than what we receive from owning 25% of it on the LP basis in the GP side.

So it actually -- when we set the $2.20, that was on a more sustainable path assuming that it's dropped down with the buffers that we outlined as part of our dividend policy. And I would say that we aren't giving guidance on how much that will grow right now because we don't have a firm schedule of that, but we're still, you can give greater guidance on the range on that.

Yes, I would just reiterate what Peter indicated, the Knarr is of course generating a lot of cash flow for the parent at this point in time. I think going forward, we're still targeting double-digit growth in the dividend after the initial step-up, say from the $2.20.

Primarily again it would be linked to growth in the GP co-cash flows, which is primarily dependent on vessel delivery and project deliveries, and acquisitions. We do obviously have to look at the total free cash flow as well, and if we were to say take back more units on the Knarr drop down, that might shift some of the cash flows between OPCO and GP Co a little bit. So that needs to be taken into consideration, but in terms of growth after the $2.20, we're still targeting double-digit growth.

That's very helpful. And Peter, I wanted zero in on that growth and specifically, maybe not the next two to three years which is more or less already laid out in terms of a 20% CAGR from the original rate is more or less already set in terms of CapEx spend.

But a couple years beyond that, and just given the changes we're seeing within the energy complex, I'm curious, did you look at that -- how you fill those buckets differently now than say you did a year ago specifically around organic projects versus M&A? And is there a heavier M&A component to it when you think about it now.

Obviously not too specific and maybe including the opportunities you referenced earlier in terms of sourcing assets from your clients. Is there a heavier M&A component to how you think about 2019/2020 now, and if so, when do you think we start to see that market pick up whether it be 2016, 2017 or even later this year?

Well there is a switch. On slide 10, we talk about our visible pipeline, but those are known projects. We don't show you the pipeline of all of the deals that we're working on.

But I would say what we have seen is that a lot of those projects where we are doing studies or zeroing in on, they have shifted to the right meaning they are delayed. And when I talked to our customers, they say -- Peter, we're going to delay it because all of our inputs will be cheaper next year than they are this year, and that makes sense.

For our own part, we think we will probably be able to convert and fabricate cheaper with lower steel prices. You will see the full flow through of higher dollar compared to some of the countries that we're doing that work in.

So what you're seeing across the whole energy complex is people going back, redesigning for lower costs, and that was what I was trying to say that we're seeing a lot of requests for our existing units because that actually gives our customers a chance to have lower costs. So what I'm pleased with is that we're seeing a lot more work with our customers on individual fields, and they are committed to growing.

Now does the timeline shift a little? Yes, and that's where I think you're now going to see more oil companies be willing to sell their infrastructure assets, and I can't predict that on a timing basis. That's lumpiness. That actually could come a little earlier than 2018-2019.

But from what we can see now, we're really pleased to how much business we booked last year. And what I like is how many different ways we can grow our two MLPs.

And Kenneth, you spend a lot of time in the offshore. How would you say the split was between all our different verticals there?

Probably it's 50/50. I would say we have some organic projects that we work on, which is part of the niche segment that where we sit on strong positions both on the shuttle and the FPSO side.

And we are seeing interest in those segments for exactly the services we are offering there. And at the same time as Peter said, we see more interest and change in shifts in the ownership of some of the medium-sized fields, and that's triggering definitely new discussions that we are having with those players.

Yes that's an important component as asset sales take place, which have been announced by several oil companies. Then the buyers come to companies like Teekay and see how can we work with them to optimize out the purchase. So that plays to our wheel house, our skill set.

Okay, that's helpful. And maybe -- I don't want to belabor the point and move on, but just around maybe M&A related to either competitors or maybe blocks of assets that you aren't already tied to, you have a pretty strong track record within the space of growing specifically by that form of M&A. And granted it's relatively lumpy depending on where asset values are and where we are in this cycle.

Given that that five-year growth trajectory is still in place and the components of organic versus M&A are probably a bit more spread out, when you look at the opportunity to either buy other competitors or non-affiliated assets, do you think that window opens in 2016 or in 2017? And where do you think the sweet spot is to really step in and do that?

I think the window is open now with our customers. I think the market with the competitors is going to open later, and the quality type of assets we're going to get later on in this process is far superior to the kinds of things we're seeing from competitors or their creditors now. So that is the deals that we want to do.

I just want to point out since you're asking, that Teekay has a great track record of doing outsourcing deals with companies. That's how we got into the shuttle tanker market and that's how we got into Australia. So we have a wealth of transactions of working with our customers, and on the whole, we would prefer to buy from our customers than to buy from our competitors.

Got you, all right, that makes sense. I appreciate the time guys, thank you.

Thank you.

Your next question will come from the line of Amit Mehrotra of Deutsche Bank.

Yes, thanks, good morning. First question is on the Knarr. Obviously the timing of the drop down has been a moving target and that's completely understandable, obviously given things that are out of your control. But can you just talk about the risk profile at this phase of the IPT and what your confidence level that in fact the drop down will occur say in the next 35 to 45 days?

I think we have a high confidence level. Obviously it has taken more time.

I think that's a product of the fact that BG is being careful about -- as this is the first unit where they're the operator. But it's also a reflection that both Teekay and BG are concerned about making sure that we have the right processes and put safety first.

And that isn't to say other people don't do that, but there is a real high -- we see this asset and this operation as really being a poster child for our activities. And if we do this right, I think Teekay will show itself to other customers and will get us more business.

And the same thing says that for BG. This is a first unit where they are the operator, and so we are just being, I guess I would say more careful.

And so we're happy with -- I mean I understand from an investor point of view, people understand why is this one month late, two months late? I would just point out the contract is the contract, and all we're doing is shifting it by one or two months. We are not shortening it up.

And so that's -- but on the whole when you look at it, things are proceeding okay. But perhaps we weren't as realistic in our timeline with investors.

Sure. Maybe just one follow-up for Vince. In terms of the initial hike, you pointed to the low end of the initial dividend versus say the mid to high end. Wanted to get a little more color on that.

And then in terms of the growth from that point onwards, you said double digits. So I just want to confirm that you still mean 20% a year for three years beyond that, or has that changed at all?

Yes, we did guide on the lower end, which is the $2.20. And I think we want to make sure that there's adequate coverage of the parent and it's a sustainable dividend.

And I think it partly of course reflects the lower deal unit price which has affected the accretion of the Knarr. So that's the main contributing factor towards the lower end of that range.

In terms of the growth, I don't think as I mentioned double digit growth. Of course, there's a lot of moving parts and we already have the committed growth of $6.7 billion for forward CapEx, which gives us the confidence of reaching those double-digit growth targets.

In addition as many people mentioned on the call, we are also looking at on the water acquisition opportunities. So I don't know if we can really give you a specific number, but we're definitely aiming.

Maybe just one last question following up on that comment with respect to on the water acquisition opportunities. I mean following the drop down, you certainly will have a good amount of capacity to be aggressive, if you guys choose to do that. So the on the water contracted acquisitions was meant to be a little bit to fill the hole if oil prices were prolonged weakness.

Oil prices have come up a little bit, but clearly your projects are being pushed to the right. So maybe -- and you have the capacity to be aggressive. So could you just give us some color on what the magnitude of on the water acquisitions could be that you may pursue given the out year projects are being pushed to the right?

No, I don't think we can do that --I mean for a lot of different reasons. But the fact is with organic projects, you're in control with M&A, you not in control of everything that goes on. So you just have to wait and see, but Teekay has a pretty good track record.

Sure, okay, thanks very much.

Thank you.

Your next question comes from the line of Fotis Giannakoulis of Morgan Stanley.

Yes, hello guys and thank you for the opportunity. I want to ask Peter, you mentioned earlier that your growth plan remains pretty much intact. There might be some question about the timing.

If you can be a little more specific on how the oil price has impacted your business, which sectors they have weakened. If you can give us some percent of numbers of what do you think of the revenues for the shuttle tankers or offshore sector have changed versus your September estimate and how the dividend growth plan has changed given the different price of Teekay Offshore?

Okay, well that was a lot of questions there. But maybe when you see the transcript, we will have answered some of them.

But first of all, I take issue when you say pretty much intact on the pipeline. I think our pipeline growth is intact, and so I take issue with that. I actually think there's a lot of ying and yang that is coming out of it.

If you see the higher dollar for example, we're getting a lot of benefit because we have dollar revenues and we have Norwegian kroner costs and other costs that are non-dollar. So as our hedges roll off, that's a benefit for us. Likewise as I said in lower oil prices, our existing assets become worth more as people pivot to using existing assets in their bid to get lower cost solutions, so we can see those benefits.

And yes, do we get headwinds? Yes, I'd say in particular on the LNG side, you're seeing that, the low oil price is causing LNG to be lower, the LNG price to be lower. So what we see is that there isn't going to be as many liquefaction plants put in place out in 2019, 2020, particularly those evergreen plants.

As you know and as you will hear me talk about tomorrow on the Teekay LNG call, we've been conservative on the LNG space, and I think basically what we're saying has come true. Having said that, people are gravitating to our MEGI engines. And so the steam, the DSE probably won't be -- well, I can say definitively are not preferred compared to the MEGI engine.

So you have to see that within a market that may have a structural downturn, you still see people saying I want MEGI engines as part of a new tender, and that hasn't gone away. So we can still see a lot of requests for MEGIs coming out on existing liquefaction projects.

So what people don't always realize is that projects are already going ahead. They haven't bid the transportation or other aspects of it. So we can still see a runway of one, two years, and that why as I said in my prepared remarks we are pleased with the level of tendering activity.

Now what happens beyond 2020, that's a different matter, but you know what? That's a high class problem.

And if all that comes to be, then Teekay with its qualitative operations and financial standing will be in a position to supplement back with on the water acquisitions. We saw that with Teekay LNG several years ago, and I can see a repeat of that setting up right now.

Thank you, Peter. Just a couple more specific questions. First of all, has there been any impact on the profitability of the shuttle tankers, or this is also going to be the next two or three years of your cash flows have not been impacted?

And also, you mentioned about some of the LNG greenfield projects that might delay or never be done, which is going to impact the 2020 and onwards, but do you have any update on the Yamal project? Is the timing still intact? And you already have contracts for this vessel, so we assume that even if the project delays, your contract, your revenue do not change because you have firm contracts?

Maybe I can start with the shuttle tankers, and I think as you know, it's a niche segment and therefore it's often a misunderstood segment by many people. We describe it as offshore because it is part of our offshore business, but when you look at it, it's really a function of a number of things.

First of all, the oil companies are as you know very focused on maintaining and increasing production and keeping that growing, as long as that oil is flowing as a niche segment, we are obviously seeing a lift in exactly that oil. And we are at 2.5 player market on that.

And what we are seeing that's coming out at the moment are tenders for time charters in a number of markets. And we're bidding on that, and we are seeing normalized hurdle rates which are close to historic levels.

At the same time on the CoA business, we are in a very good position as you know in the North Sea, and we're seeing a lot of requirements for 0.5, 1.5 to 1.2 vessels which we are in a strong position to bid on. And we are seeing rates there that are same or higher as we've seen historically.

And then the last factor which people have missed on the shuttle tanker is that of course, it's only utilization when you're running specialized tankers. And for the past five years, our fall back on the shuttle tankers have been the tanker market which has been non-existent as you know. But of course in a strong tanker market, our fallback is suddenly a very strong conventional market.

So when you look at it, our utilization as shuttle tankers become less important because we can use that free time that we may have in the conventional tanker market, and that's actually supporting the earnings on the shuttle segment. So I would say that the shuttle segment is stronger than it's been in the past five years.

Okay, that's very interesting. Thank you. Regarding the Yamal project?

Our ships come later in the project. I would point that out to everyone, we're not at the beginning of it. So any delays we will sit and see that.

But when we look at what Novatek is saying in their recent update you can look at their earnings call, they say the financing is progressing and more importantly on an operational and building side, they are on time there. I would reference what Novatek is saying on their earnings call.

Can you clarify regarding the contract? Is there a specific start for you, or are you going to be paid different if a vessel is not operating in case of a much longer delay?

Yes.

Okay, that's very clear, and I want to ask also about the accommodation units. Could you give us some sense of the profitability of these vessels? You have one contract already, and if you can also discuss any discussions you might have for the remaining two units.

That's a highly competitive market, and our competitors read our calls. And so for competitive reasons we're not breaking that out right now because we are bidding on units two and three. And we don't want to get drawn on where unit one is because that would give too much information out competitor wise.

Okay, I fully respect that. Thank you very much. Have a good day.

(Operator Instructions)

We have no further questions at this time. I'd like to hand it back over to Mr. Evensen for closing remarks.

Well thank you all for that great Q&A session. That was really great. We liked the questions and we look forward to reporting to you on our progress next quarter, thank you.

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