Teekay Corp Ltd (TK) 2015 Q4 法說會逐字稿

Welcome to Teekay Corporation's fourth-quarter and FY15 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 would like to direct all participants to our website at www.teekay.com, where you will find a copy of the fourth-quarter 2015 earnings and business outlook presentation. Mr. Evenson 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 contained in the fourth-quarter and annual 2015 earnings release and the fourth-quarter 2015 earnings and business outlook presentation available on our website. I will now turn the call over to Mr. Evensen to begin.

Thank you, Ryan. Hello, everyone, and thank you for joining us today for Teekay Corporation's fourth-quarter and FY15 earnings and business outlook conference call.

I am joined this morning for our Q&A session by our CFO, Vince Lok; Chief Strategy Officer, Kenneth Hvid; and our Group Controller, Brian Fortier. During our call today, we will be taking you through the earnings and business outlook presentation, which can be found on our website.

Turning to slide 3 of the presentation, I will briefly review some recent highlights for Teekay Corporation. During the fourth quarter, we generated consolidated cash flow from vessel operations, or CFVO, at $401.4 million, an increase of 30% over the same period of the prior year. During 2015, we generated consolidated cash flow of $1.4 billion, an increase of 35% from 2014.

For the quarter and fiscal year ended December 31, 2015, Teekay Corporation reported adjusted net income attributable to shareholders of $29.8 million, or $0.41 per share, and $68.1 million, or $0.94 per share, respectively. During 2015, we recorded the highest fiscal year adjusted net income since 2008.

The strong cash flow growth in earnings were driven mainly by the delivery and acquisition of various growth projects during 2015, including our largest FPSO project to date, the Knarr FPSO, and complete growth in the highest spot tanker rates in seven years. The decision in December to temporarily reduce Teekay Corporation's dividend to $0.055 per share was a direct result of temporary cash distribution reductions by our two MLPs, Teekay Offshore and Teekay LNG.

We believe the reductions are in the best interest of long-term investors, as the reallocation of a significant portion of our internally generated cash flows to fund our two MLPs' profitable growth projects scheduled to deliver over the next several years, will result in higher available distributable cash flow per unit in the future. I will touch more on this later in the presentation.

Turning to slide 4, I will review some recent highlights from our three publicly traded daughter entities. For the fourth quarter, Teekay LNG Partners generated just over $121 million, an increase of 6% from the previous quarter. For the fourth quarter, Teekay LNG Partners declared a cash distribution of $0.14 per unit, which Teekay Parent received $3.8 million for the quarter.

In December, Teekay LNG achieved a significant milestone. The partnership's first LNG regasification project, which includes an attractive 20-year charter for one of the partnership's existing MEGI LNG carrier newbuildings. In addition, the partnership signed a 20-year contract to develop an LNG regasification project in the Kingdom of Bahrain as a part of a consortium with Samsung C&T, and Gulf Investment Corporation.

The project in which Teekay LNG will have a 30% ownership stake, will comprise of floating storage unit, an offshore LNG receiving jetty and breakwater, an adjacent regasification platform, subsea gas pipelines from platform to shore, an onshore gas receiving facility, and an onshore nitrogen production facility, and is expected to commence operations in July of 2018.

For the fourth quarter, Teekay Offshore Partners generated CFVO of $173 million, an increase of 20% from the previous quarter. For the fourth quarter, Teekay Offshore Partners declared a cash distribution of $0.11 per unit, representing $4.2 million received by Teekay Parent. Since our conference call in December, Teekay Offshore has nearly completed the sale of its four remaining non-core conventional tankers for $130 million, creating approximately $60 million of liquidity, of which $30 million was secured in December.

Teekay Tankers continues to generate strong free cash flow, $74 million, or $0.48 per share in the quarter. This strength was driven by firm underlying fundamentals coupled with seasonal and one-off beneficial factors. The fourth quarter saw the onset of winter weather delays, including an increase in transit time through the Turkish Straits and fog in the US Gulf. Ullage-related delays resulted in increased waiting times at discharge ports due to logistical constraints which further added to rate volatility in the quarter.

In December, Teekay Tankers announced and implemented a new variable dividend policy, under which Teekay Tankers intends to pay out 30% to 50% of the Company's quarterly adjusted net income, while maintaining a minimum quarterly dividend of $0.03 per share. So for the fourth quarter, Teekay Tankers declared a dividend of $0.12 per share, an increase of 300% from the previous quarter, which was paid on February 12. Based on Teekay Corporation's ownership of shares, Teekay Parent received a cash dividend of $4.8 million.

In January, Teekay Tankers completed the previously announced five-year $900 million long-term facility to refinance a majority of the Company's fleet. The new facility includes a term loan and revolving credit components, which were used to refinance 36 of the Company's existing vessels, including 17 vessels acquired during 2015 that were financed with bridge loan facilities that matured in early 2016, and other vessels previously financed with the Company's primary revolving credit facility, which was scheduled to mature in 2017.

So this new facility extends TNK's debt maturity profile and provides financial flexibility in the future. Lastly, during the fourth quarter, Teekay Tankers build on its recent ship-to-ship transfer acquisition of SPT, and expanded its US Gulf presence through the acquisition and chartering in of three purpose-built lightering Aframax tankers.

In mid-December, the Company acquired two lightering Aframax tankers -- the SPT Explorer and Navigator Spirit from Teekay Offshore Partners, for an aggregate purchase price of $80 million. And it chartered in for five years, another lightering Aframax tanker, which is scheduled to deliver between February and March 2016.

Turning to slide 5, I would like to take the opportunity to revisit the strategic rationale for the dividend cut we announced in December. As a flow-through dividend payer, Teekay Corporation temporarily cut its dividend by 90%, in response to the temporary 80% cuts announced by Teekay Offshore and Teekay LNG. We made the difficult decision to increase reserves for the proper conduct of their businesses.

Unlike most dividend cuts the generally coincide with weak business outlooks and declining operating cash flows, the cuts announced by Teekay LNG and Teekay Offshore were in response to the disconnect we witnessed between the capital markets and the relative stability of our LNG and Offshore businesses. Our bond and unit prices declined precipitously in line with the oil price declines, making external capital prohibitively expensive.

The decision was made to reduce our reliance on the expensive capital markets, preferring instead to rely on our cheapest source of cash flow, i.e., the cash generated by the large portfolio of fixed-rate contracts at each MLP. The distribution reductions will enable Teekay LNG and Teekay Offshore to collectively retain approximately $450 million in cash flow per annum, which will be used to fund further growth projects. By relying on our internally generated cash flow, we are able to avoid issuing equity that would've been permanently dilutive to all unit holders.

In addition, with the volatility experienced in the public markets over the past 6 to 12 months, our ability to access the capital markets was highly uncertain. Whereas the internally generated cash flow can be relied upon to fund growth, CapEx and for delevering. Because we're retaining a substantial portion of our cash flow, we believe this strategy will facilitate our access to other non-equity sources of capital, including banks, bonds, and preferred equity.

Another benefit of the distribution reductions is that we expect Teekay Corp, Teekay Offshore, and Teekay LNG will be better positioned when energy and capital markets improve. By not issuing units in order to grow, we expect to have higher distributable cash flow per unit in both MLPs, which creates greater capacity to increase dividends in the future and ultimately the value of Teekay Corporation's GP interest.

Turning to slide 6, despite the challenging macro-energy environment affecting our customers, the Teekay Group's cash flows are expected to remain relatively strong, supported by a diverse portfolio of fee-based contract revenues focused on the production side of the energy supply chain. With an unrivaled backlog of over $21 billion of forward fee-based revenues, our offshore and gas businesses continue to generate relatively stable and predictable cash flows from a wide cross-section of blue-chip customers. Each of our major business lines has an average remaining contract tenure, which provide stability for many years.

Turning to slide 7, we provided Teekay Offshore's proportionally consolidated estimate of run-rate 2017 CFVO, incorporating the delivery of our growth projects over the next two years and the impact of our cost-saving initiatives. Which more than offset lost cash flows from vessel sales and the Varg FPSO contract termination related to a termination right that is specific to the Varg FPSO contract, which I touched upon at Teekay Offshore's earnings conference call earlier today.

CFVO is expected to increase from the implementation of various cost-saving initiatives that will translate into OpEx and G&A cost savings and the delivery of TOO's portfolio growth projects, including the Petrojarl I FPSO that is scheduled to commence its five-year contract with QGEP in the third quarter of 2016. The delivery of four state-of-the-art long-distance towing vessels throughout 2016, the Gina Krog FSO that is scheduled to commence its charter contract with Statoil in the first half of 2017, the Libra FPSO that is scheduled to commence its 12-year contract in early 2017 in Brazil, and the delivery of the first two newbuilding shuttle contractors -- shuttle tankers, excuse me, that will operate on a 15-year contract in East Coast Canada.

These increases more than offset the lost cash flows from the sale of the conventional tankers, the three older shuttle tankers and the Varg FPSO contract, which contributed annual CFVO of approximately $50 million. The combination of these factors is expected to result in run-rate 2017 CFVO of approximately $860 million on a fully delivered basis, which represents an increase of 27%.

Turning to slide 8, we provided Teekay LNG's projected run-rate CFVO, including the proportionate share from its equity-accounted investments. We currently anticipate a CFVO run rate of approximately $470 million, and we expect this to be relatively stable, increasing moderately as we take delivery of the Cheniere LNG carriers and begin to take delivery of TGP's other MEGI LNG carriers in 2017.

Partially offset this year by the one-year deferral of a significant portion of charter payments on our two 52%-owned LNG carriers on fixed-rate charters to the Yemen LNG project, related to the political unrest in Yemen and the subsequent closing of the LNG facility, which I touched upon in more detail on Teekay LNG earnings call earlier today, and the planned sale of one of its conventional tankers next year.

Given the back-loaded, end-loaded nature of TGP's newbuilding delivers, Teekay LNG's run-rate CFVO will begin to ramp up post-2017, when we expect to add an incremental $250 million of annual run-rate CFVO by 2020. We provided a more detailed breakdown of our 2016 and 2017 run-rate CFVO forecast for Teekay Offshore and Teekay LNG by segment from our consolidated and equity-accounted vessels in the appendix to this presentation.

Turning to slide 9, I wanted to provide a summary of Teekay Parent's remaining owned and chartered-in assets, starting with Teekay Parent's owned assets. The Banff FPSO is currently operating on the Banff field in the North Sea, and is operating under a light field contract with an expected firm period out to December 2019 with CNR.

The Hummingbird Spirit is currently operating on the Chestnut field in the North Sea, under a firm period contract out to March 31, 2017, unless terminated for convenience at any time with 90 days notice from Centrica Energy. We are currently in discussions to extend the existing contract, as well as pursue new charter contract opportunities.

The Foinaven FPSO is currently operating in the North Sea under a firm period contract out to December 2021 with BP. We are currently in discussions with BP to extend that existing contract further. The Foinaven FPSO restarted production in the third quarter of last year, following a planned shutdown, and is currently ramping up to its full production rate.

The Shoshone VLCC tanker completed its scheduled dry docking in November, and commenced an attractive one-year charter contract at $49,000 per day. And we are currently in discussion with our banks to extend the bridge loan facility secured by this vessel beyond May 2016.

Lastly, we touch on Teekay Parent's chartered-in fleet. The Arctic Spirit and Polar Spirit LNG carriers, which are chartered-in until the second quarter of 2018, are currently uncharted and are being repositioned to Asia. We're currently pursuing multiple contract opportunities for these vessels for start up as early as the third quarter of 2016.

Turning to slide 10, we provided a comparative summary of Teekay Parent's Q4 2015 and Q3 2015 free cash flow. Our total free cash flow is separated into GPCO cash flows, comprised of the distributions received from our daughter entities net of Corporate G&A, and OPCO cash flows of Teekay Parent's legacy operating assets.

GPCO cash flow from daughter distributions in Q4 decreased compared to the prior quarter, primarily due to reductions in distributions from Teekay Offshore and Teekay LNG, partially offset by an increase in cash dividends received from Teekay Tankers as a result of the implementation of its new variable dividend policy. Corporate G&A was higher in Q4 compared to the prior quarter, due to the temporary timing differences in Q3.

In Q4, OPCO cash flow decreased to approximately breakeven, from $6 million in the prior quarter, primarily due to the timing of dry docking expenditures for the Shoshone Spirit VLCC and two chartered-in shuttle tankers, the Petronordic and Petroatlantic, as well as business development and other fees received in Q3, partially offset by the resumption of operations of the Foinaven FPSO after a scheduled maintenance in the previous quarter and the recognition of its operational incentive revenue in Q4.

As a result of the above, the total Teekay Parent free cash flow was approximately $9 million, or $0.12 per share in Q4, compared to $59.8 million, or $0.82 per share in Q3. The Q4 free cash flow was above our new quarterly dividend of $0.055 per share, resulting in a distribution coverage ratio of 2.18 times in the fourth quarter compared to 1.49 times in the third quarter.

Looking ahead, we expect GPCO cash flows to be consistent in Q1 2016 compared to Q4. OPCO cash flows are expected to decrease in Q1, as Q4 included the Foinaven operational incentive revenue, recognized annually in the fourth quarter in each year, and lost revenues from the Polar and Arctic Spirit LNG carriers, as both of these vessels recently completed their respective charters, partially offset by lower dry docking expenses. As a result of the above, we're expecting a lower dividend coverage in Q1 2016 compared to Q4.

Wrapping up today's call on slide 11, we provided our recent sum-of-the-parts calculation, which includes the value of Teekay Parent's three owned FPSOs and one VLCC tanker, and joint venture and other investments. And Teekay Parent's equity investments in Teekay LNG, Teekay Offshore, Teekay Tankers, Tanker Investment and Sevan Marine. Our current sum-of-the-parts calculation indicates Teekay's underlying value at approximately $9 per share, compared to yesterday's stock price closing of $6.69 per share, representing an attractive entry point at a discount of 28%.

In addition, as I highlighted earlier, we believe the temporary dividend distribution reductions are in the best interest of long-term investors, as the reallocation of the significant portion of our internally generated cash flow to fund our profitable growth projects is scheduled to deliver over the next few years at our two MLPs will ultimately result in higher available distributable cash flow in the future. Which creates greater capacity to increase cash distributions in the future, which will benefit Teekay Corporation.

As a result, the inherent value of our two GP interests is not currently being reflected in either the current share price or the sum-of-the-parts calculation. Thank you for joining us on the call today; and Operator, we are ready to take questions.

(Operator Instructions)

Michael Webber, Wells Fargo.

Good morning. How are you?

Great.

Peter, just a handful of questions and then I think I'll probably stick to the Parent assets and one around your leverage. And maybe walking through -- Parent Fleet Status on slide 9. Can you remind us, you mentioned around the Hummingbird Spirit through 2017, unless terminated for convenience, with 90 days of notice, can you give us a bit of color around the technicalities around that? Obviously if you're negotiating to extend, it might not be - certainly not a certainty - but just a little bit more color around the embedded optionality there with the charter.

Yes, Mike it is Kenneth.

First of all, the Hummingbird Spirit is on a field where there's a lot more oil, but at the moment the production is definitely at a level where we are close to a breakeven cost because the existing oil prices is very tight. That's the reason why we have discussions and there is a three months termination as we said in there, and we are doing what we can to work with the charter and figure out ways we can push that position out in time.

And that's really the optionality that the charter has on the field, and that's reflective of many of the discussions we're seeing on other fields also that you're not just making a decision based on today's oil price, but it's really also giving up a lot of optional upside that you are saying goodbye to. So I think it's a complex discussion and it's more than just dividing the charter rates with the production and then looking at the oil price, there is associated decommissioning costs, et cetera. So if you fundamentally have a field that can produce for longer, of course, there are various options (inaudible).

I would just add that that's an interesting field, because that field has not been depleting, according to what its schedule was. So it's production profile is actually been better than what was forecast. And therefore, there is an incentive to keep it on the field for longer.

And then of course play for the higher oil price you talked about, Kenneth.

Okay. All right that make sense.

Around the LNG carriers that you have charted, the Arctic and the Polar, are there -- looking for something as early as Q3 2016, but you have a sense yet on whether you'll be cold or hot stacking those when you do get them to Asia? And then I think if you can give us anything around what we should model in from a run-rate per cost on those assets through 2016?

Are they going to be stacked?

Yes. Well, we are working on opportunities, but in the charter opportunities, we don't anticipate we trade them in the spot market. Therefore, we are looking for medium-term contract opportunities, which is why we've got a delay for starting up in Q3.

And therefore, they will not be kept cold. They will warm up. Which oddly enough makes them in cold lay up when they warm-up.

I expect you've got to switch it around. If you are looking at longer term opportunities because of the spot market now, relative to the reference rate we are used to looking at somewhere between 70,000 and 80,000. In this environment, what -- without nailing down a specific number, what was sort of haircut do you think would be appropriate in this environment for long-term contracts?

Well, those units have been, for the last few years, trading down to Argentina, where they have been utilizing the shallow draft. And we're working on opportunities that can utilize those vessels in shallow draft opportunities. And they've traded in places so they have ice class, which makes it good for Kenai, and Kenai looks like it will start up again.

However, I am not sure exports really are profitable at today's low gas prices. So we can see numerous regions and capabilities that make these units -- well that's why customers come to us and asked them for us. But fundamentally, we believe the oil price has to increase in order to have LNG prices increase.

Because lots of people are picking up LNG today and selling it spot at a loss.

Fair enough. I can [loop up with Lon on that]. Around -- actually one more on fleet and then I just wanted to touch on leverage. But within the, I think it was appendix C of the release, running through the Parent-level cash flows, and in the other bucket I know there are a lot of things that get tossed in there. But there are two FSOs that are chartered up to the Parent. I think they've been there for a while but just curious if you could break out what the rate and term on those are? They don't make the slide in terms of the owned assets, in terms of the operating -- or assets or sources of potential sources of cash trying to get somewhere near the breakeven on those.

Yes Mike. There are a few offshore assets, like Peter mentioned, the Petronordic and Petroatlantic and then there's a couple of FSOs like the Pattani, and the Falcon. Basically those are structured pretty much on a flow-through basis. So there is very minimal impact on the free cash flow on the Parent level.

Can you remind us of the term on those assets?

They vary - Kenneth?

Petronordic and Petroatlantic are core UK shuttle tankers that are excellent in the shuttle fleet there. Mostly work on the FoinHaven contracts. So that's what they have linked up to.

Pattani is on an option with Chevron in Thailand, and it's a five-year option at a relatively low rate. Again there, its an asset with more field life, and it's a big producing field. So in one or two years we probably have a discussion with Chevron around the possible extension because it's a good asset that is been completely written down but has a lot more life left in it.

On Falcon Spirit, that's on charter to QP and Occidental, and there is a firm charter that expires in 2017, but also there, it's last field in there are extensive discussions, which are starting to come up over the next month or two, we expect.

Fair enough. Is it fair to say that other line item in terms of cash generation of the Parent, shouldn't be too much variability there in 2016 and 2017. Maybe a bit beyond that, things could change, is that a fair characterization?

Other than the Arctic and Polar.

Right. Okay perfect. And then one more for me and I'll turn it over. Vince, you or Peter.

Around the facility at the Parent level, can you give a sense on where the LTD covenant is on the facility? The one that's underpinned by the equity stakes and the daughters, and whether there have been any sort of reduction in availability, just given the fact that the daughter equity values [dependent] so much?

Yes we have a Corporate revolver at the Parent that is secured by the daughter shares and with the sharp drop in the share prices late last year, it's a fairly low LTV. It is less than 10% right now, and so we are not getting very much availability under that revolver right now. We are in discussions with the banks to amend that facility going forward.

Do you have a timetable around those conversations at all?

I would say probably in the next couple months or so.

Great. All right great, thanks for the time. I will turn it over.

Amit Mehrotra, Deutsche Bank.

Yes thank you operator. Good afternoon, morning. I appreciate all the details on the slides.

Vince, on the Parent company cash flow -- I'm sorry, the operating cash flows, Peter mentioned some of the puts and takes into the first quarter. But if you could just extrapolate a little bit and tell us what the puts and takes are, so we can get a sense of maybe what the full year looks like? Appreciate it.

Yes, we did provide some guidance for Q1 in the appendix of the presentation, on slide 14. So the biggest changes in Q1 compared to Q4 would be the reduction in the Foinhaven revenues, given that we received an extra $15 million in the fourth quarter. So that would be a minus, and then the Arctic and Polar, should they continue to stay out higher then that's a $6 million reduction in the first quarter.

So those are a couple of the reductions. The increases, we've highlighted some decreases in OpEx there for the FPSO fleet. The dry docking expense that we incurred of $5 million in the fourth quarter would not be there in the first quarter. And then, the other parts of it would be smaller items, like tanker rates are probably going to be a little bit stronger in the first quarter and the dividend might be a little bit higher from T&K. And I think net interest expense probably should drop a little bit in the first quarter, so there are some pluses and minuses.

Okay. And then the $850 million in gross debt, of which $245 million is short term, or characterized as short term, can you walk through how that will be addressed with the cash balance in the free cash? Some of that will be extended with the VLCC facility. But if you can also help us with how you address that with the current existing liquidity? And also just related to that, if you could just help us with the minimum liquidity requirements with respect to any covenant or even intraquarter working capital swings?

Sure.

Our net debt net of cash that ended December was $630 million. The two facilities you are referring to, one is -- that's up for maturity in 2016. The first one is the one that secured by the Shoshone Spirit VLCC, so we are in the process of extending that out.

That one should be relatively straightforward. The other one is the FPSO facility that expires in September. That's secured by the other FPSO units of the Parent company level.

That one we're also in discussions already with the banks on extending those out so expect both facilities to be to be rolled. In terms of the -- just going back to the earlier discussion about the equity margin corporate revolver, as I said, we're in the process of talking to the banks for amending that and the goal there is to get a higher loan-to-value percentage, and if we're successful on that, then our liquidity would increase in the current levels.

Right. Okay. That's great.

Just one sort of bigger picture question for Peter, if I may. The story for a long time had been sort of the resilient nature of the cash flows, and basically how you didn't ask your customers for true ups when oil prices are high, so its tough to give concessions when oil prices are low. But obviously, I guess in the current environment, you know, customers are looking everywhere to cut costs and some are survival mode. Knowing full well where you are in the supply chain, where you sit in the supply chain, and the blue chip nature of your customers, can you give some color in terms of - have commercial negotiations or discussions with existing customers gotten more difficult, or is it the same status quo?

And really it is just a reflection of how the public markets are treating the business model? If you could just offer any updates on that? That would be great.

Sure. Well it always starts with your customers. And when your customers are hurting, you as a supplier are always hurting, as well.

So we are -- so I would -- I think it's true that we are not immune to that. But it's different, I think, following the distribution cuts and the fact that we have to finance the growth projects that are coming up. Is that its sometimes in our interest in order to amend the contracts.

To get them longer. So we are going to our customers and saying, is there a possibility of buying more duration, because we have observed, especially at Teekay Offshore, that the duration of our contracts is so low that our banks are forcing us to repay debt so much. So if we can term out our contracts by giving a little bit, then I think that's a win-win for both parties.

At the same time, we got to work with them in order to lower the cost. And that's something that we are more than happy to give the bulk of that to our customers. And give value.

Is there a is there a way to think about that trade-off, and how you think about the value proposition? On an NPV basis in terms of trading off a little bit of a higher rate, or cash flows right now, for a little bit longer duration? If you could just help us with that?

Maybe I should just add, it is Kenneth here: there are really three things that I think need to be considered when we're looking at the discussions with customers. The first one is, as you correctly point out, where do we sit in the value chain and what are the supply and demand dynamics in each of those segments? And I would say that they're very poorly fully understand across the board in the offshore service sector, because they're obviously vastly different between a shuttle tanker and a PSV on an anchor handler today.

In the same way we're seeing conventional tanker rates shooting up to the same customers, which is a function of a lot of oil supply and relatively fewer tankers than what we had a couple of years ago. So I think it is important to understand the supply and demand fundamentals in each of these sectors, which is there. The second part is, of course, we're interested in going into a dialogue about extending and amending and getting more certainty more duration on.

And the underlying criteria there is obviously - what is the fundamental key to life, which we spoke to earlier, and where it makes sense to stretch out it's in our interest to stretch our loans to match a longer profile and getting more certainty on those profiles. So that's an active discussion, which is around the NPV calculation getting certainty on the financing and stretching that out. And then there's the third element, which is really the important one, which is different.

Where we can definitely see those completely different changed dialogue in the industry today, where customers and suppliers are just having different conversations. It's about how do we collectively take out cost of the supply chain. It's about how do we bring down the production cost per barrel.

And the only way that you can effectually do that -- there's only so long you can keep beating each other up. What you really need to do is to look at how you can work smarter. Its about shifting around some roles and responsibilities, and how you actually develop and run a field.

There's a lot of duplication out there, and those are the discussions which I think are more interesting to us, because that is fundamentally how we become more relevant to our customers and how we help lower the cost. Out of that equation obviously comes benefit to all of us because we make the industry more sustainable.

I would just add, you know, when you think about the Varg FPSO, that sat on the same field for close to 18 years. And there was a lot of extra drilling that went on and they developed other parts, and so, we, they paid us to put on for example, gas injection in order to keep the pressure up on that field. And so, we continue to work with our customers on that.

But the great part, a lot of people have been asking about - why do you have so much growth? But the great news is that our oil company customers are really keen to get our new projects on. If you think about Libra, if you think about Atlantis, if you think about Yamal LNG.

And Gina Krog.

Yes, and Gina Krog in the North Sea. They all want, they are keen for us to complete our share of it because they want to start cash flowing those assets, which are incredibly important for them, to keep up their reserves.

And so that's what we are continuing to see. Whereas most of the focus is on - will people shut down production? But actually the oil companies, and obviously, BG being sold to Shell - that was Shell replacing reserves, in a big way.

But what is important is that, the keenness, you would say, of our customers in order to have our new projects come on. And that is of course taken off with the idea that some of these units that are on mature fields will go off. But then again, as Kenneth was saying, some of our mature assets are great assets in order to have a cost-effective solutions on fields that will be developed in the future.

So it isn't just one way. Everyone thinks there's this correlation coefficient that oil production is going to go down, but actually I can see that oil -- our customers, as you were saying Kenneth, are actually thinking more strategically than that.

Okay. Great. Thank you. Appreciate the time.

Fotis Giannakoulis, Morgan Stanley.

Yes. Hello. I want to ask about the debt at the Parent level and you have the bones, and you have the facility that you mentioned earlier. Based on the cash flows and now with the reduced dividend, what is the plan of the repayment of this loan? How do you view long term this loan being repaid?

Sure. But we haven't actually changed it, which is that we plan to sell the fixed assets that we have upstairs. Which total, as we said, approximately $635 million.

That's how we plan to repay the bulk of the net debt that we have. That's a good offset. And then of course, the value of our daughter companies has been severely impacted by the distribution cuts.

But we know that that inherent value will increase along with the GP value and that will defray any extra amount that has to be refinanced in the future years.

Can you explain this last comment about the stock of the daughter companies? Are there any thoughts of potentially selling the daughter companies' stock in order to repay the loan at the Parent level?

No. The idea is not to buy high, sell low. The idea is that we have lots of levers in order to enhance that.

Obviously, we've taken it on the chin with cutting the distributions, but the ultimate value of the daughter companies is a fraction of what they are worth when we turn back on the distributions. And fix the financing shortfalls that we have. That's the essence of what we've been trying to convey today in our call.

So yes, take a picture and say that some of the parts today is $9.00. But let's take a picture when things get restored. And then I think the $9.00 looks just a fraction of what the inherent value is.

Which by the way, was what it was a year ago right? And so there isn't an essence for what it is. We also have the ability, as Vince was saying, that if we have any liquidity shortfalls we can borrow more against our daughter company entities rather than sell them.

Because as you pointed out, Vince, the loan value on that equity margin revolver is less than 10%. And so, we have levers that we can play there. But the fire sale part of assets -- don't even bring it up.

I just wanted to make it clear that there are no plans of selling any of the shares. Clearly a lot of value in the stocks of the daughter companies.

When you mentioned about the potentially selling the assets at the Parent level, are you referring to selling down to the daughter companies? Or even selling to the market given, that some of these assets, they have long-term cash flows and that there would be buyers probably based on those cash flows?

Well, each asset is a little different. Obviously, the FPSO assets are earmarked for TOO, whereas the VLCC is earmarked for third-party sale. TIL is also on its way to being sold and they have their own strategy that they have going forward on that, which they are successfully executing.

So Teekay strategy, which is to become net debt free, hasn't changed one bit from that. Obviously, it's been delayed and we've had to take a little bit of a change in financial strategy, but we have not changed that inherent strategy. And that's why we think we will be back there in order to repay the bonds by 2020.

And Peter, I understand that part of the operations are related to assets of the daughter companies outperformed by the Parent asset service to his daughter companies, is that correct? And out of the G&A that corresponds to the Parent entity, is there any G&A that would be more related to the daughter companies that could be potentially be undertaken by the daughter companies?

No. We've already made those allocations, which depend upon that. Yes, Teekay -- all the employees are basically up at Teekay Corporation. They provide services, and they do that on a basis that is checked by the independent directors annually at each daughter company to make sure that the services they are getting are cost effective and there isn't any splitting up of that.

Okay thank you very much Peter.

Thank you. And you can find more those details in the breakout of our earnings release.

Sunil Sibal, Seaport Global Securities.

Hi good morning, good afternoon. Just a couple for me. In terms of the FPSOs for those units for which you might have to wait, so they come off the field and you are waiting for a new contract. What is the typical cost during that time?

Well, it varies, based on the on the unit and the complexity. But HR1, which we just had in layoff, and Hummingbird, which are relatively simple systems, would be $5,000, $10,000 a day. Without being drawn on the exact number, it's probably in that region.

But it all depends in terms of when we would prepare for the next job. Is it in warm layup, where we are expecting a job shortly, or is it a little bit of a longer period? So it really is on a unit by unit basis, so we can give more information on that as it becomes relevant.

Okay, got it. So the quarter layup will be even lower than that, is that what you're saying? The $5000 number, like you said?

I would call it closer to $10,000 a day.

Okay got it. Then on the LNG carriers. You know, so you have a few at the Parent, and a couple at the TGP level too.

I was curious, I think some of the players in that industry have come together for the cool pool concept. With regard to your vessels, was that not the contacting strategy you were looking for or the vessels were different? In terms of your decision not to go that route?

Yes. We think we have the customer contacts. And in order that we don't need to be part of a pool, that we will outperform the pool because our assets are more specific.

And that was proven particularly by the Maersk and the Methane getting the employment on the new Australia contracts through mid 2016. And so we think we actually benefit by doing it ourselves rather than being part of a pool. The Arctic and Polar, as I talked about at an earlier question, are a little more specific.

So, we're having direct contacts, there rather than treating them as commodities.

Okay got it. And then just one housekeeping for me. In the appendix C, in which you provide reconciliation for cash flows as part of the earnings release.

For the vessels at the Parent, it seems like the line item on the amortization of in-process revenue contracts? So normally its a deduct for calculating the cash flows, and it seems like this quarter it was add back, and I was curious if there was anything specific going on there. And I can take it off-line if that's better.

Yes, we can take that off-line with you.

Okay. That's all I had. Thank you.

Thank you.

[Jerry Fia, WGI]

Hi, thank you so much for your time. I just wanted to follow up on the previous customer negotiation question. I understand your position of wanting graded duration on the offshore contracts, and I'm just curious, if oil prices deteriorate further and the profitability of some of the fields becomes more in question, are delays in deliveries in exchange for longer duration also possible?

I don't think so. I think what we're talking about when we talk about this extending the duration is on more mature oil fields where you have low production. Where you have new fields coming on, you have high barrels per day production, and they've spent so much money that they are actually keen to start up on time.

Okay. Okay. And is there a way to possibly get some understanding for the scale of rate reduction of mature fields that are possible in exchange for duration?

No, it's actually a whole bunch of one offs. There isn't an algorithm or a formula that you can put to that. And as I said, maybe earlier on the TOO call, a lot of it depends upon what they see as the ultimate value of getting out.

And oddly enough, if you close down a field, in some ways it can be hugely cash flow negative because you accelerate what we call plug and abandon costs. You have to start to take things off of the fields and so the weird thing is by shutting down production, you actually could cause yourself to have much more negative cash flow.

Okay. Great. Thank you so much.

Thank you.

George Berman, IFS Securities Raymond James.

Good afternoon and thanks for taking my call.

Hi George,

Congratulations on the nice contract on the Shoshone Spirit. Adding to your earlier comments that you are looking to now change for the better, to buy low and sell high. In the current environment, wouldn't it makes sense to liquefy that VLCC with the charter on it, and either repurchase your own or your daughter company shares and add to your positions?

Yes. That's an idea. Yes.

Okay. Next question, your investments in tanker investments. If I look at the company, reported great numbers this morning, and they are showing as shareholders, they bought a bunch of their own stock back and then second about or the largest individual share of this would be Teekay Tankers along with you holdings.

Would it make sense to move that company along with Teekay Corporation, or sell the shares? I understand they announced another 60 million share stock buyback program, or $60 million stock buyback program this morning. What are your plans for this division? I think you manage that as well right?

Yes. That is managed, the CEO is a Teekay person, and it is a Teekay-managed entity. So yes, they are executing very smartly, they are taking advantage of the fact that they can sell assets at full value, and they are buying back their shares at a 30% discount.

And in doing that, every remaining share becomes worth more. So obviously, we've taken note of that. Right now at our some of our other daughter companies we have some funding shortfalls, but believe me, that's something that Teekay Corporation has done in the past,

From 2005 to 2007, we bought back 25% of our shares. So it's a strategy we are familiar with, and you are quite right to point out that tanker investments is executing on that and given where all the Teekay entities are trading post-distribution cuts, that's a viable strategy to sell assets and buy back loans or shares at a discount, creating more net asset value per share. And we bought back the sum of the parts, but the other thing that we think about is the fact that we are, as TIL, selling at a significant discount to its sum of the parts.

That's the problem at the moment, the problem at the moment with all tanker companies despite record high rates, the valuations given of tanker companies at the moment in the market are almost ridiculous, as ridiculous as your own stock price.

Yes, but that's what happened in the world is that everything is trading correlated to oil prices. And you're right to point that out. Tankers are benefiting from lower oil prices in general. But the whole sector, as everybody likes to say the baby is thrown out with the bathwater. So it's incumbent upon us to take advantage of that as we increase our financial strength.

Right. One last question, could you give us the rates that you are currently paying, the charter end rates for the Arctic Spirit, the Polar Spirit.

It's roughly $50,000 per day per ship.

And they are currently laid up looking for work, so if you can secure longer term contracts above those rates, obviously they would be a profit center for Teekay Parent as well, correct?

Yes.

Okay. And with a number of LNG projects coming online here over the next 12 to 18 months, do you feel the chances are pretty good then at this point in time?

Yes. What we said on the Teekay LNG call, is our customers used to want to order newbuildings. Now, with the rates being low, they are looking at chartering existing stuff and waiting, not to have newbuildings. And that's really what's happening across the whole energy universe. At high oil and LNG prices, everyone wanted something new.

Now they are much more content to have cheap but nice. As long as its safely operated by an operator like Teekay.

Right and there are not that many LNG carriers laid up at this point are there?

No. There aren't. And you will ultimately need more as all the Sabine Pass and other projects come online.

Right. Is that the -- the Sabine Pass, you mentioned that, that was supposed to happen in late January. I guess it's been pushed out to early March now? But we're pretty comfortable that will start, come to pass?

Yes. We have two vessels that are going to lift volumes there and one just got delivered earlier today, and that will go on charter to Chenier by the end of this month.

Okay great. Good luck for the future.

Thank you very much.

Gregory Lewis, Credit Suisse.

Hello. Good afternoon, and thanks for squeezing me in here. We are now up on an hour. I mean, you know, I have lots -- I will just mention one question you led me to thinking about. You mentioned that the assets at Teekay Parent are around $635 million.

It's pretty easy for me to back into the values of the VLCC. What I'm wondering is, for the value we are putting on the FPSOs, is that more of a third-party broker analysis, or is that more of applying a multiple of cash flow to come up with those valuations?

It's more of a discounting of the existing contracts that they are on and taking into account a residual value.

Okay, thank you.

We're putting no more -- like for example, the Foinhavan, where we are negotiating to extend the contract. We're attributing no value to that - to the contract extension until it's actually realized.

Okay so it is really just a DCS?

yes.

Okay. Perfect. Thank you very much.

Thank you, Greg. All right thank you very much. As Greg pointed out we are right up on an hour. So thank you very much and as you hear, we are still busy.

There's a lot going on around Teekay Corporation. But our biggest focus right now is on the financial aspects going forward. Thank you all very much for listening.

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.