Teekay Corp Ltd (TK) 2016 Q1 法說會逐字稿

Welcome to Teekay Corporation's first-quarter 2016 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 first-quarter 2016 earnings presentation. Mr. Evensen 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 2016 earnings release and earnings presentation, available on our website.

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

Thank you, Cam.

Hello, everyone, and thank you for joining us today for Teekay Corporation's first-quarter of 2016 earnings conference call. I'm joined for the 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 presentation, which can be found on our website. Turning to slide 3 of the presentation, I'll briefly review some recent highlights for Teekay Corporation. During the first quarter, we generated consolidated cash flow from vessel operations, or CFVO, of $359 million, an increase of 12% over the same period of the prior year.

The increase in cash flows was driven mainly by the delivery and acquisition of various growth projects during 2015, which more than offset the lower revenues from Teekay Offshore's Varg FPSO as the unit begins to wind down operations after almost 18 years on the Varg field, which I'll touch upon in more detail later in the presentation.

Teekay Corporation reported an adjusted net loss of $6 million, or $0.08 per share, in the first quarter, compared to an adjusted net income of $16 million, or $0.22 per share, in the same period for the prior year. For the first quarter of 2016, Teekay Corporation declared a cash dividend of $0.055 per share, consistent with our fourth quarter of 2015 dividend.

To bolster the Teekay Group's financial position, we've completed or are nearing completion a number of financing initiatives at Teekay Offshore, which addresses their 2016 and 2017 funding requirements. And a Teekay Parent, which reduces our financial leverage and increases our liquidity. I'll touch on these initiatives later in the presentation.

Turning to slide 4, I'll review some recent highlights from our three publicly traded daughter entities. For the fourth quarter, Teekay Offshore Partners generated CFVO of $166 million, an increase of 22% from the previous quarter, driven by the acquisition of the Knarr FPSO in July 2015, and continued high uptime and utilization of our offshore units. For the first quarter, Teekay Offshore declared a cash distribution of $0.11 per unit, resulting in a strong distribution coverage of 5.16 times. As mentioned earlier, Teekay Offshore has completed or is nearing completion various financial initiatives.

These initiatives, which have been strongly supported by our financial stakeholders, fully address Teekay Offshore's near- and medium-term debt maturities, and fully finance its growth projects through 2018. Similar to other companies in the offshore business, Teekay Offshore has continued to be proactive during this period of rapid deflation in field development and production costs across the value chain, and is implementing various cost-saving initiatives across the organization, which are expected to result in sustainable cost savings of over $30 million per year in G&A and vessel operating costs.

Teekay Offshore is also preparing to take delivery of its extensive pipeline of growth projects in 2016 through early 2018, which our customers require for their contracted offshore field development. For the first quarter, Teekay LNG Partners generated CFVO of $114 million, a slight decrease from the same period of the prior year. For the first quarter, Teekay LNG declared a cash distribution of $0.14 per unit, resulting in a strong distribution coverage of 4.79 times.

During the first quarter, Teekay LNG's first MEGI LNG carrier newbuilding, the Creole Spirit, commenced its 5 year charter contract with Cheniere Energy, which delivered in late February and subsequently transported its first US shale gas cargo to Europe from Cheniere's Sabine Pass LNG export facility. The partnership's second MEGI LNG carrier newbuilding is now undergoing sea trials, and it is on track to commence its 5 year charter with Cheniere in the third quarter of 2016.

Over the past few months, Teekay LNG has continued to make significant progress on financing its growth projects, which deliver through 2020. The sponsors of the Yamal LNG project recently announced a significant milestone for the project in securing long-term plan financing. And our joint venture partner with China LNG has recently received multiple offers from Chinese financiers to finance our jointly owned ARC7 Ice-Class LNG carrier newbuildings.

In addition, Teekay LNG is also in advanced discussions to finance its MEGI LNG carrier newbuildings, which deliver in 2017 and 2018, including the five vessels chartered to Shell on 6- to 8-year charter contracts. Teekay Tankers continued to generate strong free cash flow of $66 million, or $0.42 per share. Many of the positive tanker fundamentals in 2015 have continued into 2016, supporting crude tanker demand, including growing oil demand, high crude oil supply from OPEC, ongoing strategic and commercial stockpiling, and port and haulage delays.

However, spot tanker rates softened during the quarter, mainly due to heavy refinery maintenance, a mild winter in the Northern hemisphere, and higher bunker fuel costs. Yesterday, Teekay Tankers declared a cash dividend of $0.09 per share, based on 30% of its Q1 adjusted net income. During the quarter, Teekay Tankers continued to focus on delevering its balance sheet, resulting in a reduction of its net debt of approximately $50 million. And lastly, based on continued positive tanker fundamentals, Teekay Tankers expects to continue generating strong free cash flow from what is anticipated to be a healthy spot tanker market in the remainder of 2016.

Turning to slide 5, we provided a summary of the current Teekay Parent financial initiatives we are undertaking that will further delever our balance sheet, increase our liquidity, and enhance our ability to provide continued strong sponsorship of our two MLPs, which we believe strengthens the entire Teekay Group. This includes bank refinancings and a new common equity issuance. Our bank financing initiatives include a $150 million refinancing of the equity margin revolver, which immediately increases our liquidity by $114 million.

Between a $112 million and $150 million refinancing of the TPO facility secured by three FPSOs, including the Petrojarl Banff, the Petrojarl Foinaven and the Hummingbird Spirit, and a $50 million refinancing of the Shoshone Spirit VLCC tanker facility. In May, we closed the $50 million VLCC tanker refinancing, and we've received all the bank commitments to refinance the equity margin loan and the minimum amount on the FPSO facility.

We also announced we have priced $100 million common equity private placement issuance yesterday, with 40 million of the common shares issued to the two trusts established by Teekay Corporation's founder, one of which is our largest shareholder, with the remaining to a group of institutional investors. Lastly, we have reviewed our upcoming capital commitments, and in mid-May, we agreed to sell our 50% interest in the Prelude infield support vessel tugs, to our joint venture partner KOTUG, for $8 million. We expect to complete all of these initiatives by June 30.

On completion of these initiatives on a pro forma basis, Teekay Parent will substantially reduce its financial leverage to 41% from 48%, on a net debt to estimated fair value basis, and increase our liquidity to $335 million, from $148 million. On slide 6, we provide a summary of the current Teekay Offshore financing initiatives, which we're undertaking to address TOO's upcoming funding needs in 2016 and 2017. Since early this year, Teekay Offshore has been working on a number of important initiatives involving each of our main sources of capital.

This includes new bank facilities, amendments to certain of our existing Norwegian unsecured bonds, and a new preferred equity issuance, all of which are expected to be completed by June 30 of this year. Teekay Offshore's bank financing initiatives include a new $250 million pre- and post-delivery debt facility to finance our three newbuilding shuttle tankers, which are being constructed to service our East Coast Canada contracts; a new $40 million debt facility secured by a fleet of six of our currently un-mortgaged shuttle tankers and FSO units; a $35-million add-on tranche to our existing loan facility, financing the Samba Spirit and Lambada Spirit shuttle tankers; and a $75 million refinancing of the Petrojarl Varg FPSO.

In April, TOO closed the $35 million shuttle tanker add-on tranche, and we've received commitments for the new $250 million and $40 million facilities. TOO has received commitments for the majority of the existing Varg syndicate banks, and we expect to secure the remaining commitments for this financing within the next week.

Our bond holder initiatives relate to amendments to two of TOO's existing Norwegian Kroner bonds due in January 2017 and 2018, respectively. Through negotiations with the largest holders of these two bond series, we've reached an agreement whereby the final maturity dates will be extended to November and December of 2018, respectively. For the $101 million January 2017 bonds, 30% of the issuance will amortize in each of October 2016 and 2017. And for the $144 million January 2018 bonds, 20% of the issuance will amortize in January 2018.

TOO has now issued a summons package to all of the bond holders of these two bonds, to formally vote on the agreement in early June, which only requires approval from two-thirds of those voting. As of today, bond holders representing more than a majority of the outstanding bonds have already given their undertaking to vote in favor of the proposal, which makes us confident in securing the requisite approval level.

TOO is also in advanced discussions with a select group of equity investors for a new $200 million issuance of preferred units with a Warren structure, which we expect to finalize in the next 2 weeks, following the completion of due diligence and documentation. To minimize the effect on near-term liquidity during the first 2 years, dividends on these new units would be paid in kind with new common units of Teekay Offshore. Finally, we've also reviewed TOO's existing asset base and upcoming capital commitments to free up additional liquidity.

In the fourth quarter of 2015, we completed the sale of two of our conventional tankers. And in the first quarter of 2016, we completed the sale lease-back of our remaining two conventional tankers, with both initiatives bringing in a combined $60 million of liquidity. In addition, we're in discussions with the shipyard to defer delivery of our final two UMS newbuildings, which would result in the deferral of approximately $400 million of CapEx payments.

Turning to slide 7, we provided an update on TOO's proportionally consolidated run rate 2017 CFVO estimate, incorporating our latest assumptions on the delivery of our growth projects over the next 2 years and the impact of our cost savings initiatives. CFVO is expected to increase from a combination of various cost saving initiatives, which are expected to translate into OpEx and G&A cost savings and the scheduled delivery of various growth projects.

Our growth projects include the delivery of four state of the art long-distance towing and offshore installation vessels during 2016 and 2017, the upgrade of the Petrojarl 1 FPSO, and the commencement of its 5-year charter with QGEP in the fourth quarter of 2016, The Gina Krog FSO, which is scheduled to commence its contract with Statoil in the first quarter of 2017, and the newbuilding Libra FPSO, which is scheduled to commence its 12-year charter contract with a Petrobras-led consortium of major oil companies in early 2017, and finally, the delivery of two of three newbuilding shuttle tankers in 2017 that will operate under 15-year contracts for a consortium of oil companies in East Coast Canada.

These increases will more than offset the cash flow reductions resulting from the Varg FPSO contract termination, the redelivery of the Navion Saga FSO, and the sale of our four conventional tankers. We continued to receive strong interest from customers to utilize the NORSOK compliant Varg FPSO on various fields in Norway, as a low cost and quick-to-market solution.

Factoring in all of these initiatives, we're now expecting to generate run rate 2017 CFVO of approximately $850 million, assuming the projects are operating for a full year, which represents an increase of 25%. This excludes, of course, the additional contribution from the third East Coast Canada shuttle tanker, which we'll deliver in early 2018.

Turning now to Slide 8, we've provided an update on 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 [Schneer] LNG carriers and begin to take delivery of TGP's other MEGI LNG carriers in 2017.

Partially offset this year by the 1 year deferral of a significant portion of charter payments on two of our 52% owned LNG carriers, which are on fixed rate charter to the Yemen LNG project, which is related to the political unrest in Yemen and the subsequent closing of that LNG facility. The sale of two conventional tankers related to the charter are exercising its option under the charter contract to purchase both vessels and the planned sale of one of the conventional tankers over the next year. Given the back end loaded nature of TGP's newbuilding deliveries, Teekay LNG's run rate CFO will really begin to ramp up post-2017, when we expect to add an incremental $250 million of annual run rate CFVO by 2020.

Turning to Slide 9 and looking ahead, Teekay will take a phased approach to creating value for its shareholders, with the ultimate goal of returning to being an asset-light, high dividend owner of two general partners. The first step towards value creation is to strengthen Teekay Parent and Teekay Offshore's balance sheets, which will occur upon the completion of various financing initiatives we've been working on and talked about today, including the equity raise announced by Teekay.

We believe that having a strong sponsor will benefit our daughters, and will assist with our discussions with rating agencies. In addition, in today's uncertain energy markets, we believe financial strength is increasingly important to our customers, and the completion of these initiatives will aid in current and future discussions.

I'm pleased to report we've received the majority of these financial commitments, as I've talked about, and we're on track to close all of them by the end of June. The second phase of our approach to value creation is to optimize the asset portfolio by selling all or a portion of certain assets where it makes sense, and to focus on redeploying our assets on to new charters or extensions.

A strong asset and contract portfolio will in turn allow us to optimize our balance sheets across the Teekay Group. Upon completion of the initiatives announced at Teekay Parent and Teekay Offshore, we will have successfully funded all of Teekay Offshore's growth projects and dealt with a majority of the medium-term debt maturities at both entities. And this runway will provide us with flexibility to focus on optimizing our balance sheets.

The last phase of our approaches to create value with Teekay is to increase the cash distributions at Teekay LNG and Teekay Offshore, which benefits Teekay as the owner of both GPs. When we reduced our distributions in December of last year, we told you that the cuts were temporary and a reaction to dislocated capital markets.

It was not an issue related to the underlying cash flows of our businesses. The completion of the financing initiatives we talked about today will position both partnerships to increase their distributions in the future, which will benefit our IDRs and allow us to revert back to a high dividend GP. Importantly, unlike other early phase GPs, where it can take several years to get the distributions up the IDR steps, we have the ability to get there quickly, to unlock the GP value. Because the current high coverage ratios of our two MLPs and the stability of the underlying cash flows, which continued to grow, as I've talked about.

Looking at slide 10, we've recreated our sum of the parts analysis and compared this value from where we were in September 2015, with where we are today. As you can see, the value of our direct-owned assets has actually gone up since then, and our net debt has decreased. The only real change during this time is to the value of our equity ownerships, and most importantly, the value of our GPs, which is now adding only $0.26 per share to today's value.

As I mentioned on the previous slide, the ability to increase the distributions at both MLPs will materially affect the value of our LP units, but more importantly, the value of our two general partner. This is why, at today's stock price, we don't believe the markets are ascribing any value to the expected recovery in our LP or GP ownerships, which provides Teekay shareholders with tremendous option value, especially given the progress we've made on the financing initiatives outlined on this call. Finally, as I said earlier on the Teekay Offshore call, I really want to thank all of our financial partners and stakeholders who have participated in the financing initiatives and shown confidence in our business model and strategy.

Thank you for joining us on the call today. And operator, we're now ready to take questions.

(Operator Instructions)

And our first question will come from the line of Michael Webber of Wells Fargo. Please go ahead.

Good morning, guys. How are you?

Good, thanks.

Peter and Vince, I wanted to first dive into some of the OPCO assets. And Vince, and I know it can be a bit of a complicated exercise, but if I think about the EBITDA or the cash flow, cash flow available for distribution delivered from the OPCO asset this quarter and try to true that up with the EBITDA guidance around the -- or not the guidance. The EBITDA expectations, I guess, around the existing FPSOs and the tanker assets.

I'm just trying to figure out what, aside from the lay-up costs on the LNG carriers, what drove OPCO DCF down to the point where it was a [$6 million] loss. Is there anything else baked into that cash flow line item this quarter that we wouldn't have expected last quarter?

Hi, Mike. This is Vince. I'll point out maybe three things in the first-quarter OPCO EBITDA that you see there. First is in the end chartered conventional tankers line, we did make a termination fee payment to Teekay Offshore for $4 million, to terminate the Kilimanjaro charter. So that's a one-time item in the first quarter.

Secondly, on the FPSO line, as you know, we had the temporary outage of the Banff in the first quarter. So the combination of lost revenues and repair costs was about $5 million in the first quarter. So that's also a one-time item. And thirdly, in the other column -- other row there, the Arctic and Polar, as you know, was idle during the first quarter, and that has a negative drag of about $9 million per quarter. So those are the three things that would total about $18 million.

Right, and if I strip out the one-time costs, and I go to the guidance slide where you guys have -- you've included some of the S&P fee associated with the TIL and some of the OpEx savings, that gets about a $1.5 million bump on a cash flow basis sequentially, which implies a loss at the OPCO for Q2. Is there anything else that would need to be stripped out of -- or would be included in that Q2 guidance that would improve that figure?

No, I think that's fully reflected in that Q2 guidance line.

Okay. It's a complicated exercise. I can dig into it offline.

Sure.

But maybe just a higher level, and for Vince or Peter, you mentioned, Vince, one of the drags on the OPCO cash flows of the LNG carriers that are chartered in and either in lay-up or headed to lay-up, at $50,000 apiece, I believe. I'm just curious whether -- or what the employment prospects looked like for those assets, whether that's still the plan? And how expectations there have changed?

Sure. Both ships have been repositioned to Asia, near Singapore, and we're in talks with numerous potential customers for multi-year time charters, but we don't think they will start up until Q1 2017. So we anticipate we'll get a drag for 2016. We may get some short-term charters, but that's not our budget right now, given the weak LNG market. Most of these potential charterers or customers, they are targeting niche trades to China, like the Shenzhen or the [Qidong] import terminal, even though not all of them are Chinese companies.

But it allows these ships that can go higher up these rivers to access import terminals that a bigger LNG carrier couldn't do. So with these ships working niche trades, as you know, they used to be trading to Argentina up the rivers. The higher rates that we are discussing now exceed what owners might reasonably expect for standard LNG carriers, given that they have unique attributes that can be used in China and Argentina. So that's our base operating model.

Right. And the expectation here is that creating those on a spot basis or a position [you have a trade] on a spot basis, to bring in even if it's $25,000, $30,000, the costs associated with positioning them for that would outweigh the potential benefit there, relative to the (inaudible)?

Yes, I'll talk more about the LNG market in tomorrow's call.

Sure.

But the reality is $25,000 or $30,000 that people are looking at, you have to adjust that by utilization. And there's costs to being warm and costs to being cold. So we actually don't think you will realize an incremental $30,000. But the good news is that these -- the Arctic and the Polar are good for niche trades, whether it's Argentina or China up the rivers or Alaska, assuming that you can get some long-term exports out of LNG, which is where -- which is the trade they were built for.

Fair enough. Okay. Just wanted to talk about some FPSO for a second, and then I can turn it over. Peter, on the call earlier and for TOO, you mentioned the Varg, and I think in your prepared remarks for the parent call here. And I guess two questions around it. On the call earlier, you mentioned that evaluation from a third party broker or a third party source of [$250 million to $300 million], which caught our attention, simply because it implies it's a pretty healthy multiple.

So one, I guess the question would be, is that on an as-is basis? And is that applicable for us, your fleet, even into the parent FPSOs, which would certainly impact the way we think about NAV? And then secondly, with that asset specifically, I know you're in conversations around getting that employed. But heading into the North Sea, and the idea that it would need to go to the shipyard for any sort of upgrades, what's -- where is the red line, in terms of getting that ready to actually hit the summer window next year? Or 2018 rather, to get employed, or where you would actually be -- basically, where is the red line to actually hit that summer window for the North Sea for the Varg?

Okay. So what I said on the previous call -- and this is the Varg FPSO, which is owned by Teekay Offshore, not Teekay Corporation -- is that we had received charter valuations without contract, as is, of $250 million to $300 million. And so that's the basis that you use, before you put into the cost of amortizing upgrades, in order to get the charter rate. So that's why, while it was producing 6,000 barrels on its current contract, it can produce, as Kenneth said, well over 50,000 barrels, 57,000. It has gas export.

So it has a lot of great attributes, as well as being available -- the only FPSO available in the Norwegian sector. But you can't read through that every FPSO is worth the same as the Varg. Each FPSO has different attributes, including its production, whether it has gas compression, what its storage is. So that isn't something you can simply multiply.

Right, no, I'm just looking at a multiple [applied] something that lands between 6 and 7 times. How applicable is that to your parent fleet?

I would say that -- without getting totally drawn, I would say that we would expect the new contract that we get for the Varg to give us a higher CFVO than the current contract, which was $50 million per annum, because it is worth more to that charter on a per-barrel basis. And that's -- and so that's what we see. And the upgrades depend on the contract. But what I said on the previous call was that we see a startup on that in more likely to be 2019, but that would be a multi-year contract that would allow us to make any upgrades.

Got you. That's helpful. And then I apologize for (multiple speakers) --

And that's the discussions we're having with people. If it was an early well test, which has a lower probability, it could start in 2018. But we're not really interested in early well tests. We're interested in positioning it for a long-term, medium-term contract.

Okay. Fair enough. I can follow up offline. I appreciate the time, guys. Thanks.

Thanks.

Your next question will come from the line of Gregory Lewis of Credit Suisse. Please go ahead.

Thank you. And good morning. And thank you for taking my questions. So Peter, you mentioned the potential to contract the Varg, and this goes across the whole platform. As we think about taking delivery of assets, newbuilds that are on contract, as potentially going out and upgrading existing assets. Just given all the issues we've seen in the oil and gas space with counterparty risk, when these contracts are written, what types of termination clauses -- and realizing they can all be different.

But when Teekay's in negotiations on these types of contracts, what types of termination penalties are there for the customer, should they -- should you be in the process of upgrading the Varg, and all of a sudden -- you mentioned 2019 -- the 2019, for whatever reason, doesn't become 2019. Yet you've already started investing. How does that mechanism work?

I think -- let me clear up some misconceptions. So if you are in the exploration side of things, you're not as time sensitive. In other words, if you want to cut short a drilling program, and you decide you don't want to drill it, that's fine. You just terminate those. But when you're in a field development, like for example what the Libra is going through or the Petrojarl 1, there is much more money being committed by the customer than just taking our unit on contract.

They are laying sub-sea lines, they're putting in place risers, and so they have already committed well over double what they are going to pay us. So it isn't a question for them abrogating. They are already committed. And so it's only a question of when they start up that field. So that's why, even though you could see various plants like Chevron going over budget on Gorgon, they are going to complete it. And the same thing is true with these multi-year oil fields. If you're Gina Krog or any of these other ones, they are going to complete them.

And by the way, they want our units. So the big issue is, they need our units, and that's what gets into the contract. Now, once the contract is up and operating, then people can come to you and say, can we work on efficiencies? And obviously, in the current market, every oil company is reaching out to their suppliers and saying, is there a way to cut costs, can you cut? And by the way, as part of our $30 million cost savings, we're reaching out to our own suppliers. And that's what we call the continual cost deflation coming in.

But the main point that we see is that our customers need us to produce the assets. And so whether the field is profitable or not at $40 or $50 oil, our marginal cost of lifting is always usually down in the teens. And as we pointed out, our lifting costs are, on average, $13 a barrel across all of our fleet, with the biggest ones being Itajai, where those lifting costs are $3 to $5 a barrel. So that isn't anything that, when you stop and think about that customer, they are getting the other -- if the price is $50, they are getting the other incremental $45. So they don't want us to not work or abrogate the contract, because they are the ones who lose. So being in the production chain really works.

Now on the Varg, let me contrast that with the Varg. On the Varg, the marginal cost of lifting that they were paying us was $40 to $50 a barrel. And therefore, Repsol, which bought Talisman, which was on that field, after 18 years, we were once producing over 50,000 barrels, but we were down to producing 6,000 barrels. So then it wasn't economic at $40 to $50.

That isn't to say that they may not change their mind, but right now, our -- that isn't the prevailing thing, because you have to plan going forward. So they have planned for the termination. They have given us the termination notice. And that actually gives us the opportunity to know definitively that we can go and re-employ the Varg. And the Varg, as Kenneth talked about on the last call, is the only existing asset that can work on the Norwegian sector. And therefore, it has a real advantage.

And that's why guys are talking to us today for projects that will start up in 2019. Because we need to agree that contract in the next year, so we can make whatever upgrades, and they can have certainty when they lay down all their surf as they're -- with their sub-sea lines. So that was a long explanation, but I hope that clears up the misconception that drilling and being in the exploration phase is fundamentally different than when you're in the production phase.

Yes, no, absolutely. But we've seen some issues on -- with some other FPSOs outside of Teekay, as well. That's why I was getting at that. But -- and then my other question was, so just as I think about the equity issuance, that seems like the absolute right move, and then the preferred issuance at TOO. Are these -- these are pending transactions -- is the Teekay equity a pending transaction? Or is this something that has already occurred?

Hi, Greg. The Teekay common equity is all committed for and priced. It's just conditional upon the completion of the TOO $200 million preferred offering, which we expect to complete sometime in June. But everything else is locked down, the pricing and the commitments and the allocations.

Okay. And then just as I look at this, you guys have been doing a lot of work here with the refinancing and all of these. As you -- when you lay this out, and the fact now that you're talking about potentially -- it seemed like there was a noticeable shift change where you're actually talking about distribution increases again. Just -- and I realize this is a very volatile market out here. But as you go ahead and look forward, it seems you view this as, all our solvency issues are behind us with these capital raises?

As Peter said on slide 9, it is a phased approach here. It isn't -- it's a multi-year plan to create long-term shareholder value. And the big -- the initial step, the first step here, is really to fortify the balance sheets of the group here. And the completion of these financing initiatives will do that, and alleviate any concerns over the near- and medium-term about liquidity. It gives us a clear runway, and a lot of financial flexibility, moving into the other phases, as we detailed on the slide here.

Okay, great. Yes, and absolutely. Okay, guys. Thank you very much for the time.

Thank you.

Your next question is coming from Fotis Giannakoulis of Morgan Stanley. Please go ahead.

Yes. Hi, guys, and thank you, again. I want to ask about the -- how do you view the repayment of the debt of the parent? Are there any potentially selling any shares of the daughter companies? I'm trying to understand what is the cash flow of the parent? And I see that the EBITDA this quarter, excluding the dividends, was around $4 million. And I am -- it seems that with the Hummingbird Spirit coming off contract a year from now, this EBITDA might be turning negative. Can you explain what am I missing here?

Hi, Fotis. Obviously, with the equity offering we're doing here, that's one step towards the delevering. Going forward, obviously, with the distribution cuts in TGP and TOO, that is reducing our free cash flow at the parent temporarily. But as Peter indicated, we have the capacity, down the road, to increase those distributions, would obviously would have a significant impact on our free cash flow at the parent, particularly given the IDRs of the GP.

So that's from a free cash flow perspective. And in terms of the remaining assets at the parent company, we have the VLCC, the Shoshone Spirit. That is still on a short-term charter that runs to the end of this year. That's generating good cash flow, but our intention is to sell that asset, and that will be another source of delevering.

In terms of the remaining FPSOs, our intention, over the long-term, still is to sell those assets to TOO once it has more balance sheet capacity, and that will be another major source of delevering. So our plan to delever the parent towards net debt-free hasn't changed. It's just going to take a little bit longer than originally anticipated.

And can you --

And I would just add that we are confident we'll re-employ the Arctic and the Polar, which is generating significant negative CFVO right now. And we're in -- and we're talking with Centrica, which charters the Hummingbird FPSO, and we hope to extend the term of the Hummingbird FPSO contract beyond its current expiry of March 31 of next year. So we'll provide further details if and when a contract extension is signed.

Peter, can you give us a little bit more color on the particular field, at what level it's operating right now?

No. We're in discussions to extend that Hummingbird FPSO contract. So that pretty much tells you the physical side of that field. It has more oil in it.

Thank you. One last question. On the other segment that you are reporting, would you be able to remind us which are the assets you have? And what is the impact of the Yemeni vessels that they are right now not operating? And if there is any update on this vessel, if I understand that the parent is providing some cash flow to TGP on these vessels?

No. The Yemen LNG is the subject of Teekay LNG. And I'll be glad to answer that question tomorrow on the Teekay LNG earnings call.

And would you be able to remind us of the assets on the other segment that you have?

Are you referring to the free cash flow statement, Fotis, in the other segment in OPCO?

Correct, yes.

Yes, that's mainly in charters. And the most significant drag there, as I mentioned earlier, is the Arctic and Polar Spirit, which is in charter from TGP, maybe that's what you were referring to, instead of Yemen. And as we said, that currently has a negative drag of about $9 million a quarter. But as Peter said, we are looking at a number of charter opportunities that would commence in early 2017.

So that's the most significant drag there. The other income would include things like fees that we would generate from our management of TIL and BIL and a few other miscellaneous items. Those are the most significant.

Thank you very much, Vince.

And your next question will come from the line of Amit Mehrotra of Deutsche Bank. Please go ahead.

Thanks so much. Good morning, guys. Just had a quick question on the common equity offering. $100 million is, I guess, a nice round number. Just wondering how you got there? And I know it lowers net debt to, I guess, the 41% level. Wondering if you ever thought about actually raising more than that? And just how you got to that number, given the organic deleveraging plan that's already in place at the parent level? Thanks.

There's always a balance between financial strength and stability and dilution. And this is the first time Teekay Corporation has issued equity in, gosh, really since we did the mandatory convertible preferred, I think, in 2003. So it isn't a common occurrence. It was not our preferred. We just felt that issuing $100 million, we could -- that would really, having a strong sponsor will benefit our daughters, and it will very much assist in our discussions with the rating agencies.

So we wanted to take some risk off the table in today's uncertain markets, and the financial strength is important when we're negotiating long-term contracts, and it will also help us complete all the financial initiatives we've talked about today. There are a lot of financial initiatives. A lot of banks have given us a lot of new money, so they want to know that the parent, as well as the daughters, are in good shape. And so that helps us complete the financing, not -- I've spent a lot of time talking about Teekay Offshore, but we're also completing the financing at Teekay LNG.

So this $100 million will give a lot of confidence a lot of different ways. And I also said, as the number two part on slide 9, I think it will help us optimize the asset portfolio and the balance sheet. And so we have rising cash flow. And so while it hurts a little bit on a dilutive basis, I think we'll more than make up for that with the increases in the LPs, and ultimately the GP value.

Yes. Okay. No, that makes sense. And one more for Vince, on the two LNG tankers. Did you say it was $9 million a quarter? And then basically, you expect to get that re-chartered in the first quarter of the year? So should we think of that as a $36 million headwind, prospectively, through the course of the year?

Yes, it's a $9 million quarter, so I gave the worst case, which is that we don't get a multi-year contract since Q1 2017. So that doesn't mean we're not out trying to get short-term charters for it. And I'm just trying to give a realistic view of when we think we'll get a multi-year contract. We have lots of people coming in and asking for it, but we're being choosy in trying to lock it up on its multi-year charter.

We had it done in -- first it was in Alaska for a long time, and Kenai looks like it might start to have export volumes. We had it down in Argentina. And now there's a lot of potential in China, where it's been on short-term charters before. So we see increased imports of LNG into China, and we know those import terminals need to take our vessel with shallow draft. So we're being a little choosy, but I would rather get the multi-year contract.

Yes, sorry to interrupt there. Just maybe I don't know if you can offer any color, in terms of what the maybe near-term opportunity costs associated with being a little choosy? I understand that $30,000 a day is -- fully appreciate that it's based on some -- probably gross utilization levels or full utilization levels. Is there any indication, in terms of what money you guys are leaving on the table in the near term, to maybe get in that longer-term cash flow?

It all depends. Because in order to be ready to take a cargo, you have to cool it down, and it costs several million dollars to cool down a ship. So what's happening is, it can cost you a lot of money to be in a ready to pick up a cargo state. So we've let it warm up, and so that's why that kind of vessel is better off to move it out where it can be utilized, and then wait for a multi-year contract.

Okay. Got it. Okay, guys. Thanks so much. Appreciate it.

Thank you.

It appears that there are no further questions at this time. Mr. Evensen, I would like to turn the conference back to you for any additional or closing remarks.

Okay. Thank you all. As you see, I'm very proud of the team for having accomplished a lot, especially on the financial side. And we look forward to reporting back to you next quarter, as well as incremental views, as we complete the rest of these financial initiatives. Thank you very much for listening.

This concludes today's call. Thank you for your participation. You may now disconnect.