Teekay Corp Ltd (TK) 2017 Q4 法說會逐字稿

Welcome to Teekay Corporation Fourth Quarter and Fiscal 2017 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. Kenneth Hvid, Teekay's President and Chief Executive Officer. Please go ahead, sir.

Before we begin, I'd like to direct all participants to our website at www.teekay.com, where you will find a copy of the fourth quarter of 2017 earnings presentation. Kenneth and Vince will review this presentation during today's conference call. Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from results projected by those forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the fourth quarter of 2017 earnings release and earnings presentation available on our website.

I will now turn the call over to Kenneth to begin.

Thank you, [Lee], and thank you all for joining us today for Teekay Corporation's fourth quarter of 2017 earnings conference call. I'm joined this morning by our CFO, Vince Lok.

Starting with Slide 3 of the presentation. In the fourth quarter, Teekay Corporation generated total consolidated cash flow from vessel operations, or CFVO, of approximately $184 million and a consolidated adjusted net loss of approximately $10 million or $0.11 per share, which is significantly improved from last quarter's loss of $0.41 per share on the back of stronger results across the Teekay Group, including our 3 directly-owned FSOs, which have fixed-rate flows with upside exposure to production and oil prices.

As a reminder, since we deconsolidated Teekay Offshore on September 25, our consolidated CFVO in the fourth quarter only includes 14% of Teekay Offshore's CFVO, whereas in the third quarter, it included 100% of Teekay Offshore's CFVO up to September 25. Had we continued to consolidate Teekay Offshore, our reported CFVO would have been over $300 million in the fourth quarter of 2017.

In mid-January, Teekay completed 2 capital issuances, $97.5 million of common equity and $125 million of convertible bonds, for growth proceeds of $222.5 million. We and our board viewed this as a prudent time to further strengthen Teekay Parent's balance sheet and begin addressing our January 2020 bond maturity, providing us with flexibility and optionality to do so with total liquidity of almost $540 million pro forma for these 2 capital raises.

I won't spend a lot of time going through Teekay LNG's recent results and highlights on Slide 4, because I will assume most if you listened into their earnings call earlier today. Teekay LNG Partners generated distributable cash flow, or DCF, of approximately $52 million, resulting in the DCF per limited partner unit of $0.65 and total CFVO of approximately $127 million, up 19% from last quarter. The partnership continues to generate stable cash flows that are in line with our expectations and which we expect will grow as newbuildings deliver over the next couple of years.

Teekay LNG recently delivered 6 LNG carriers onto long-term contracts, and we have a total of 11 LNG carriers delivering by the end of 2018 and 18 by the end of 2020. We expect TGP's LNG carrier deliveries to generate approximately $250 million of CFVO to the partnership. Refinancings for TGP's LNG newbuilding program is now largely complete, and TGP has also made progress on the refinancings coming due for certain of its existing LNG carriers.

On Slide 4, we have summarized Teekay Offshore's recent results and highlights and the status of its growth projects. Teekay Offshore Partners generated DCF of approximately $34 million, resulting in DCF per limited partner unit of $0.08 and total CFVO of approximately $145 million, up 17% from last quarter. The Teekay Offshore team has been extremely busy, delivering projects onto contracts and is looking forward to the start-up of one of its more complex units, the Petrojarl I FPSO, which is scheduled to commence its charter this April. Two FPSOs have secured contract extensions, and the partnership ordered 2 additional LNG fuel shuttle tanker newbuildings to serve as part of its North Sea CoA portfolio.

As can be seen on the right-hand side of this slide, TOO has now taken delivery of almost all of its near-term growth projects. And collectively, these are expected to generate approximately $200 million of cash flow upon the start-up of the last couple of contracts, with a significant portion of this cash flow not fully recognized until the first and second quarters of 2018.

Looking at Slide 6. Teekay Tankers reported an adjusted net loss of approximately $6 million or $0.03 per share and total CFVO of approximately $32 million. Elevated levels of tanker deliveries and global oil inventory drawdowns contributed to weak spot tanker rates in the fourth quarter. And while we expect 2018 to be challenging for the tanker market, the supply-and-demand fundamentals indicate a tanker market recovery towards the end of this year and into 2019.

In November, TNK completed its strategic merger with Tanker Investments Ltd., or TIL, which creates the world's largest publicly listed, midsized tanker company with a combined fleet of 58 tankers. We believe Teekay Tankers' stock represents compelling value. And therefore, during the fourth quarter, Teekay Corporation increased its ownership in TNK from 24% to 29%, which approximates our premerger ownership level. A portion of the proceeds to fund the acquisition of these shares were reallocated from the divestment of our noncore investment in dry bulk carriers. Importantly, we see these purchases of TNK stock at a level that is below TNK's net asset value or NAV.

Looking to the right of this slide, we see significant value in TNK's equity when the tanker market and asset prices recover even just to mid-cycle levels, which we define as the median of the past 15 years. From an asset point of view, we believe TNK's NAV will increase by over 140% or more when ship values revert to the long-term average level. And as the chart at the bottom right of the slide depicts, if Aframax rates revert back to mid-cycle levels of just under $25,000 per day, we believe that TNK can generate approximately $1.05 per share in free cash flow, roughly equal to the current share price this morning. This is a business that we have been in for over 40 years, and we understand the power of a recovering market and what that can have on tanker equities.

I'd like to finish the call today on Slide 7. We really see that Teekay is at an inflection point, financially, operationally, in terms of project deliveries and from a fundamental energy market point of view. We've taken great strides over the past couple of years, raising liquidity and executing on our financial and operational goals. And we are now well positioned to increase the value of our companies.

In particular, we see 3 key drivers that are aligned to increase the intrinsic value of our companies: First, the financial strength of our companies has improved refinancings of our projects and the completion of various strategic transactions in 2017. Second, we're enjoying tailwinds from an improving macroeconomic backdrop in each of our core segments. And third, we have embedded cash flow growth, most of which has not yet been included in our results as the projects are just now beginning to come into operations. Let's analyze how these 3 key drivers will increase the value of our companies.

Teekay LNG has done a great job completing the financings for its newbuilding program, removing the financing uncertainty that has been surrounding TGP for the past couple of years. And while Teekay LNG's leverage is currently high mainly because it's warehousing its large newbuilding program, it will naturally delever as its newbuilds deliver and begin to cash flow.

Looking forward, the volume of LNG trade has increased remarkably, up 11% year-over-year and predicted to grow an additional 24% by 2020 as the world transitioned away from coal-fired power plants to cleaner gas-powered plants to fuel increasing -- to fuel electric -- excuse me, to fuel increasing electrification needs. And lastly, Teekay LNG's newbuilds will continue to deliver over the next few years, adding approximately $250 million of cash flow.

In mid-2017, Teekay and Teekay Offshore entered into a strategic partnership with Brookfield, which significantly strengthened Teekay Offshore's balance sheet. And similar to Teekay LNG, Teekay Offshore's balance sheet will naturally delever as its project begin to cash flow.

During the last 7 or 8 months, oil prices have increased and with it, our primary customers, comprised of the oil majors, are enjoying higher margins than they were at a $100 oil due to lower input costs. However, the majors have also under invested over the past few years. And with global oil demand increasing, we're now witnessing increased activity in the offshore space, particularly in our core markets. And Teekay Offshore is well positioned to participate in this upturn. The majority of Teekay Offshore's projects have now delivered. And over the next few quarters, the associated $200 million in annualized cash flow will also be realized.

In November of last year, Teekay Tankers completed its merger with Tanker Investments. And in December, TNK completed the refinancing of 2 of its assumed financings, stretching out TNK's debt maturity profile during a time of expected market weakness. Both of these transactions increase the financial strength of Teekay Tankers and help to position it for the tanker market recovery that we see coming, which is based on favorable supply-and-demand fundamentals. Growth in the tanker fleet is slowing just as scrapping is picking up, combined with continued strength in oil -- global oil demand. And under a recovery scenario, Teekay Tankers is expected to generate strong free cash flow, which will increase the value of TNK and our investment in the business.

And looking to the far right-hand column on this slide, Teekay will benefit alongside fundamental improvements across each of our companies. As I spoke about earlier in my remarks, the capital raised by Teekay in January of this year helped us build financial strength by providing us with optionality and flexibility as we look to reduce our overall financial leverage. Each of our businesses will benefit from growing oil and gas demand and growing cash flows, which should ultimately translate into growing free cash flow for Teekay Corporation.

So summing up this slide, we believe that we are at an inflection point, and our key drivers are aligned. Each of our companies has and will continue to strengthen financially. The energy markets are providing tailwinds for our businesses, and our cash flows are growing, noting that the majority have not yet been reflected in our financial results. As these factors continue to strengthen in unison, the intrinsic value of our companies, including Teekay, should increase.

Operator, we're now available to take questions.

(Operator Instructions) And at this time, we'll take your first caller, will come from Michael Webber with Wells Fargo Securities.

Kenneth, I wanted to kind of start off first with the recent capital raise and the idea that -- I mean, it clearly seems that you guys are trying to kind of get ahead of the refinancing, the January 2020 bonds, seems like the biggest bogey out there. Can you talk a little bit about, one, how you would kind of attack that with, I guess, the recently raised capital as well as any eventual uptick in organic cash flow, and maybe just kind of help lay out the plan? You've got some time, obviously, but it does seem like you're trying to get ahead of it. So I feel like it's warranted to kind of run through it.

Mike, it's Vince here. Yes. With the capital raises in January, first of all, we felt it was a prudent thing to do. As you've seen, financial strength is across the Teekay Group and, in fact, is one of our strategic initiatives. This allows us to delever the current balance sheet and increase our liquidity, which is over $500 million now. And it does give us a lot of financial flexibility and a lot more options to address our liability management going forward, and as you mentioned, the 2020 bonds. And so this allows us to right size the balance and, ultimately, refinance the smaller amount of the bond. So for example, if we were to be able to reduce our bond down to, say, $300 million, that would save annual interest expense of more than $25 million, which obviously increases our free cash flow, so for example. So in terms of addressing the bond, this is something that we are discussing with our banks and our board on our liability management strategy over the course of this year. We do have some time though. But we're going to look at the -- a number of alternatives and choose the one that's going to be -- that's just going to create the most value over the long term. But I think this gives us the -- an opportunity to work from a position of strength. Our free cash flow is improving, as you noted, but our asset coverage is also improving, given that our daughter companies have stable capital structures, their cash flows are increasing. Another potential source of capital, of course, is our 3 FPSOs. And if we're able to sell some of those over the next couple of years, that's another source of delevering.

Yes, that was actually my next question, was around whether there's a bid for those. It seems like the -- at least the tariffs are closer to being in the money, at least with Swiss work. And whether they're -- is there a realistic opportunity to sell those today if you needed or wanted to? I guess, it's such a thin market. I'm just curious whether that's something you would explore today. Or would you wait for the market to firm?

Yes, this is a theme that we've been talking about, I guess, for the past couple of years. So -- and I think we've been pretty consistent in terms of saying that we're definitely not sellers when the oil price was onerous, 0 interest for assets like this and in a recovering market. And that was a reason why we also, I think, restructured some of our contracts here so that we'd be more participating with our customers in the market downturn, but also in the upturn. And as you point out, we are now seeing that upside. So with that, and not surprisingly, we are, of course, also seeing some inbound inquiry for some of the more marginal fields that are looking for to -- development solutions. And so same as we're seeing on TOO, we do actually have inbound inquiries for -- especially one of the assets that's coming up. Both of them -- I mean, if you take Hummingbird, we just put on a new contract. The new well is flowing. There's a well stimulation that's along there. It's not quite flowing at the rate that we expected, but the oil is there. So we -- our customers is working on that right now, actually, with the well stimulation. We're looking other means that we can try and further stimulate that well. So that looks pretty promising on the backing of the drilling campaign that our customer committed to there. On Banff, that continues to fill. There's a lot of gas coming in to that unit. But it's actually -- you know it's a small unit. It's a fairly universal unit that is in good condition, that can produce a number of different fields. So people know that this is an asset that's coming up potentially for renewal, and we are receiving some interest in that unit. And Foinaven, of course, will continue for longer.

I guess, maybe, if I take another run at that, I think, in a more straightforward way. Is it fair to say that in 2018, you're looking at kind of operational upside on those assets? And if you were to actually liquidate in that optimism, I guess, would actually permeate into the SMP market for those. That would be more of a '19 or 2020 event?

Not necessarily. I think we have always been on this stated path of not owning assets directly upstairs. And as we talked about it last quarter, we reduced our exposure to the conventional tanker markets and have no assets there. Our Polar and Arctic are redelivering over -- this quarter or next quarter, so that reduces that. And then what's really left are the 3 FPSOs, as you point out. So we are, of course, in -- also evaluating the strategic alternatives. And in concert with that, we are trying to maximize the cash flows on those assets now. So I think the straight answer to your question is that we're quite flexible in terms of what makes the most sense if there is an interested party in those assets.

Right. For the inbound, it's in operational. You're not getting inbound from people looking to buy them?

Yes, we are.

We'll hear next from Randy Giveans from Jefferies.

I don't think there are enough questions on FPSOs, so I have a few more. Are the -- Is the only buyer going to be TOO? Or are you kind of bookmarking them for drop-down candidates? Are you open to kind of third-party sales as well?

We obviously have, dating back to when we established the omnibus agreement, where these assets have been offered or can be offered to Teekay Offshore. But the parties that we are having discussions with also now are external parties. So we don't have a restriction. There is an opportunity for TOO to buy, of course, but there are also an opportunity for other people to invest in these assets.

Sure. And then, I guess, you looked at those as a source of cash. Let's say you were to sell all 3, give us kind of a ballpark for the range of expected proceeds. And then -- or I guess, more to the point would be debt against those that you'd have to pay off, so the kind of net cash benefit of sales.

Yes. And back to, I guess, my answer to Mike before. It's quite clear that these assets are either worth what is meaningful. And that all depends on what is the next opportunity, and can somebody use the assets right. And that's where, in the last downturn here that we saw, there wasn't a lot of inbound inquiry and, therefore, assets like this don't have a lot of value. But if you can actually match an asset with the right field, then, obviously, the conversation changes. So I don't think I really want to be drawn on what we have as a minimum sales price. But it's clear that the value from these assets comes from pairing them with the next opportunity. And that's, of course, a pretty exciting dialogue in a strengthening market.

In terms of the debts on these 3 assets, we had $83 million drawn on these 3 assets as of December 31. However, with the capital raises we did in January, that $83 million has been paid down in the revolvers. So we have nothing drawn on those 3 assets.

Oh, so anything would be straight net cash.

From where we sit today, yes. That's right.

Perfect. All right. And then, I guess, one more question. Looking at the dividend, any chance of increasing that without distribution increases at the daughter levels? Or is it kind of waiting on TGP to increase theirs before you increase your dividend?

Yes, right now, we don't have any plans to change the dividend in the near term. I think as Kenneth mentioned in his prepared remarks, our focus is increasing the value of the entire group, first and foremost. But in terms of capital allocation decisions around dividends, it's something always is discussed with our board.

At this time, there are no additional callers in the queue. I'd like to turn the conference back over to Mr. Hvid for any additional or closing comments.

Well, thank you for your interest in all our calls today, and we look forward to reporting back to you next quarter on our progress. Thank you.

That does conclude today's teleconference. We thank you all for your participation.