Q3 2020 Teekay Corp Earnings Call
Welcome to Teekay Corporation third quarter 2020 earnings results Conference call.
During the call all parties.
This will be an unfortunately most act.
Afterwards, you will be invited to participate in a question and answer session.
At that time, if you have questions participants will be asked to press star one to register for a question.
First question during the call. Please press star zero on your Touchtone phone as.
As a reminder, this call is.
Shipping recorded now for opening remarks, and introductions I would like to turn the call over to the company.
Before we begin I'd like to direct all participants are website at www Dot Teekay dot com, where you'll find a copy of the third quarter and 2020 earnings presentation.
Resident Vince will review this presentation during today's.
B conference call.
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 the third quarter 2020 earnings release and earnings presentation available.
On our website.
Now I'll turn the call over to Vince Lok Teekay Corporation's group CFO to begin.
Thanks, Ryan Hello, everyone. Thank you for joining us today for Teekay Corporation's third quarter 2020 earnings Conference call.
We hope that you and your families are safe and healthy.
I will briefly review our financial results for the quarter and provide an update on our three episodes before handing the call over to Ken.
Starting with our recent highlights on slide three of the presentation.
In the third quarter of 2020, we.
We reported our fourth consecutive quarterly adjusted profit.
Consolidated adjusted net income of 15 million or 15 cents per share.
Compared to an adjusted net loss of 24 million or 24 cents per share in the same period of the prior year.
We also generated total adjusted EBITDA of 227 million, an increase of 34 million.
In or 18% from the same period of last year.
Compared to the third quarter of last year, our stronger results. This quarter is driven by higher adjusted earnings in each of our main businesses.
With its growth program completed late last year, Teekay LNG generated strong earnings and cash.
Cash flows this quarter, despite a heavy scheduled dry dock program.
Teekay tankers also reported positive adjusted net income and outperformed the weak spot tanker market on the strength of fixed rate charters secured over the past several quarters at attractive levels and Teekay parent's results improved due to.
Higher earnings from the falling here now and hummingbird, EPS Dsos and lower net gionee expenses, partially offset by lower earnings from the Banff FPSO.
Which ceased production and commence decommissioning in June 2020, which I will discuss in more detail on the next slide.
Looking ahead.
We are expecting to report another positive adjusted net income next quarter.
Though we expect our tanker results to be weaker due to lower spot tanker rates and a higher number of scheduled dry dockings in the tanker fleet.
Actually offset by stronger earnings from our gas business due to fewer scheduled dry dockings in the gap.
Lastly in Q4.
For guidance on our fourth quarter results. Please refer to the appendix of this presentation.
Turning to the balance sheet, we have continued to increase and financial strength across the Teekay group, which is one of our strategic priorities.
Over the past year.
Reduced our consolidated net debt by over $940 million or 22%.
Which created significant equity value and reduce our interest expense throughout the group.
We have also increased our total consolidated liquidity from point $6 billion to $1.1 billion on a pro forma basis.
As of September Thirtyth.
Which provides financial strength and flexibility.
Lastly, at Teekay parent using some of our cash balances, we opportunistically repurchased 14.4 million in principal amount of our existing convertible unsecured bonds for total consideration.
I was 11.9 million at all in average prices of 81.55 and 92.23, respectively.
In addition, we also completed the refinancing of our equity margin revolver of up to 150 million, which remains fully undrawn and we eliminated all intercompany debt.
Guarantees with TNK has recently completed debt refinancing of four Suezmax tankers.
Turning to slide four we continued to make progress in winding down our S.P.S. So segment.
The foreign Haven F.U.S., So has been operating under a long term bareboat charter contract at a nominal date.
Okay rate since.
Since receiving an upfront 67 million cash payment in April 2020.
And importantly, we have eliminated our operational exposure to the previous lossmaking contract.
We're pleased to report that we are nearing completion of phase one of the Banff FPSO decommissioning project.
Which has been progressing well in terms of both schedule and budget.
Yes. He has sold unit left its field as scheduled in late August and we are now preparing for the green recycling of the units in the first quarter of 2021.
As we discussed last quarter, we have continued to wind down the operating costs of the unit.
During decommissioning incurring 11 million of net operating costs in the third quarter, which was lower than forecast and we expect this to be further reduced in the fourth quarter to approximately $5 million with ongoing operating costs to be largely eliminated by the end of the year apart from cost that may be incurred to recycle the unit early next year.
As a reminder, the bounced has a unique contract structure, where teekay is also responsible for part of the remediation of the subsea infrastructure.
We had already accrued these costs on our balance sheet in prior periods as an asset retirement obligation or a aro.
During the third quarter, we incurred about $12 million of era.
Our own costs and as at September Thirtyth, our remaining net zero accrual was $34 million.
We expect to incur approximately 5 million of these a our low cost in the fourth quarter and the remaining arrow expected is expected to be incurred as part of phase II in the summer of 2021.
Lastly, the hummingbird FPSO continues to operate on the chestnut field under a fixed rate contract.
However, the charterer has the right to terminate the contract as early as mid 2021, if the field is deemed uneconomic.
We had a small remaining book value on the unit of about 12 million.
Which we decided to write off in the third quarter based upon conservative assumptions related to the continued weakness in oil prices and the possibility that charterer could choose to exercise its termination option.
However, we are continuing to work with the customer of the hummingbird to maximize the production life of the chesnut.
Field and in the meantime, the field is still producing about 6000 barrels per day.
And is generating positive cash flow for Teekay.
With that I will now turn the call over to Ken.
Thanks, Vince and good morning, everyone.
Over the next two slides I will briefly touch on.
The results on highlights of our daughter companies as always I encourage you to listen to their respective earnings conference calls for more details following this call.
On slide five we have summarized Teekay LNG is recent results and highlights.
Okay LNG partners generated total adjusted EBIT.
EBITDA of $187 million and adjusted net income of $59 million or 59 cents per unit all off from the previous year as a result of a complete quarter contribution in Q3 from its fully delivered growth program. The quarter's results also reflect heightened drydocking schedule.
We're learning scale is expected to increase from these levels in the fourth quarter as a result of fewer scheduled dry docks.
GDP reasonably extended the charter contract on a 52% owned LNG carrier the Marin spirit by 14 months too early Twentytwenty two and its.
LNG fleet is now 100% fixed for the remainder of 2020 and 96% fixed and 2021.
Gdps average daily fixed charter rate in 2021 is expected to be approximately $80000 per day to be clear. This $80000 per day figure is the rate earned on a one.
100% utilization basis, because of the time charter nature of the employment entities.
In addition, GDP has also reaffirmed its 2020 adjusted EBITDA and adjusted net income guidance.
The spot LNG carrier market has strengthened significantly over the past three and a half months reaching reasons.
Highs of over $120000 per day for maybe an ex the ETF missiles. The strength can be attributed to the reopening of the albatross window will LNG prices stronger in Asia versus Europe positively impacting ton mile demand fewer LNG cargo Cancelations was zero expected in December as.
As well as seasonal upswing with an expectation of a cold winter in northeast Asia, including Japan, Korea, and Northern China.
Lastly, GDP continues to further strengthen its balance sheet with strong liquidity position of approximately $430 million with this recent $112 million bond issue.
Runs at a record low interest rate during the third quarter GDP reduces total proportionate net debt by nearly $95 million or 8% on an annualized basis and reduced its net proportionate interest expense by over $6 million or nearly 9% compared to the previous quarter and remains on.
To reach that target leverage range next year.
Turning to slide six Teekay tankers reported another quarterly adjusted profit in Q3, TNK generated total adjusted EBITDA of $46 million up from $28 million in the same period of the prior year and up.
Adjusted net income of $3 million or nine cents per share in the third quarter.
Significant improvement from an adjusted net loss of $22 million or 63 cents per share in the same period last year TNK has transformed its balance sheet over the past year on the back of over $400 million of free cash flows.
Sales and asset sales of over $100 million. During this time TNK has reduced its net debt by almost $500 million of 50% as well as increased its total liquidity position by $375 million to $470 million as of September 30.
And TNK.
Has started using a portion of its existing liquidity to further reduced interest costs through unwinding some of its sales leasebacks.
Turning to slide seven we look at the global energy transition out to 2040, the global energy makes is expected to grow through significant changes in the next two decades at the macro level.
Vessel technology will evolve and the shipping sector will change as we strive to reduce our emissions, but this will take time it.
It is important to note that shipping is extremely efficient relative to other forms of transportation and transport, 90% of the world's goods, while only being responsible for 3% of global greenhouse gas emission.
Patients, but this is not good enough as we must further reduce our emissions to meet the Paris agreement and IMO Ptwenty five to targets in the EEI World energy outlook for Twentytwenty. They highlight two global energy scenarios out to 20 to 40 basis.
Both of which show natural gas and oil as ongoing key component.
The owners of the energy mix with cleaner burning natural gas as a key transition fuel along with the growth in renewables.
The graph on the left highlights the stated policies scenario, which reflects current we announced policies and targets with global energy demand growing by almost 20% to 2040 and natural gas.
Awesome, all providing 35 and 10% of new energy supply out to 2014, respectively and the graph on the right side highlights the sustainable development scenario, which puts the world on track to achieve the requirements of the Paris agreement with global energy demand declining by 10% and natural gas and.
Oil, both making up 20% of the energy mix in 2014.
Although the future energy mix is not certain we see both oil and gas continuing to be key resources to meet global energy demand over the coming decades.
Turning to slide eight we highlight our SSD journey and the fruitful.
Focus areas for us we believe the industry leadership and he is de go hand in hand evolving from a foundation of trusting relationships with all our stakeholders. This has been a guiding principle of our company for almost 50 years and has become even more important as we continue to see stakeholders raising the expectation for.
The need for industry lead.
Leadership is as great as ever and ultimately we will be measured on the actions that we take that.
The first and arguably our most important DSD question is how we allocate capital in a world of changing energy sources, especially when making investments in assets, where the lifespan of 20 to 30 years as main entry transfer.
Aspiration company the changes in energy mix has always inform our strategy our charts on how we have continually adapted to the changes in energy mix in more detail on the next slide.
Second we will continue optimizing our existing business in the near term we need to operate our existing fleet safely response.
Simply and efficiently as possible across our fleet, we are continuing to drive vessel efficiency through improved voyage planning and did so to sanction and new technologies as we align our businesses to achieve the IMO 2030, and 2050 greenhouse gas reduction ambitions.
Third we ensure that we have strong you see price.
Bundles embedded in our culture and can demonstrate that to all our stakeholders. The Teekay group recently joined the United Nations Global compact, which is just one step to demonstrate our SSD commitment. In addition, we have also published sustainability reports for the last 10 years and expect to release, a new Teekay group's sustainability.
Reported April 2021 that meets stakeholder needs and is aligned with global frameworks subsets de ROI and Safi.
Turning to slide nine we provide a history of how we have adapted to the change in global energy mix over the past two decades, we have moved from.
100% exposure.
Welcome to the crude oil shipping business to a more diversified portfolio with more than 80% of our invested capital in gas carriers were one of the world's largest LNG carrier fleets of 47 vessels today during.
During this time, we have invested a significant amount of our capital to the LNG sector as we saw the world moving to replace coal, which.
Sure No natural gas, while we continue to uphold our respective brand on operational leadership in our crude oil tanker business as the world is expected to consume oil for decades to come.
Over the past few years, we have been divesting and winding down our offshore business and going forward, we believe that new business area.
Chris are more likely to be in areas, where we can have an impact on the energy transition. So.
Turning to slide 10, we highlighted our diversified portfolio with our gas cast both providing stability to complement our more variable tanger cash flows over the past several quarters.
With the latter having the ability to provide significant cash.
Close during times of strong spot tanker rates like we saw in the fourth quarter of 2019, and the first half of Twentytwenty.
Looking at the graph on the right Teekay Corporation's share price has significant upside potential from share appreciation of our two daughter companies GDP and TNK that continue to trade at significant.
Last month discounts to their respective intrinsic values, we have provided the potential uplift to teekay share value based on dollar share price appreciation of 25% to 50% of $1.38 and $2.77 per share or 63% and 127%.
Perfect respectively based on Teekays closing share price yesterday.
Well, our balance sheets, continuing to strengthen across the group extensive contracted revenues at Teekay LNG and no committed growth capital expenditures or significant near term debt maturities. We believe that we are financially well positioned across the group.
To create long term shareholder value.
In closing I want to thank our seafarers and onshore colleagues for their continued dedication to providing safe and uninterrupted service to our customers throughout the course of the pandemic with that operator, we are now available to take questions.
At this time, we have no questions in queue. So I'd like to turn it back over to the company for closing remarks.
Well. Thank you very much for listening in today stay safe during the holiday season, and we do look forward to reporting back to you next year.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.
Okay.
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