Q1 2021 Teekay Corp Earnings Call
Yes.
Welcome to Teekay Corporation's first quarter 2021 earnings results conference call.
During the call all participants will be enough listen only mode.
Afterwards, you will be invited to participate and a question and answer session at that time. If you have a question participants will be asked to press star One to register for a question.
For assistance during the call. Please press star zero on your Touchtone phone.
As a reminder, this call is being recorded.
Now for opening remarks, and introductions I would like to turn the call over to the company. Please go ahead.
Before we get begin I'd like to direct all participants to our website www Teekay dot com, where you'll find a copy of the first quarter of 2021 earnings presentation, Teekay as president and CEO, Kenneth <unk> and Teekay CFO Vince Lok will review this presentation during today's conference call.
Please allow me to remind you that our discussion today contains forward looking statements actual results may differ materially from results projected by those forward looking statements.
Information concerning factors that could cause actual results to materially differ from those and the forward looking statements.
Contained and the first quarter of 2021 earnings release and earnings presentation available on our website and then I'll turn the call over to Vince to begin.
Thanks Ryan.
Everyone and thank you for joining us today for Teekay Corporation's first quarter, 2020 One earnings conference call.
And we hope that you and your families are all safe and healthy.
Before I hand, the call over to Kenneth.
Briefly review our financial results for the first quarter of 2021.
Starting with our recent highlights on slide three of the presentation.
And the first quarter, we reported consolidated adjusted net income of $11 million or 11 cents per share up from 3 million or <unk> <unk> per share and the prior quarter.
We also generated total adjusted EBITDA of 202 million up slightly from the previous quarter.
Compared to Q4, we recorded higher results in each of our entities supported by our large folio of long term contracts and our gas shipping business.
Spot tanker rates and our oil shipping business and higher revenues from our marine services business and Australia.
All of this despite the continued weakness in the spot conventional tanker market.
Looking ahead, we are expecting the second quarter to be lower than the first quarter, mainly due to a heavy drydock schedule and both our gas and tanker fleets.
Certain non recurring items in the first quarter and.
And the recent exploration of fixed rate charters and our tanker fleet there will.
Locked in last year at higher rates.
Our guidance on our second quarter results. Please refer to the appendix of this presentation.
Since reporting earnings in February we have made significant positive progress towards the strategic objective of winding down our S. T. S. So segment.
Which we expect will result in a material reduction in our total asset retirement obligations and the second quarter.
And as we will discuss this in more detail on the next slide.
Over the last couple of quarters, we discussed our ESG strategy and we are now excited to have published our 11th consecutive Teekay group sustainability report last month.
Which aligns with global frameworks, such as <unk> and <unk>.
We have included a link to our latest sustainability report on this slide and it is also available on our website.
With that I will turn it over to Kenneth.
Thank you Vince and good morning, everyone.
Turning to slide four of the presentation and as Vince just mentioned, we have made good progress on winding down our F. P. S O segment.
Starting with a balance as highlighted last quarter, we have successfully completed phase one of our decommissioning project with net costs below budget.
On the recycling of the balance our Q1 costs came in lower than expected as the repositioning of the unit two which recycling job was delayed while awaiting regulatory approvals. However, we are pleased to say that the unit departed but so for its final voyage from the U K on may 2nd and was safely hand, it over to the.
Moss recycling shipyard in Denmark on May the 11th Wade will be recycled in accordance with U ship recycling regulation over the next several months.
As such and Q2, we expect to incur approximately $5 million to $6 million of costs relating to the <unk> and initial milestone payments.
Payments to the recycling yacht, which represents the most.
Part of all remaining cost associated with a unit with only minimal costs expected to be incurred after Q2.
Separately in April we entered into a conditional agreement with C and all whereby the customer will take over our remaining phase II decommissioning responsibilities on the banfield, which when finalized will effectively conclude and eliminate all remaining obligations related to the banfield alpha over 20 years of <unk>.
Accessible operations.
This agreement should enable C and ought to achieve synergies when combining this with their own existing subsea decommissioning work scopes.
The agreement remains subject to various conditions precedent that needs to be met by June 1st including confirmation from the U K regulatory authorities says that Teekay has completed all of its obligations in relation to phase one of the decommissioning project. We're currently on track to satisfy these conditions by the end of May.
Before I know, you've and F. P. S. O is now expected to be redelivered to us and the first half of 'twenty to 'twenty two.
As a result of Bp's recent decision to suspend production on the Fortinet and field as a remind loses unit has been operating under bareboat contract at a nominal day rates. Since we received an upfront cash payment of $6 million to $7 million and April 'twenty to 'twenty. Following the re delivery, we expect to green recycled and unit.
With the associated cost expected to be covered.
By a fixed contractual lump sum payment from the customer which was also part of our new <unk> contract.
Re delivery of the Ford and even is happening earlier than what was previously expected. However, this will not have a material economic impact to teekay since our day rate is only nominal and in fact, all costs and recycle the unit may be slightly less in 2022 compared to doing it after many years of additional usage, while the lumps.
Some amount we will receive the same irrespective of whether it is redelivered in 2020, two I'll say 20 to 25.
As a result of these recent developments we soon expect to have largely eliminated our remaining exposure to both the Banff and.
And for nave and F. P S O.
Assuming the conditions precedent relating to the balance decommissioning agreement Amit by June 'twenty to 'twenty. One we'd expect this to result in a material reduction in our net asset retirement obligation on a our old liabilities in the second quarter, we will provide an update on this and due course.
Lastly, the hummingbird if DSO continues to operate on the chestnut field under a fixed rate contract with the charterer and having the right to terminate the contract with three months prior notice if the field is deemed on economic however, the current level of volume production is stable at approximately 4000 barrels per day and oil prices on more than double.
The level that we experienced that this time one year ago. Meanwhile, the unit continues to generate stable positive cash flow for Teekay.
On slide five I will briefly touch on the results and highlights of our total company is as always I encourage you to listen to their respective earnings conference calls for more details following this call.
Starting with Teekay LNG the partnership generated adjusted net income of $60 million on 61 cents per unit, which is slightly better than the prior quarter. We've been experiencing strong counter seasonal demand for LNG carriers since late March with increases in both the spot and time charter LNG shipping markets.
Teekay LNG has taken advantage of this improvement by recently, securing three new time charters, including walk one spot market linked contract. The partnership's LNG fleet is now 98% fixed for the remainder of 2020, one and 89% fixed for 2020 two.
Lastly, Teekay LNG recently increased its quarterly common unit distribution by 15% to $1.15 per unit per annum.
This represents the third consecutive annual double digit increase to the partnership's common unit distribution. This distribution level, which is supported by its large and diversified portfolio of long term contracts enables teekay LNG to continue delevering its balance sheet, which provides financial flexibility.
And to optimally allocate capital as the global demand for LNG continues to grow while adding $6 million per year to Teekay parents free cash flow for a total of $43 million per year and cash distributions from TEP.
Lastly, teekay tankers recorded and adjusted net loss of $22 million on 65 per share, which is an improvement of $19 million of 50 <unk> per share compared to last quarter on.
So the near term outlook is uncertain due to the continued impact of COVID-19, we are seeing positive indicators that point towards and anticipated tanker market recovery, including improvements and the global economy and continued decline in global oil inventories and upcoming increase and OPEC plus production and positive.
Tanker fleet supply fundamentals Teekay tankers is also maintaining its strong balance sheet with healthy liquidity and low leverage which enables teekay tankers to continue reducing its overall cost of capital by unwinding expensive sale leasebacks, and replacing them with lower cost of financings.
In closing I want to thank our seafarers and onshore colleagues for their continued dedication to providing safe and uninterrupted service to all customers throughout the course of the pandemic, we're not out of the woods, yet, especially in relation to the devastation that India is currently experiencing but we successfully managed through unique.
Please challenging circumstances last year, and we're confident that we're taking all measures to manage through the current situation.
In addition, we continue to see a strong correlation between global vaccination programs and the increase and oil demand, which we estimate to be approximately 5% lower currently compared to the pre pandemic levels as the world recovers from the pandemic, we expect the demand for oil and gas and related transportation services to gradually return to <unk>.
<unk> thousand 19 levels, which we believe will be positive fall Corp, gas and oil shipping businesses and for the Teekay group overall without.
With that operator, we're now available to take questions.
Sir if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you were using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again, Please press star one to ask a question, we'll pause for just a moment to allow everyone the opportunity to signal for questions.
Thank you. Our first question comes from Sandy Burns with Stifel.
Hi, good morning, everyone.
And nice to a nice start to the year.
Just two questions specific to the parent results.
On a cash went down I think it was about 12 million or so I was wondering if I know there was no interest payment on on the bond. So maybe if you could explain what was going on there and then also in the parents only disclosure you mentioned on other income was about $4 million.
A bit higher than last year, and and the slight loss that you had and the fourth quarter. If there was if you could give a little more color on what was driving that thank you.
Sure Sandy Yes first on on your first question and the cash goes up and down and that from time to time.
Sometimes it's just due to working capital changes if you look on our liquidity at March 31 of $183 million.
That's actually a slightly higher than what it was what it was at December 31, So so no material changes where there really.
And in terms of your second question, Yes, we did.
<unk>, some additional or generate additional revenue from our our marine services business in Australia.
Which is a big part of that increase to $4 million this quarter.
About three and a half million on that is I would call more non recurring because it was a completion payment.
And relating to an end of a successful project.
So I think going forward, we'll probably expect that number to come down on a run rate basis, although debt, but nevertheless, it was a very successful project.
Right, Okay, great and and.
Liquidity improvement was was a nice positive as well great. Thank you and good luck with everything.
Thank you very much.
Thank you I am showing no further questions at this time I would now like to turn the call back over to the company for closing remarks.
Well. Thank you very much for tuning in today, we look forward to discussing our tanker and gas results and Oh, two upcoming closer a little bit later this morning, and we look forward to reporting back to next for them and stay safe everyone.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.
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Yes.
Moving forward.
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[music].
Yes.
Welcome to Teekay Corporation's first quarter 2021 earnings results conference call.
During the call all participants will be in a listen only mode.
Afterwards, you will be invited to participate and a question and answer session.
At that time, if you have a question participants will be asked to press star One to register for a question.
For assistance during the call. Please press star zero on your Touchtone phone.
As a reminder, this call is being recorded now.
Now for opening remarks, and introductions I would like to turn the call over to the company. Please go ahead.
Before we begin I'd like to direct all participants to our web site Www, Teekay dot com, where you'll find a copy of the first quarter of 2021 earnings presentation, Teekay as president and CEO Kenneth did.
And Teekay CFO, Vince Lok will review this presentation during today's conference call.
Please allow me to remind you that our discussion today contains forward looking statements actual results may differ materially from results projected by those forward looking statements additional information concerning factors that could cause actual results to materially differ from those and the forward looking statements.
And in the first quarter of 2021 earnings release and earnings presentation available on our website and then I'll turn the call over to Vince to begin.
Thanks, Brian.
Everyone and thank you for joining us today for Teekay Corporation's first quarter 2021 earnings conference call.
We hope that you and your families are all safe and healthy.
Before I hand, the call over to Kenneth I will briefly review our financial results for the first quarter of 2021.
Starting with our recent highlights on slide three of the presentation and.
And the first quarter, we reported consolidated adjusted net income of $11 million or <unk> 11 per share up from 3 million or <unk> <unk> per share and the prior quarter.
We also generated total adjusted EBITDA of $202 million up slightly from the previous quarter.
Compared to Q4, we recorded higher results and each of our entities supported by our large portfolio of long term contracts and our gas shipping business.
Higher spot tanker rates and our oil shipping business.
And higher revenues from our Marine services business and Australia.
All of this despite the continued weakness in the spot conventional tanker market.
Looking ahead, we are expecting the second quarter to be lower than the first quarter, mainly due to a heavy drydock schedule and both our gas and tanker fleets and certain nonrecurring items and the first quarter and the recent exploration of fixed rate charters and our tanker fleet that we're locked and last year at higher rates.
For guidance on our second quarter results. Please refer to the appendix of this presentation.
Since reporting earnings in February we have made significant positive progress towards the strategic objective of winding down our <unk> segment.
We expect will result in a material reduction and our total asset retirement obligations in the second quarter.
And as we'll discuss this in more detail on the next slide.
Over the last couple of quarters, we discussed our ESG strategy and we are now excited to have published our 11th consecutive Teekay group sustainability report last month.
Which aligns with global frameworks, such as <unk> and <unk>.
We have included a link to our latest sustainability report on this slide and it is also available on our website.
With that I will turn it over to Kenneth.
Thank you Vince and good morning, everyone.
Turning to slide four of the presentation and as Vince just mentioned, we have made good progress on winding down our <unk> segment.
Starting with the bands as highlighted last quarter, we have successfully completed phase one of our decommissioning project with net costs below budget.
Respect from the recycling of the bandwidth our Q1 costs came in lower than expected as the repositioning of the unit two which recycling job was delayed while the waiting.
And <unk> approvals.
However, we are pleased to say that the unit deposit, but so for its final voyage from the U K on may 2nd and was safely hand, it over to the mosque recycling shipyard and Denmark on may 11th weighted will be recycled in accordance with the EU ship recycling regulation over the next several months.
As such and Q2, we expect to incur approximately $5 million to $6 million of costs relating to the <unk> and initial milestone.
Payments to the recycling yard which represents the most.
Out of all remaining cost associated with the unit with only minimal cost expected to be incurred after Q2.
Separately in April we entered into a conditional agreement with <unk>, whereby the customer will take over our remaining phase III decommissioning responsibilities on the banfield.
Which when finalized will effectively conclude and eliminate all remaining obligations related to the banfield asset over 20 years of successful operations.
And this agreement should enable <unk> to achieve synergies when combining this with their own existing subsea decommissioning work scopes.
Agreement remains subject to various conditions precedent that needs to be met by June 1st including confirmation from the U K regulatory authorities is that Teekay has completed all of its obligations in relation to phase one of the decommissioning project.
We're currently on track to satisfy these conditions by the end of May.
Before and even if DSO is now expected to be redelivered to us and the first half of 2022.
As a result of Bp's recent decision to suspend production on the <unk> and field as a reminder, <unk> unit has been operating under bareboat contract at a nominal day rates. Since we received an upfront cash payment of $6 million to $7 million and April 2020, following the re delivery, we expect to green recycled a unit.
And with the associated cost expected to be covered.
By a fixed contractual lump sum payment from the customer which was also part of our new <unk> contract.
The re delivery of the flow Nathan is happening earlier than what was previously expected. However, this will not have a material economic impact to teekay since our day rate is only nominal and in fact, all cost to recycle the unit may be slightly less in 2022 compared to doing it after many years of additional usage, while the lumps.
Some amount we will receive as the same irrespective of whether it is re delivered in 2022, I'll say 2025.
And as a result of these recent developments we soon expect to have largely eliminated our remaining exposure to both the bands and.
And <unk> and <unk>, assuming the conditions precedent relating to the bands and the commissioning agreement Amit by June 'twenty to 'twenty. One we'd expect this to result in a material reduction in our net asset retirement obligation or AAR over liabilities in the second quarter, we will provide an update on this and do costs.
And <unk>.
Lastly, the hummingbird if DSO continues to operate on the chestnut field under a fixed rate contract with the charterer and having the right to terminate the contract with three months prior notice if the field is deemed uneconomic. However, the current level of volume production is stable at approximately 4000 barrels per day and oil prices are more than double.
The level that we experienced at this time one year ago. Meanwhile, the unit continues to generate stable positive cash flow for Teekay.
On slide five I will briefly touch on the results and highlights of our daughter companies as always I encourage you to listen to their respective earnings conference calls for more details following this call.
Starting with Teekay LNG the partnership generated adjusted net income of $60 million 61 per unit, which is slightly better than the prior quarter. We've been experiencing strong counter seasonal demand for LNG carriers since late March with increases in both the spot and time charter LNG shipping markets.
Teekay LNG has taken advantage of this improvement by recently, securing three new time charters, including walk one spot market linked contract. The partnership's LNG fleet is now 98% fixed for the remainder of 2021 and 89% fixed for 2022.
Lastly, Teekay LNG recently increased its quarterly common unit distribution by 15% to $1 15 per unit per annum.
This represents the third consecutive annual double digit increase to the partnership's common unit distribution. This distribution level, which is supported by a large and diversified portfolio of long term contracts enables teekay LNG to continue delevering its balance sheet, which provides financial flexibility.
To optimally allocate capital as the global demand for LNG continues to grow while adding $6 million per year to Teekay parents free cash flow for a total of $43 million per year and cash distributions from GDP.
Lastly, teekay tankers reported and adjusted net loss of 22 million or <unk> 65 per share, which is an improvement of $19 million or 56 per share compared to last quarter. Although the near term outlook is uncertain due to the continued impact of COVID-19, we are seeing positive.
Indicators that point towards and anticipated tanker market recovery, including improvements and the global economy and continued decline in global oil inventories and upcoming increase and OPEC plus production and positive tanker fleet supply fundamentals Teekay tankers is also maintaining its strong balance sheet with healthy.
Quiddity, and low leverage which enables teekay tankers to continue reducing its overall cost of capital by unwinding expensive sale leasebacks and replacing them with low cost financings.
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, we're not out of the woods, yet, especially in relation to the devastation that India is currently experiencing but we successfully managed through unique.
And challenging circumstances last year, and we're confident that we're taking all measures to manage through the current situation.
In addition, we continue to see a strong correlation between global vaccination programs and the increase and oil demand, which we estimate to be approximately 5% lower currently compared to the pre pandemic levels as the world recovers from the pandemic, we expect the demand for oil and gas and related transportation services to gradually return to.
<unk> 2019 levels, which we believe will be positive fall Corp, gas and oil shipping businesses and for the Teekay group overall.
With that operator, we're now available to take questions.
Sir if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you're using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
And please press star one to ask a question.
We will pause for just a moment to allow everyone the opportunity to signal for questions.
Thank you. Our first question comes from Sandy Burns with Stifel.
Hi, good morning, everyone.
And nice day.
And I start to the year.
Just two questions specific to the parent results one.
Cash went down I think it was about $12 million or so I was wondering if I know there was no interest payment on the bonds and so maybe if you could explain what was going on there and then also in the parents only disclosure you mentioned.
Other income was about $4 million.
Net higher than last year, and the slight loss that you had in the fourth quarter. If there was if you could give a little more color on what was driving that thank you.
Sure Sandy Yes first on your first question Nick.
And the cash goes up and down from time to time.
Sometimes just due to working capital changes if you look at our liquidity at March 31 of $183 million.
That's actually slightly higher than what it was what it was at December 31. So.
Material changes, where there really.
In terms of your second question, Yes, we did.
Received from additional or generate additional revenue from our our marine services business in Australia.
Which is a big part of that increase to $4 million this quarter.
About three 5 million and that is I would call more nonrecurring because it was a completion payment.
Relating to an end of a successful project.
So I think going forward, we'll probably expect that number to come down on a run rate basis, although debt, but nevertheless, it was a very successful project.
Right, Okay, Great and then.
Alright, and liquidity improvement was with a nice positive as well great. Thank you and good luck with everything.
Thank you very much.
Thank you I am showing no further questions at this time I would now like to turn the call back over to the company for closing remarks.
Well. Thank you very much for joining and today, we look forward to discussing our tanger and gas results and our two upcoming closer a little bit later this morning, and we look forward to reporting back to next quarter and stay safe everyone.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.
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