Teekay Corporation's CEO Discusses Q2 2011 Results - Earnings Call Transcript

Teekay Corporation ( TK)

Q2 2011 Earnings Call

August 11, 2011 11:00 AM ET

Executives

Kent Alekson – IR

Peter Evensen – President and CEO

Vincent Lok – EVP and CFO

Analysts

Justin Yagerman – Deutsche Bank

Michael Webber – Wells Fargo

Gregory Lewis – Credit Suisse

Urs Dur – Lazard Capital Markets

Justine Fisher – Goldman Sachs

Sal Vitale – Sterne Agee

Adam Zworg – Omega

Presentation

Operator

Welcome to Teekay Corporation’s Second Quarter 2011 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.

Kent Alekson

Before Mr. Evensen begins, I would like to direct all participants to our Web site at www.teekay.com, where you will find a copy of the second quarter 2011 earnings presentation. Mr. Evensen and Mr. 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 could cause actual results to materially differ from those in the forward-looking statements is contained in the second quarter 2011 earnings release and earnings presentation available on our Web site. And I’ll turn the call over to Mr. Evensen to begin.

Peter Evensen

Thank you, Kent, good morning, everyone, and thank you for joining us today for Teekay Corporation’s second quarter earnings call. I’m joined this morning by our CFO, Vince Lok; and for the Q&A session, we also have our Group Controller, Brian Fortier.

Beginning on Slide 3 of the presentation, I will briefly review from recent financial highlights for Teekay Corporation and our three daughter companies. For the first quarter of 2011 or second quarter, excuse me, Teekay Corporation generated a consolidated $149 million of cash flow from vessel operations or CFVO, an increase of approximately 9% from first quarter.

We reported a consolidated adjusted net loss of $36.3 million or $0.51 per share in Q2 on a consolidated basis. TK’s diversified business model continues to be an important source of differentiation and fixed-rate cash flows, especially in the current weak spot tanker market which is primarily responsible for our loss this quarter. We continued to experience a high level of business development activity in our offshore business, which paid off in June with the signing of important contracts in both our FPSO and Shuttle Tanker business.

I’ll talk further about these in a moment. Together these projects are expected to add approximately $2.7 billion to our existing $12 billion portfolio of foreign fixed-rate revenues and will increase our future fixed-rate CFVO. In July we paid our usual second quarter dividend of $.31.625 per share or $1.27 annualized, which is supported by the growing amount of fixed-rate cash flows, generated by our direct owned assets and the stable dividend cash flows we receive from our general partner and limited partner investment in our two master limited partnerships.

We also continued to return capital to shareholders under our existing $200 million share repurchase authorization. Since our last earnings conference call on May 12, we have repurchased 1.9 million shares for a total cost of $62 million, which brings the total number of shares repurchased since the current program began in November 2010 to 4.4 million shares at a total cost of $144 million.

Our three daughter companies continued to be the source of a growing portion of Teekay Parent’s cash flow. In July Teekay LNG Partners declared a second quarter distribution of $0.63 per unit in line with the first quarter. And last month Teekay LNG also took delivery of the first of two multi-gas carriers which commenced 15-year time-charter to IM Skaugen and will provide incremental distributable cash flows starting in the third quarter. Teekay LNG has a healthy near term growth pipeline.

Early in the second quarter the partnership completed a $162 million follow on equity offering which will be used to finance the equity for the purchase of several new building vessels, which are currently being warehoused at Teekay Parent. These include the Angola LNG carriers, one more multigas carrier and one LPG carrier that have been committed to be purchased from Teekay Parent upon their delivery in the next six months.

Teekay Offshore declared a second quarter distribution of $0.50 per unit in line with the first quarter. In June, Teekay Offshore awarded a new, long-term shuttle tanker contract in Brazil which will result in time-charters for four shuttle tanker new buildings commencing upon their delivery in mid to late 2013. In July, Teekay Offshore completed a $20 million private equity placement which was used to make the initial payment on this shuttle tanker order. This is the first time TOO has directly ordered new buildings instead of asking Teekay Parent to warehouse them during the pre-delivery period.

The positives of Teekay tanker tactical management were seen this quarter as Teekay Tankers declared a second quarter dividend of $0.21 per share despite continued weakness and spot tanker rates. Recently Teekay Tankers flexed its tactical management capabilities again to expand its fleet with two opportunistic charter ins which combined with charter outs of two owned vessels have locked in cash flows of approximately $3000 per day per vessel for the six and four month firm period of the charter ins. Should the market strengthen Teekay Tankers has the option to extend these charter ins for up to 18 and 16 months respectively.

Taking these charters into account Teekay Tankers now has approximately 60% fixed rate coverage for the second half of 2011, enabling it to continue paying an attractive dividend irrespective of the weak spot tanker market while retaining the ability to profit from any upside in spot tanker rates which usually occurs as part of a seasonal pattern sometime in the fourth quarter.

Turning to Slide 4 of the presentation, I’ll provide an update on each of Teekay’s core business areas starting with our FPSO business. The world’s search for new sources of oil to satisfy growing global demand coupled with brent crude oil prices well above $80 per barrel have led to a high level of FPSO tender activity during the first half of 2011. In total, 10 new FPSO contracts have been awarded since the start of the year comprising a mix of new vessel orders, conversions and the re-deployment of existing units. We anticipate the high level of FPSO tender activity will continue during the second half of 2011 with a further five to eight new contract awards expected by the end of the year.

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