Teekay Corp hit by FPSOs impairment charge

Nov 15 2019

Due to an impairment charge of $175.8 mill, Teekay Corp reported a GAAP net loss of $198.2 mill and an adjusted net loss of $24.1 mill.

Total adjusted EBITDA was $192.9 mill.


In October, 2019, Teekay Parent entered into a 3.5-year contract for the ‘Hummingbird Spirit’ FPSO, extending production on the Chestnut field until March, 2023.


Since August 2019, Teekay LNG has taken delivery of the fourth and fifth, 50%-owned Arc7 LNGC newbuildings, and the final vessel is expected to deliver in late-November, 2019.


In addition, Teekay Corp secured strong 4Q19 to-date spot tanker rates of $38,000 and $30,500 on average per day for Teekay Tankers’ Suezmax and Aframax fleets, respectively, increases of 133% and 105% respectively, compared to 3Q19.


Teekay Corp’s results included the company’s two publicly-listed consolidated subsidiaries Teekay LNG Partners and Teekay Tankers and all remaining subsidiaries and equity-accounted investments.


CEO, Kenneth Hvid, said; “Our total adjusted EBITDA for the third quarter of 2019 increased approximately $17 mill, or 10%, from the same period of the prior year, excluding the 2018 contribution related to our equity interest in Teekay Offshore, which we disposed of in May, 2019.


This increase was primarily due to Teekay LNG’s higher cash flows resulting from vessel deliveries and LNG carriers commencing new contracts at higher rates, partially offset by Teekay Parent’s lower cash flows due to scheduled maintenance shutdowns on all three of our FPSO units.


“Looking ahead into the fourth quarter and into 2020, we expect our results to further improve now that production on all of Teekay Parent’s FPSO units has recommenced, following the completion of their planned maintenance shutdowns.


“In addition, we expect stronger earnings from both of our daughter entities in the fourth quarter of 2019, driven at Teekay LNG by the deliveries of the final vessels in the Partnership’s newbuilding programme and at Teekay Tankers by the significant strengthening of spot tanker rates in the fourth quarter of 2019.


“During October, 2019, we successfully secured a new charter contract through March, 2023 for the ‘Hummingbird Spirit’ FPSO unit, extending its production in the Chestnut field in the North Sea where it has been since 2008.


"We remain focused on contracting out and ultimately divesting our remaining offshore assets, which we consider to be non-core. As a result of recent discussions with existing charterers and potential buyers of the FPSO units, we recorded an accounting impairment on two of our FPSO units totalling $175 mill, which was recognised during the third quarter of 2019,” he said.


Commenting on the capital allocation strategies of the two daughter entities, Hvid said, “Teekay LNG, which has almost $10 bill of contracted forward fee-based revenues and a clear path to reaching its targeted leverage range, continues to execute on its balanced capital allocation strategy.


Today, Teekay LNG announced its intention to increase its 2020 cash distributions by 32% commencing with the distribution relating to the first quarter of 2020, surpassing 30% growth for the second consecutive year, while also having opportunistically repurchased its common units at prices below its estimated intrinsic value.


“Teekay Tankers, which has more exposure to market cyclicality and high financial leverage, has decided to transition away from its current earnings-based formulaic dividend policy in order to allocate its growing cash flows towards reducing financial leverage, which it expects will further build net asset value and reduce its cost of capital. 


“We believe these prudent capital allocation strategies will maximise the creation of shareholder value at each of the daughter entities, enabling them to build equity value, lead to a lower cost of capital, and position them well strategically throughout the cycle,” he concluded.


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