Teekay suffers increased loss - shores up finances

Aug 05 2016


Teekay Corp reported a loss of $77.8 mill for the second quarter of this year under GAAP reporting rules.

This compares with a loss of $48.8 mill in 1Q16 and a profit of $65.9 mill in 2Q15. Revenues were also down at $587.6 mill for 2Q16, compared to $641 mill in 1Q16 and $592.8 mill in 2Q15.  

These results included the company's three publicly-listed subsidiaries - Teekay Offshore Partners, Teekay LNG Partners and Teekay Tankers (collectively, known as the ‘Daughter Entities)’, all of which are consolidated in the company's financial statements, and all remaining subsidiaries of the company, which are referred to as Teekay Parent.

"On a consolidated basis, Teekay generated slightly lower cash flow from vessel operations, compared to the same period of the prior year; however, our results exceeded our expectations mostly due to higher shuttle tanker fleet utilisation, higher tanker rates and lower operating expenses mainly in our FPSO segment," explained Peter Evensen, Teekay Corp’s president and CEO.

"With strong support from our financial stakeholders, Teekay Parent completed all of its previously announced financing initiatives in June, 2016, including $350 mill in extended bank facilities and $100 mill in equity capital. With the completion of these financing initiatives, we have reduced our financial leverage and enhanced our liquidity position, which we believe strengthens the entire Teekay Group of companies. In addition, we reached an agreement to sell Teekay Parent's remaining conventional tanker, the ‘Shoshone Spirit VLCC, which is expected to further reduce our financial leverage.

"At our Daughter Entities, Teekay Offshore completed all its previously announced financing initiatives in June, 2016. These initiatives, together with expected operating cash flow and previously arranged debt facilities, are expected to cover all its medium-term liquidity requirements and fully finance all of Teekay Offshore's $1.6 bill of committed growth projects.

“Executing on Teekay LNG's robust pipeline of growth projects delivering through 2020 has also been a major focus area and Teekay LNG continues to make good progress on the financing for these projects. Since May, 2016, Teekay LNG has secured lender credit approvals on over $900 mill of new debt financings, including three MEGI LNG carrier newbuildings, the first two Yamal LNG Arc7 newbuildings and the majority of its remaining LPG carrier newbuildings.

“Once Teekay Offshore's and Teekay LNG's projects are delivered, these growth projects are expected to add significantly to their annual cash flow from vessel operations," he concluded.

Teekay Corp said that its consolidated results decreased in 2Q16, compared to the same period in 2105, primarily due to lower revenues from Teekay Parent related to the lay-up of the LNGCs ‘Polar Spirit and ‘Arctic Spirit; lower income and cash flows in Teekay LNG as a result of the sales of two conventional tankers in April and May, 2016; lower income and cash flows in Teekay Offshore, due to off-hire during the second quarter of 2016 related to damage to the gangway of the ‘Arendal Spirit UMS (which has been repaired and returned to operations in early-July, 2016), the redelivery of the ‘Varg FPSO and a provision made with respect to retroactive claims from the charterer of the ‘Piranema Spirit FPSO; and lower income and cash flows in Teekay Tankers, due to lower spot tanker rates.

Consolidated income from vessel operations was also reduced in the period, due to asset impairment charges associated with Teekay Offshore's cancellation of two UMS newbuildings and two conventional tankers to be sold by Teekay Parent and Teekay Tankers, respectively.

These decreases were partially offset by higher income and cash flows, as a result of Teekay Tankers' acquisition of 19 conventional tankers during 2015 and higher income and cash flows from vessel operations from Teekay LNG as a result of the delivery of MEGI LNGC ‘Creole Spiritand the favourable settlement of a disputed charter contract termination related to one of the vessels in Teekay LNG's 52%-owned MALT LNG joint venture with Marubeni Corporation.

Teekay Parent ‘s cash flow, which includes distributions and dividends paid to Teekay Parent from Teekay's publicly-listed subsidiaries in the following quarter, less Teekay Parent's corporate general and administrative expenses, was $7.6 mill for 2Q16, compared to $41.2 mill for the same period in the previous year.

As for the subsidiaries, Teekay Offshore's results decreased in 2Q16, compared to 2Q15, primarily due to the off-hire of the ‘Arendal Spirit UMS, mentioned above, the redelivery of the ‘Varg FPSO (which left its field at the end of July, 2016), a provision made with respect to retroactive claims from the charterer of the ‘Piranema Spirit FPSO, shuttle tanker contract expirations on a long-term contract of affreightment and a timecharter out contract over the past year, and the sale of two conventional tankers and sale-leaseback on two additional conventional tankers in 2015 and 2016.

These decreases were partially offset by the acquisition of the ‘Knarr FPSO in July, 2015 and the commencement of the East Coast Canada shuttle tanker contracts in June, 2015.

Teekay LNG's results increased during the quarter, compared to 2Q15, primarily due to the favourable settlement of a disputed charter contract termination related to one of the vessels in the Teekay LNG's 52%-owned MALT LNG joint venture with Marubeni Corp, of which Teekay LNG's share was $20.3 mill, and the delivery of the ‘Creole Spirit.

These increases were partially offset by lower revenues for two other vessels in the MALT LNG joint venture, lower revenues from two Suezmaxes upon the charterer exercising its one-year extension options between September, 2015 and January, 2016, and the sales of two conventional tankers in April and May, 2016.

Teekay Tankers' results decreased during the period, primarily due to lower average spot tanker rates in 2Q16, partially offset by an increase in fleet size as a result of the acquisition of 19 modern, mid-size tankers during 2015.

In addition to a series of financing initiatives at Teekay Offshore, in May and June, 2016, Teekay Parent completed various initiatives to increase its financial strength and flexibility, including:

• Refinancing three existing debt facilities, including $150 mill relating to Teekay Parent's equity margin revolving credit facility, $150 mill of an existing revolving credit facility relating to Teekay Parent's three directly-owned FPSOs, and $50 mill of an existing debt facility relating to the VLCC ‘Shoshone Spirit’.

• Selling Teekay Parent's 50% interest in three support vessels for Shell's FLNG ‘Prelude’.

• Issuing $100 mill of common shares at a price of $8.32 per share to a group of institutional investors and two entities established by Teekay Corp's founder, including Resolute Investments, Teekay Corp's largest shareholder.

In June, 2016, Teekay Parent signed an agreement to sell the 2011-built VLCC ‘Shoshone Spirit for gross proceeds of around $63 mill, which is expected to continue operating under its existing timecharter contract earning $49,000 per day until its delivery to the buyer between September and October, this year.

Between April and June 2016, Teekay Offshore also completed a series of financing initiatives to fund its unfunded capital expenditures and upcoming debt maturities. including:

In June, 2016, Teekay Tankers agreed to sell one of its non-core MRs, the 2004-built ‘Teesta Spirit, to a third party for gross proceeds of about $14 mill. The vessel is expected to be delivered in mid-August, 2016.

Since May 2016, Teekay Tankers has entered into time charter-out contracts for one Suezmax tanker and two Aframax tankers and a time-charter swap agreement, which effectively provides a fixed charter rate on one Aframax vessel-equivalent. These contracts have an average rate of around $24,800 per day with firm contract periods ranging from 11- 24 months. Three contracts commenced in June and July, 2016 and the remaining contract is expected to commence in the third quarter of this year.

As at 30th June, 2016, Teekay Parent had total liquidity of $341.6 mill (consisting of $223.5 mill cash and cash equivalents and $118.1 mill of undrawn revolving credit facilities) and, on a consolidated basis, Teekay Corp had total liquidity of around $1.1 bill (consisting of $789.7 mill cash and cash equivalents and $327 mill of undrawn revolving credit facilities).

 



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