Teekay Corporation (Teekay) (NYSE:TK) presented at its 2019 Annual
General Meeting on Monday, June 10, 2019, which included details on
its two publicly-traded Daughter entities, Teekay LNG Partners L.P.
(Teekay LNG) (NYSE:TGP) and Teekay Tankers Ltd. (Teekay Tankers)
(NYSE:TNK). Below is a speech from Kenneth Hvid, Teekay’s President
and Chief Executive Officer:
“Good morning, ladies and gentlemen. Thank you
for attending our June 2019 Annual General Meeting. It is my
pleasure to report to you at this Annual General Meeting as
Teekay’s President and Chief Executive Officer. For further
information, I refer you to our website
at www.teekay.com where you will be able to download our
20-F filing for the year ended December 31, 2018 with the United
States Securities and Exchange Commission. Before I begin, I must
include the usual and important disclaimers about forward looking
statements that are mandated by U.S. Securities laws (see Forward
Looking Statements section below).
Over the past three years, we have completed
several important initiatives with the objective of de-risking,
delevering and preserving value and optionality during what was a
very challenging time for the energy and capital markets, while
also executing on a very large gas project orderbook that is
delivering on-time or early and on-budget. With the recent
successful refinancing of Teekay’s 2020 bond, the near completion
of all our LNG growth projects, and the anticipated improvement in
tanker shipping market fundamentals, we believe Teekay has reached
a positive turning point and the Teekay Group is in the best
position it has been in for quite a few years. We expect the Teekay
Group’s cash flows to continue to grow as our remaining gas growth
projects deliver and with the anticipated strengthening of the
tanker market in the second half of 2019, both of which are
expected to build equity value in all our companies.
Looking ahead, from Teekay’s perspective, we
will focus on maximizing the value of each of our four key assets,
which are:
- Teekay LNG is nearing completion of
approximately $3 billion of growth projects without issuing any
common units to fund this growth and it continues to report growing
cash flows, with more to come as these projects are fully reflected
in its financial statements throughout 2019 and 2020. With the
growing contracted cash flows, supported by over $10 billion in
forward fixed-rate revenues, Teekay LNG’s balance sheet will
naturally delever over time, which will create equity value for
unitholders, including Teekay as the largest limited partner and
the sole general partner. We also believe that from time to
time Teekay LNG’s common unit price represents compelling value and
thus, Teekay LNG is able to create additional value for
unitholders, including Teekay, through its common unit buyback
program. This is just one component of Teekay LNG’s balanced
capital allocation strategy, which also included a quarterly cash
distribution increase of 36% in May 2019.
- Teekay Tankers has been proactively managing
its financial position during the recent tanker market downturn and
it is now well-positioned to benefit from what is widely expected
to be an oncoming tanker market upturn in the second half of 2019
and into 2020. After executing multiple sale-leaseback
financings, Teekay Tankers now has over $160 million of liquidity
and with nearly all of its vessels deployed in the spot market,
resulting in strong operating leverage, Teekay Tankers would
generate approximately $1 per share of annualized Free Cash Flow,
even at mid-cycle tanker rates. As the largest shareholder in
Teekay Tankers, Teekay stands to benefit from this anticipated
increase in cash flow as well as an expected corresponding increase
in tanker asset values.
- Teekay LNG Incentive Distribution Rights
(IDRs). We believe that the IDRs in Teekay LNG
represent a valuable asset to Teekay given the projected growth in
Teekay LNG’s cash flows and the expected balance sheet delevering
over the next few years, which we believe will increase the
distribution capacity of Teekay LNG. As the sole general
partner of Teekay LNG, we are focused on maximizing the value of
the IDRs for Teekay’s shareholders, while also positioning Teekay
LNG for continued success in the future. We intend to explore
all solutions that are beneficial to all parties that would improve
Teekay LNG’s future cost of capital, simplify its structure, and
further align the interests of Teekay and Teekay LNG.
- Directly-owned FPSOs. Teekay’s three
directly-owned FPSO units have had a negative impact on our recent
quarterly results, mainly due to unplanned maintenance shutdowns
and timing differences. However, we have made some positive
progress with the recent one-year contract extension of the
Petrojarl Banff FPSO, and we are in discussions on further contract
extensions/amendments or dispositions of the FPSO units.
Optimizing these assets remains a key priority for us and we are
committed to working with our customers to achieve this goal.
In addition, we are focused on reducing our general and
administrative (G&A) expenses across the Teekay Group. This
includes right-sizing our organization in light of our divestiture
of Teekay Offshore and lower anticipated growth,
streamlining/automating some of our core processes, implementing an
across-the-board salary freeze in 2019, reducing the size of our
boards, and reducing office costs. One of our core
initiatives is to focus and simplify the organization, which we
believe will result in lower G&A costs going
forward.
We are also planning an Investor Day in New York
during the first week of October 2019, at which time we will
provide a comprehensive presentation on the Teekay Group of
companies, covering our strategy, financial position and market
outlook. We plan to provide the exact date and details of
this event during our next earnings call in the first week of
August 2019.
Before I conclude, I would like to highlight
that operational excellence has always been among Teekay’s key
strengths. Our global teams onboard ships and ashore, devote
enormous effort towards upholding the Teekay name as a respected
symbol of quality and as a protector of the environment. We
set ourselves high standards for personnel safety, fleet
availability and customer service. However, we recognize that there
will always be room to do better and we live by our core value of
continuous improvement. In closing, I would like to thank our
customers for the opportunity to serve them; our colleagues for
their dedicated efforts; our Board of Directors for their valued
guidance; and our fellow shareholders for their continued
support.”
About Teekay
Teekay is a leading provider of international
crude oil and gas marine transportation services and also provides
offshore production and logistics. Teekay provides these services
primarily through its directly-owned fleet and its controlling
ownership interests in Teekay LNG Partners L.P. (NYSE:TGP), the
world’s third largest independent owner and operator of LNG
carriers, and Teekay Tankers Ltd. (NYSE:TNK), one of the world’s
largest owners and operators of mid-sized crude tankers. The
consolidated Teekay entities manage and operate total assets under
management of approximately $11 billion, comprised of approximately
155 liquefied gas, offshore, and conventional tanker assets. With
offices in 12 countries and approximately 5,600 seagoing and
shore-based employees, Teekay provides a comprehensive set of
marine services to the world’s leading oil and gas companies.
Teekay’s common stock is listed on the New York
Stock Exchange where it trades under the symbol “TK”.
For Investor Relations enquiries contact: Ryan
Hamilton Tel: +1 (604) 609-2963 Website: www.teekay.com
Forward Looking StatementsThis
release contains forward-looking statements (as defined in Section
21E of the Securities Exchange Act of 1934, as amended)
which reflect management’s current views with respect to
certain future events and performance, including statements, among
other things, regarding: the Teekay Group’s financial
position and the expected growth in its cash flows; the anticipated
strengthening of the global tanker market in the second half of
2019 and 2020; the Teekay Group's ability to build equity value in
each of its companies; the amount of forward fixed-rate revenues in
Teekay LNG; the compelling value of Teekay LNG; the ability of
Teekay LNG to delever its balance sheet and create additional value
through its common unit buyback program; the timing of newbuilding
vessel and project deliveries, and the commencement of related
contracts; the effect of Teekay Tankers’ recently completed
financing transactions on its liquidity position; the amount of
Free Cash Flow per share generated by Teekay Tankers at mid-cycle
tanker rates; the anticipated increase in cash flows and tanker
asset values from an expected upturn in the tanker market; the
value, timing and ability to monetize the IDRs of Teekay LNG and
its impact on Teekay LNG’s future cost of capital; future cash
flows and valuations of Teekay’s FPSO units; efforts to amend or
extend the associated contracts or potentially sell the FPSO units;
and the expected reduction in the Teekay Group’s G&A’s expenses
going forward. The following factors are among those that
could cause actual results to differ materially from the
forward-looking statements, which involve risks and
uncertainties, and that should be considered in evaluating any such
statement: market or counterparty reaction to changes in
exploration, production and storage of offshore oil and gas,
either generally or in particular regions that would impact
expected future growth; changes in the demand for oil, refined
products, LNG or LPG; changes in trading patterns significantly
affecting overall vessel tonnage requirements; greater or less
than anticipated levels of vessel newbuilding orders and deliveries
and greater or less than anticipated rates of vessel scrapping;
changes in global oil prices; issues with vessel operations;
potential shipyard and project construction delays, newbuilding
specification changes or cost overruns; deliveries of vessels under
charter contracts and the commencement thereof; changes in
applicable industry laws and regulations and the timing of
implementation of new laws and regulations; the effects of IMO
2020; the potential for early termination of long-term
contracts of existing vessels; higher than expected costs and
expenses; general market conditions and trends, including spot,
multi-month and multi-year charter rates; inability of charterers
to make future charter payments; the inability to renew or replace
long-term contracts on existing vessels; potential lack of cash
flow to reduce balance sheet leverage; the amount of Teekay LNG’s
capital available to allocate to its unitholders; the timing of
and/or potential inability to agree on an upfront monetization of
the IDRs; delays in the commencement of charter or other contracts;
the ability to fund remaining capital commitments and debt
maturities; and other factors discussed in Teekay’s filings from
time to time with the SEC, including its Annual Report on Form
20-F for the fiscal year ended December 31, 2018. Teekay expressly
disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in Teekay’s
expectations with respect thereto or any change in events,
conditions or circumstances on which any such statement is
based.
Definitions and Non-GAAP Financial
Measures
This release includes a financial measure that
is a non-GAAP financial measure as defined under the rules of the
SEC. This non-GAAP financial measure, Free Cash Flow, is intended
to provide additional information and should not be considered
substitutes for measures of performance prepared in accordance with
GAAP. In addition, this measure does not have standardized
definitions across companies, and therefore may not be comparable
to similar measures presented by other companies. This non-GAAP
measure is used by management, and Teekay Tankers believes that
this supplemental metric assists investors and other users of its
financial reports in comparing financial and operating performance
of Teekay Tankers across reporting periods and with other
companies.
Free cash flow (FCF) represents Teekay Tankers’
net income (loss), plus depreciation and amortization, unrealized
losses from derivatives, certain non-cash items, loss on sales of
vessels, equity loss from the equity-accounted for investments, and
any write-offs or other non-recurring items, less unrealized gains
from derivatives, equity income from the equity-accounted for
investments, gain on sales of vessels and certain other non-cash
items. Teekay Tankers also includes FCF from equity-accounted for
investments as a component of its FCF. FCF from the
equity-accounted for investments represents Teekay Tankers’
proportionate share of FCF from its equity-accounted for
investments. Teekay Tankers does not control its equity-accounted
for investments, and as a result, the Company does not have the
unilateral ability to determine whether the cash generated by its
equity-accounted for investments is retained within the entity in
which Teekay Tankers holds the equity-accounted for investment or
distributed to Teekay Tankers and other owners. In addition, Teekay
Tankers does not control the timing of such distributions to Teekay
Tankers and other owners. Consequently, readers are cautioned when
using FCF as a liquidity measure as the amount contributed from FCF
from the equity-accounted for investments may not be available to
Teekay Tankers in the periods such FCF is generated by the
equity-accounted for investments. FCF is a non-GAAP financial
measure used by certain investors and management to evaluate Teekay
Tankers’ financial and operating performance and to assess Teekay
Tankers’ ability to generate cash sufficient to repay debt, pay
dividends and undertake capital and dry dock expenditures.
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