Teekay Corporation yesterday reported results for the three months ended March 31, 2021. These results include the Company’s two publicly-listed consolidated subsidiaries, Teekay LNG Partners L.P. (Teekay LNG) (NYSE:TGP) and Teekay Tankers Ltd. (Teekay Tankers) (NYSE:TNK) (collectively, the Daughter Entities), and all remaining subsidiaries and equity-accounted investments. Teekay, together with its subsidiaries other than the Daughter Entities, is referred to in this release as Teekay Parent. Please refer to the first quarter 2021 earnings releases of Teekay LNG and Teekay Tankers, which are available on Teekay’s website at www.teekay.com, for additional information on their respective results.

(1) These are non-GAAP financial measures. Please refer to “Definitions and Non-GAAP Financial Measures” and the Appendices to this release for definitions of these terms and reconciliations of these non-GAAP financial measures as used in this release to the most directly comparable financial measures under United States generally accepted accounting principles (GAAP).

CEO Commentary

“In the first quarter of 2021, we recorded higher consolidated adjusted net income compared to the prior quarter due to improved results from each of our entities, despite the continued weakness in the spot conventional tanker market,” commented Kenneth Hvid, Teekay’s President and CEO. “We have 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 one spot market-linked contract. On the oil tanker side, although the near-term outlook is uncertain due to the continued impact of COVID-19, we are seeing early positive indicators that point towards an anticipated tanker market recovery, including improvements in the global economy, a continued decline in global oil inventories, an upcoming increase in OPEC+ production, and positive tanker fleet supply fundamentals.”

“Since reporting earnings in February 2021, we have made significant progress toward our strategic goal of winding down our FPSO segment,” continued Mr. Hvid. “Following the successful completion of Phase I of the Banff FPSO decommissioning project, in April 2021, we entered into a conditional agreement with the customer whereby they would take over our remaining Phase II decommissioning responsibilities and thus enabling synergies to be realized when combining this with their existing subsea decommissioning work. Once finalized, this agreement would represent the conclusion of our involvement and exposure to the Banff project, after over 20 years of successful operations. In addition, the Foinaven FPSO, which has been operating under contract at a nominal day rate since receiving an upfront cash payment of $67 million in April 2020, is expected to be redelivered to us in the first half of 2022 as a result of BP’s recent decision to suspend production on the Foinaven field. Following the redelivery, we expect to green-recycle the unit, with the associated costs expected to be covered by a fixed contractual lump sum payment from the customer. Assuming the conditions of the Banff decommissioning agreement are met by June 2021, we expect to reduce our total accrued asset retirement obligations next quarter.”

Mr. Hvid added, “In mid-April, Teekay LNG announced an increase to its quarterly common unit distribution by 15 percent, to $1.15 per unit per annum. This increase will add to Teekay Parent’s free cash flows and represents the third consecutive annual double-digit increase to Teekay LNG’s common unit distribution, which is supported by its large and diversified portfolio of long-term contracts. Importantly, we believe that this level of distribution will enable Teekay LNG to continue delevering its balance sheet, which will increase its financial flexibility and ability to optimally allocate capital as the global demand for LNG continues to grow.”

Summary of Results

Teekay Corporation Consolidated

The Company’s consolidated GAAP net income and adjusted net income(1) for the first quarter of 2021, compared to consolidated GAAP net loss and adjusted net income in the same quarter of the prior year, were positively impacted by higher earnings from Teekay LNG due to a decrease in operational claims and higher liquefied petroleum gas (LPG) rates, as well as higher FPSO unit earnings due to the elimination of the operating losses on the Foinaven FPSO unit as a result of the commencement of the new bareboat contract which commenced at the end of the first quarter of 2020. These increases were offset by lower earnings from Teekay Tankers as a result of lower average spot tanker rates during the first quarter of 2021 and the sale of five tankers during the first quarters of 2020 and 2021.

In addition, consolidated GAAP net income during the first quarter of 2021, compared to consolidated GAAP net loss in the same period of the prior year, was positively impacted by a decrease in asset write-downs and the recording of unrealized gains on non-designated derivative instruments in the first quarter of 2021, compared to unrealized losses on non-designated derivative instruments in the first quarter of 2020. These increases were partially offset by the realized loss on the termination of one of Teekay LNG’s interest rate swap agreements associated with a debt refinancing completed in the first quarter of 2021 at a lower all-in interest rate.

Teekay Parent

Total Teekay Parent Free Cash Flow(1) was $4.1 million during the first quarter of 2021, compared to $52.7 million for the same period of the prior year, primarily due to the receipt of a $67 million upfront lease payment in the prior year upon entering into the new bareboat contract for the Foinaven FPSO in March 2020, and lower contribution from the Banff FPSO unit relating to the decommissioning of the Banff oil field that began in June 2020. These items were partially offset by a 15 percent increase in Teekay LNG’s quarterly cash distributions, commencing with the distribution relating to the first quarter of 2021, an increase in cash flows from Teekay Parent’s marine services business in Australia, and the elimination of the operating losses on the Foinaven FPSO unit as a result of the commencement of the new bareboat contract at the end of the first quarter of 2020.

Please refer to Appendix D of this release for additional information about Teekay Parent’s Free Cash Flow(1).
(1) This is a non-GAAP financial measure. Please refer to “Definitions and Non-GAAP Financial Measures” and the Appendices to this release for a definition of this term and a reconciliation of this non-GAAP financial measure as used in this release to the most directly comparable financial measures under GAAP.

Summary Results of Daughter Entities

Teekay LNG

Teekay LNG’s GAAP net income and adjusted net income(1) for the first quarter of 2021, compared to the same quarter of the prior year, were positively impacted by a decrease in operational claims under its charter contracts and higher rates earned for certain of Teekay LNG’s 50 percent-owned LPG carriers. These increases were partially offset by more scheduled dry dockings, redeployment of certain LNG carriers at lower rates, and the timing of certain vessel operating expenses during the first quarter of 2021.

In addition, compared to the same period of the prior year, Teekay LNG’s GAAP net income for the first quarter of 2021 was positively impacted by unrealized gains on non-designated derivative instruments, compared to unrealized losses in the first quarter of 2020, and by write-downs recorded on Teekay LNG’s multi-gas carriers in the first quarter of 2020. These increases were partially offset by a realized loss on the termination of an interest rate swap agreement associated with a debt refinancing completed in the first quarter of 2021.

Please refer to Teekay LNG’s first quarter 2021 earnings release for additional information on the financial results for this entity.

Teekay Tankers

Teekay Tankers’ GAAP net income and adjusted net income(1) in the first quarter of 2021, compared to the same quarter of the prior year, were negatively impacted primarily by lower average spot tanker rates in the first quarter of 2021, as well as the sale of five tankers during the first quarters of 2020 and 2021. These decreases were partially offset by lower vessel operating expenses and interest expense in the first quarter of 2021, compared to the same period of the prior year.

Crude tanker spot rates remained under pressure during the first quarter of 2021 due to the ongoing impact of the COVID-19 pandemic on global oil demand, oil supply cuts by the OPEC+ group of producers, as well as the continued unwinding of floating storage. However, the mid-size crude tanker sectors experienced some pockets of strength during the latter part of the first quarter of 2021 due to the impact of weather events in the Atlantic Basin and the blockage of the Suez Canal in late-March 2021. The tanker market in the second quarter of 2021 has thus far remained relatively soft, and with the continued impact of COVID-19, the near-term outlook remains uncertain. At the same time, there are early positive indicators which point towards an anticipated tanker market recovery, including improvements in the global economy, a continued decline in global oil inventories, a planned increase in OPEC+ production, and positive tanker fleet supply fundamentals.

Please refer to Teekay Tankers’ first quarter 2021 earnings release for additional information on the financial results for this entity.
(1) This is a non-GAAP financial measure. Please refer to “Definitions and Non-GAAP Financial Measures” and the Appendices to this release for a definition of this term and a reconciliation of this non-GAAP financial measure as used in this release to the most directly comparable financial measures under GAAP.

Summary of Recent Events

Teekay Parent

Banff FPSO Update

In April 2021, Teekay Parent and CNR International (U.K.) Limited (CNRI), on behalf of the Banff joint venture, entered into a Decommissioning Services Agreement (DSA) whereby Teekay Parent engaged CNRI to decommission Teekay’s remaining subsea infrastructure located within the CNRI-operated Banff field. As part of the DSA, CNRI will assume full responsibility for Teekay’s remaining asset retirement obligations (Phase II) for the above-mentioned facilities, which would enable CNRI to complete this work in conjunction with their other decommissioning work at the Banff field in a more efficient manner. As part of the transaction, Teekay will be deemed to have completed all of its prior decommissioning obligations.

The DSA is subject to certain conditions precedent that need to be satisfied by June 1, 2021 (or any agreed extension thereto), failing which the DSA may be terminated by either party. Such conditions precedent include receiving confirmation from the applicable U.K. regulatory authorities that Teekay has completed all of its obligations in relation to Phase I of the decommissioning project.

Foinaven FPSO Update

In April 2021, BP announced its decision to suspend production from the Foinaven oil fields and permanently remove the Foinaven FPSO unit from the site. The Company expects the FPSO unit will be redelivered to Teekay Parent in the first half of 2022, at which point the Company intends to green-recycle the FPSO unit. The Foinaven FPSO has been operating under a new bareboat charter agreement secured in March 2020, which included an upfront cash payment of $67 million that was received in April 2020, a nominal day rate during the duration of the contract, and a fixed lump sum payment at the end of the contract that the Company expects will cover the green recycling costs for the unit in 2022.

As a result of the above-mentioned developments relating to the Banff and Foinaven FPSOs, subject to meeting the conditions precedent of the DSA by June 1, 2021, the Company expects to reduce its accrued net asset retirement obligations in the second quarter of 2021.

Teekay LNG

In April 2021, Teekay LNG secured a fixed-rate charter contract for the Oak Spirit MEGI LNG carrier, which is expected to commence in August or September 2021, for a period of one-year.

In March 2021, Teekay LNG commenced a one-year, spot market-linked charter contract, with a one-year, fixed-rate option for the Creole Spirit MEGI LNG carrier.

In March 2021, the charterer of the 52 percent-owned Arwa Spirit DFDE LNG carrier exercised its one-year option to extend the charter contract to May 2022 at a fixed rate.

In February 2021, Teekay LNG’s 70 percent-owned joint venture with PT Berlian Laju Tanker, refinanced its term loan which was scheduled to mature in 2021, by entering into a new, $191.5 million term loan maturing in February 2026.

Teekay Tankers

In March 2021, Teekay Tankers declared options to repurchase six Aframax vessels that are currently on long-term sale-leaseback financings for approximately $129 million, which are expected to close in September 2021. This is in addition to the declared purchase options on two Suezmax vessels that are currently on long-term sale-leaseback financings for approximately $57 million, which are expected to close in May 2021. Teekay Tankers intends to fund these purchases with new long-term sale-leaseback financings and existing liquidity.

Liquidity

As at March 31, 2021, Teekay Parent had total liquidity of approximately $183.0 million (consisting of $33.0 million of cash and cash equivalents, and $150.0 million of undrawn capacity from a revolving credit facility). On a consolidated basis, as at March 31, 2021, Teekay had consolidated total liquidity of approximately $1.0 billion (consisting of $284.1 million of cash and cash equivalents and $676.8 million of undrawn capacity from its credit facilities).
Source: Teekay Corporation