Teekay Corporation (Teekay or the Company) (NYSE:TK) yesterday reported results for the second quarter ended June 30, 2020. 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 second quarter 2020 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.

Financial Summary

(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).

(2) Comparative balances relating to the three months ended June 30, 2019 have been recast to reflect results consistent with the presentation in the Company’s 2019 Annual Report on Form 20-F and Form 6-K for the three and six months ended June 30, 2020.

(3) Please refer to “Definitions and Non-GAAP Financial Measures” for definition of free cash flow in the Teekay Tankers Second Quarter of 2020 earnings release. The figures also includes expenditures for drydock and ballast water treatment system installation.

CEO Commentary

“In the second quarter of 2020, we reported our third consecutive quarterly adjusted profit, recording consolidated adjusted net income of $39.7 million, or $0.39 per share, and increasing our total adjusted EBITDA by approximately $119 million, or 61 percent, from the same period of last year,” commented Kenneth Hvid, Teekay’s President and Chief Executive Officer. “While COVID-19 continues to have an unprecedented impact on the world and is a major focus for us, Teekay’s fleet has experienced minimal operational impact. As a result of the pandemic, the overall maritime industry has experienced significant challenges related to crew changes, but I am pleased to report that we have safely changed-out a number of crew members on effectively all our vessels. We continue to work hard with both the industry and inter-governmental organizations to tackle this challenge and bring our remaining overdue colleagues home safely as soon as possible. I am truly proud of how our seafarers and onshore colleagues have responded to ensure safe and successful transitions with no reported COVID-19 cases, while providing uninterrupted service to our customers.”

“Our strong second quarter results can be attributed to solid earnings in each of our businesses. Teekay LNG reported another quarterly record-high in adjusted net income and total adjusted EBITDA; Teekay Tankers experienced another quarter of strong spot tanker rates; and our directly-owned FPSO unit operating results improved as a result of the new bareboat charter contract on the Foinaven FPSO unit, which eliminated our exposure to the previous loss-making contract,” commented Mr. Hvid. “Looking ahead to next quarter, we expect Teekay LNG will continue earning stable cash flows as a result of its LNG fleet being 100 percent fixed through the rest of 2020. At Teekay Tankers, the spot tanker market has come under pressure since mid-May 2020 following three quarters of very strong spot tanker rates. The near-term outlook for the tanker business is uncertain at this point, but we are pleased to have significantly reduced our effective free cash flow breakevens and near-term spot exposure by locking-in 23 percent of the tanker fleet on fixed-rate contracts at attractive rates, and we are encouraged by the fleet supply fundamentals which are favorable relative to prior market cycles. In addition, the Banff FPSO unit ceased production on its field in June 2020 and we have commenced the various decommissioning and subsea remediation procedures on the field. The FPSO unit is expected to leave the Banff field during the third quarter of 2020 and prepare for recycling by the end of the year with the remaining subsea remediation work expected to be carried out in the summer of 2021.”

“We continue to execute on our delevering path and further simplifying our structure,” commented Mr. Hvid. “During the quarter, we reduced our consolidated net debt by over $267 million as a result of strong cash flows, proceeds from asset sales and cash received from the new Foinaven FPSO unit contract. Over the past year, we have reduced our consolidated net debt by approximately $887 million, or 20 percent. In addition, with the recent refinancing of four of Teekay Tankers’ Suezmax tankers, we have eliminated all of our remaining guarantees of Teekay Tankers’ debt. As announced in May, we also eliminated the incentive distribution rights we held in Teekay LNG in exchange for 10.75 million newly-issued Teekay LNG common units.”

Mr. Hvid added, “With our balance sheets continuing to strengthen, extensive contracted revenues at Teekay LNG and higher contracted revenue at Teekay Tankers, and no committed growth capital expenditures or significant near-term debt maturities, we have made significant progress in both insulating our companies from near-term market volatility and positioning the Teekay Group to create long-term shareholder value and remain a leader in shaping the future of marine energy transportation.”

Summary of Results

Teekay Corporation Consolidated

The Company’s consolidated results during the quarter ended June 30, 2020 improved compared to the same period of the prior year, primarily due to: higher average spot tanker rates earned by Teekay Tankers in the second quarter of 2020; higher earnings in Teekay LNG due to earnings from six liquefied natural gas (LNG) carrier newbuildings which delivered into its consolidated fleet and equity-accounted joint ventures last year, and higher earnings by certain of Teekay LNG’s joint ventures as their individual projects commenced or certain of their vessels commenced charters at, or earned, higher rates; improved results from the commencement of the Foinaven FPSO unit’s new bareboat charter in late-March 2020; and fewer dry docking and off-hire days in the second quarter of 2020. These improvements were partially offset by Teekay Tankers’ sale of four Suezmax tankers during December 2019 and the first quarter of 2020, as well as the sale of the non-US portion of the ship-to-ship support services business and its LNG terminal management business in the second quarter of 2020; a reduction in Teekay LNG’s earnings following the sale of two LNG carriers in early-2020; and a reduction in the Banff FPSO unit’s earnings due to the decommissioning of the Banff oil field, which commenced on June 1, 2020, and lower oil price tariffs earned due to lower oil prices in the second quarter of 2020.

In addition, consolidated GAAP net income was positively impacted in the three months ended June 30, 2020, compared to the same quarter of the prior year, by various items, including a reduction in freight tax accruals in the second quarter of 2020, losses of $10.7 million and $7.8 million recognized in the second quarter of 2019 relating to the repurchase of Teekay’s 8.5% senior notes due 2020 (the 2020 Notes) and the sale of Teekay Parent’s remaining investment in Altera Infrastructure L.P. (or Altera), respectively, as well as a $3.1 million gain recognized on Teekay Tankers’ sale of the non-US portion of the ship-to-ship support services business and its LNG terminal management business in the second quarter of 2020. These items were partially offset by a $13.6 million provision in the second quarter of 2020 relating to an adjustment in the Banff FPSO unit’s estimated asset retirement obligation and the write-down of the unit’s remaining residual value. The Banff FPSO unit’s estimated asset retirement obligation relating to the remediation of the subsea infrastructure, net of a customer receivable of $8.1 million, was $43.9 million as of June 30, 2020 (excluding remaining operating expenses and recycling costs relating to the FPSO unit).

Teekay Parent

Total Teekay Parent Free Cash Flow(1) was negative $1.9 million during the second quarter of 2020, compared to negative $6.4 million for the same period of the prior year, primarily due to: 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; higher distributions received from Teekay LNG as a result of Teekay LNG’s 32 percent increase in its quarterly cash distributions in May 2020 and the newly-issued Teekay LNG common units Teekay Parent received as consideration for the Teekay LNG incentive distribution rights (IDR) transaction completed in May 2020; and lower net interest expense(1) as a result of the repurchase of unsecured bonds over the past year and the bond refinancing completed in May 2019. These increases are partially offset by: higher general and administrative costs incurred in the second quarter of 2020 mainly due to a change in timing of the annual equity-based compensation grants in 2020 and professional fees associated with the IDR transaction; and lower contribution from the Banff FPSO unit due to the decommissioning of the Banff oil field, which commenced on June 1, 2020, and lower oil price tariffs earned due to lower oil prices in the second 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 net income and adjusted net income(1) and total adjusted EBITDA(1) for the three months ended June 30, 2020, compared to the same quarter of the prior year, were positively impacted by: earnings from six LNG carrier newbuildings which delivered into Teekay LNG’s consolidated fleet and equity-accounted joint ventures last year; fewer dry docking and repair off-hire days; and higher earnings by certain of Teekay LNG’s joint ventures as their individual projects commenced or certain of their vessels commenced charters at, or earned, higher rates. These increases were partially offset by a reduction in earnings as a result of the sales of two LNG carriers in January 2020, and an oil tanker in October 2019.

Please refer to Teekay LNG’s second quarter 2020 earnings release for additional information on the financial results for this entity.

Teekay Tankers

Teekay Tankers’ net income, adjusted net income(1), and total adjusted EBITDA(1) for the three months ended June 30, 2020 significantly increased compared to the same period of the prior year, primarily due to higher average spot tanker rates and fewer off-hire days in the second quarter of 2020. These increases were partially offset by the sale of four Suezmax tankers during December 2019 and the first quarter of 2020, as well as the sale of the non-US portion of the ship-to-ship support services business and the LNG terminal management business in the second quarter of 2020.

In addition, GAAP net income was positively impacted in the three months ended June 30, 2020, compared to GAAP net loss for the same quarter of the prior year, as a result of a $15.2 million reduction in freight tax accruals and a $3.1 million gain on sale of assets.

Spot tankers rates have come under pressure since mid-May 2020 as a result of the unwinding of floating storage and record OPEC+ production cuts, in addition to lower non-OPEC production, which reduced crude exports. Teekay Tankers has so far secured spot tanker rates for its Suezmax and Aframax-sized vessels of $24,800 per day and $15,200 per day, based on 57 percent and 47 percent of the available spot revenue days fixed to-date in the third quarter of 2020, respectively, compared to $46,500 per day and $29,600 per day in the second quarter of 2020, respectively.

Please refer to Teekay Tankers’ second quarter 2020 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

In July 2020, Teekay Parent secured commitments for a two-year equity margin revolver of up to $150 million to refinance its existing facility, which is currently undrawn and scheduled to mature in December 2020. The new revolver, which has substantially similar terms to the existing facility, is expected to be closed in August 2020 and remains subject to final documentation.

Teekay LNG

In July 2020, Teekay LNG entered into a new commercial management agreement with the current manager of its seven wholly-owned multi-gas vessels. The new agreement has a two-year term commencing in September 2020 and is in direct continuation of the expiry of the current commercial management agreement.

In May 2020, Teekay Parent and Teekay LNG eliminated all of Teekay LNG’s IDRs held by Teekay LNG’s general partner (the General Partner) in exchange for 10.75 million newly-issued Teekay LNG common units. Following the completion of this transaction on May 11, 2020, Teekay Parent now beneficially owns approximately 36 million of Teekay LNG’s common units and remains the sole owner of the General Partner, which together represents an economic interest of approximately 42 percent in Teekay LNG.

In May 2020, on maturity, Teekay LNG repaid its 1 billion Norwegian Krone (NOK) -denominated bonds and the associated cross currency swap arrangement. This repayment amounted to $111 million, net of $23 million of cash collateral released on the associated cross currency swap.

In May 2020, Teekay LNG’s 52 percent-owned joint venture with Marubeni Corporation (the MALT Joint Venture) chartered the Marib Spirit LNG carrier to an international trading company for a period of six months, which commenced in mid-June 2020.

In April 2020, the MALT Joint Venture secured new charters for the Arwa Spirit and the Methane Spirit LNG carriers for periods of twelve and eight months, respectively. The new charters commenced upon completion and in direct continuation of their existing charters in May and July 2020, respectively.

Teekay Tankers

In August 2020, Teekay Tankers secured a new three-year, $67 million term loan to refinance four Suezmax tankers. The proceeds from the new debt facility along with existing cash are expected to be used to repay approximately $85 million outstanding on Teekay Tankers’ existing debt facility with respect to these vessels that was scheduled to mature in 2021. The new facility is priced at LIBOR plus 225 basis points and matures in 2023.

In late-April 2020, Teekay Tankers closed the previously announced sale of a portion of its oil and gas ship-to-ship transfer support business, which also provides gas terminal management and consulting services, for approximately $27.1 million, of which approximately $14.3 million was received in May 2020 with the remaining cash received in July 2020. During the second quarter of 2020, Teekay Tankers recognized a gain of $3.1 million from this transaction. Teekay Tankers retained its entire Full Service Lightering business that operates in the U.S. Gulf, which provides ship-to-ship oil transfers for both U.S. crude imports and exports. In addition, Teekay Tankers will continue to operate oil ship-to-ship transfer support services in North America and the Caribbean, a business that has synergies with its core Full Service Lightering business.

Liquidity

As at June 30, 2020, Teekay Parent had total liquidity of approximately $165.5 million (consisting of $66.9 million of cash and cash equivalents and $98.6 million of undrawn capacity from a revolving credit facility), up from Teekay Parent liquidity of $87.1 million as at March 31, 2020.

On a consolidated basis, Teekay had consolidated total liquidity of approximately $939.4 million (consisting of $461.2 million of cash and cash equivalents and $478.2 million of undrawn capacity from its revolving credit facilities), up from total consolidated liquidity of $827.9 million as at March 31, 2020.

Source: Teekay Corporation