Teekay Corporation reports Q3 results
Teekay Corporation yesterday reported net income of $103.1 million, or $1.41 per share, for the quarter ended September 30, 2008, compared to a net loss of $74.2 million, or $0.99 per share, for the same period of the prior year. The results for the quarters ended September 30, 2008 and 2007 include a number of specific items which had the net effect of increasing net income by $8.9 million (or $0.12 per share) and decreasing net income by $97.1 million (or $1.30 per share), respectively, as detailed in Appendix A to this release. Net revenues(2) for the third quarter of 2008 increased to $672.5 million from $462.7 million for the same period of the prior year, and income from vessel operations increased to $217.5 million from $98.2 million.
Net income for the nine months ended September 30, 2008 was $181.4 million, or $2.48 per share, compared to $178.4 million, or $2.38 per share, for the same period of the prior year. The results for the nine months ended September 30, 2008 and 2007 include a number of specific items which had the net effect of decreasing net income by $50.7 million (or $0.69 per share) and increasing net income by $4.1 million (or $0.06 per share), respectively, as detailed in Appendix A to this release. Net revenues for the nine months ended September 30, 2008 increased to $1.8 billion from $1.4 billion for the same period of the prior year, and income from vessel operations increased to $439.0 million from $352.8 million.
Financial Restatement
The Company has now resolved the remaining accounting item identified for restatement relating to its accounting for the costs associated with its long-term incentive plan, as described in the Company's press release dated November 25, 2008. As a result, the Company has revised the amounts accrued in respect of its long-term incentive plan, resulting in a net reduction to its general and administrative expenses of approximately $7 million for the period January 1, 2005 to June 30, 2008, which have been reflected in the appropriate periods in this release. These accounting adjustments associated with the long-term incentive program do not impact amounts paid out under the plan.
Operating Results
During the third quarter of 2008, approximately 43 percent of the Company's cash flow from vessel operations was generated from its fixed-rate businesses, compared to 83 percent in the third quarter of the prior year. This change is primarily due to the significant increase in spot tanker rates in the third quarter of 2008, partially offset by the continued growth of the Company's fixed-rate businesses.
The following table highlights certain financial information for Teekay's four main operating segments: the offshore segment, the fixed-rate tanker segment, the liquefied gas segment, and the spot tanker segment.
Offshore Segment
The Company's offshore segment is comprised of shuttle tankers, floating storage and off-take (FSO) units, and floating production storage and offloading (FPSO) units.
Cash flow from vessel operations from the Company's offshore segment decreased to $48.8 million in the third quarter of 2008, compared to $60.8 million in the third quarter of the prior year, primarily due to increases in crewing costs, repair and maintenance expenditures, and business development costs, partially offset by the delivery of the Siri FPSO in February 2008.
Vessel operating expenses of the Company's offshore segment increased to $113.6 million in the third quarter of 2008 from $64.7 million in the third quarter of prior year, including a $24.6 million increase due to the change in fair value of foreign exchange forward contracts not designated as cash flow hedges pursuant to US GAAP. Also contributing to the increase was an additional $8.4 million from an increase in fleet size, including the Siri FPSO. The remainder of the increase was the result of increases in crewing costs and repair and maintenance expenditures.
In December 2008, the Company entered into a contract extension with Talisman Energy for the FPSO Petrojarl Varg. The new terms under the contract extension commence on July 1, 2009, and provide that the Petrojarl Varg will continue to be chartered to Talisman for an additional four years, with its option to extend the contract for up to an additional nine years thereafter. The contract extension provides an increased base daily time-charter rate plus an incentive component based on the operational performance of the unit and a tariff component based on the volume of oil produced. The new contract terms are expected to increase the annual cash flow from vessel operations from the Petrojarl Varg by approximately 50 percent, or $20 million per annum, with opportunities for additional upside from the tariff component if nearby oil fields that would be covered by the contract become operational, as is expected. In accordance with an existing agreement, Teekay's publicly-traded subsidiary Teekay Offshore Partners, L.P. has the right to purchase the Petrojarl Varg at any time prior to December 4, 2009 at its fair market value when such right is exercised.
Fixed-Rate Tanker Segment
The Company's fixed-rate tanker segment includes its conventional tankers that operate under fixed-rate charter contracts with an initial term of three or more years.
Cash flow from vessel operations from the Company's fixed-rate tanker segment increased to $31.1 million in the third quarter of 2008, compared to $24.4 million in the third quarter of the prior year. This increase was primarily due to an increase in the size of the Company's fixed-rate tanker fleet (including vessels chartered-in), partially offset by an increase in vessel crewing and service costs. The increase in the fixed-rate tanker fleet included the acquisition of two Suezmax and two product tankers from OMI Corporation on August 1, 2007, the addition of two new chartered-in Aframax tankers in January 2008 as part of the previously-announced multi-vessel transaction with ConocoPhillips and the delivery of two new Aframax tankers during January and March 2008.
Liquefied Gas Segment
The liquefied gas segment includes liquefied natural gas (LNG) and liquefied petroleum gas (LPG) carriers.
The Company's cash flow from vessel operations from its LNG and LPG carriers during the third quarter of 2008 was $41.1 million, compared to $29.2 million in the third quarter of the prior year. This increase was primarily due to the contribution from the two Kenai LNG carriers which were acquired in December 2007 and the effect on the Company's Euro-denominated revenues resulting from the depreciation of the U.S. Dollar against the Euro over the same periods of the prior year.
Spot Tanker Segment
The Company's spot tanker segment includes its conventional tankers that operate on voyage and time-charters with an initial term of less than three years.
Cash flow from vessel operations from the Company's spot tanker segment increased to $157.6 million for the third quarter of 2008, from $23.9 million for the third quarter of the prior year, primarily due to a significant increase in spot tanker rates and an increase in the size of the Company's spot tanker fleet, partially offset by an increase in time-charter hire expenses and an increase in vessel crewing costs.
On a net basis, fleet changes increased the total number of revenue days in the Company's spot tanker segment to 7,761 for the third quarter of 2008, compared to 6,417 for the third quarter of the prior year. Revenue days increased in 2008 as a result of the inclusion of vessels acquired from OMI Corporation for the full quarter, two vessel purchases, one newbuilding delivery and seven additional in-charters. Revenue days represent the total number of vessel calendar days less off-hire associated with major repairs, drydockings, or mandated surveys.
Average spot tanker freight rates during the third quarter of 2008 were the highest ever for a third quarter. This counter-seasonal strength in tanker freight rates was primarily due to higher oil production volumes from ton-mile intensive OPEC producers, as well as other factors, including port delays in the United States and Japan and stockpiling of oil ahead of the Olympics in China.
During the fourth quarter of 2008, rates for very large crude carriers (VLCCs) declined as OPEC producers implemented production cutbacks in response to declining oil prices. In comparison, rates for medium-sized crude oil tankers remained relatively firm primarily due to seasonal factors, rising volumes of non-OPEC production corresponding with the completion of summer maintenance in the North Sea and weather-related delays, particularly in the Bosphorus Straits and United States Gulf ports.
The global tanker fleet grew by approximately 5.7 percent (approximately 22 million deadweight tonnes) in 2008 which is slightly lower than average annual fleet growth of 6.1 percent from 2003 to 2007.
Net income for the nine months ended September 30, 2008 was $181.4 million, or $2.48 per share, compared to $178.4 million, or $2.38 per share, for the same period of the prior year. The results for the nine months ended September 30, 2008 and 2007 include a number of specific items which had the net effect of decreasing net income by $50.7 million (or $0.69 per share) and increasing net income by $4.1 million (or $0.06 per share), respectively, as detailed in Appendix A to this release. Net revenues for the nine months ended September 30, 2008 increased to $1.8 billion from $1.4 billion for the same period of the prior year, and income from vessel operations increased to $439.0 million from $352.8 million.
Financial Restatement
The Company has now resolved the remaining accounting item identified for restatement relating to its accounting for the costs associated with its long-term incentive plan, as described in the Company's press release dated November 25, 2008. As a result, the Company has revised the amounts accrued in respect of its long-term incentive plan, resulting in a net reduction to its general and administrative expenses of approximately $7 million for the period January 1, 2005 to June 30, 2008, which have been reflected in the appropriate periods in this release. These accounting adjustments associated with the long-term incentive program do not impact amounts paid out under the plan.
Operating Results
During the third quarter of 2008, approximately 43 percent of the Company's cash flow from vessel operations was generated from its fixed-rate businesses, compared to 83 percent in the third quarter of the prior year. This change is primarily due to the significant increase in spot tanker rates in the third quarter of 2008, partially offset by the continued growth of the Company's fixed-rate businesses.
The following table highlights certain financial information for Teekay's four main operating segments: the offshore segment, the fixed-rate tanker segment, the liquefied gas segment, and the spot tanker segment.
Offshore Segment
The Company's offshore segment is comprised of shuttle tankers, floating storage and off-take (FSO) units, and floating production storage and offloading (FPSO) units.
Cash flow from vessel operations from the Company's offshore segment decreased to $48.8 million in the third quarter of 2008, compared to $60.8 million in the third quarter of the prior year, primarily due to increases in crewing costs, repair and maintenance expenditures, and business development costs, partially offset by the delivery of the Siri FPSO in February 2008.
Vessel operating expenses of the Company's offshore segment increased to $113.6 million in the third quarter of 2008 from $64.7 million in the third quarter of prior year, including a $24.6 million increase due to the change in fair value of foreign exchange forward contracts not designated as cash flow hedges pursuant to US GAAP. Also contributing to the increase was an additional $8.4 million from an increase in fleet size, including the Siri FPSO. The remainder of the increase was the result of increases in crewing costs and repair and maintenance expenditures.
In December 2008, the Company entered into a contract extension with Talisman Energy for the FPSO Petrojarl Varg. The new terms under the contract extension commence on July 1, 2009, and provide that the Petrojarl Varg will continue to be chartered to Talisman for an additional four years, with its option to extend the contract for up to an additional nine years thereafter. The contract extension provides an increased base daily time-charter rate plus an incentive component based on the operational performance of the unit and a tariff component based on the volume of oil produced. The new contract terms are expected to increase the annual cash flow from vessel operations from the Petrojarl Varg by approximately 50 percent, or $20 million per annum, with opportunities for additional upside from the tariff component if nearby oil fields that would be covered by the contract become operational, as is expected. In accordance with an existing agreement, Teekay's publicly-traded subsidiary Teekay Offshore Partners, L.P. has the right to purchase the Petrojarl Varg at any time prior to December 4, 2009 at its fair market value when such right is exercised.
Fixed-Rate Tanker Segment
The Company's fixed-rate tanker segment includes its conventional tankers that operate under fixed-rate charter contracts with an initial term of three or more years.
Cash flow from vessel operations from the Company's fixed-rate tanker segment increased to $31.1 million in the third quarter of 2008, compared to $24.4 million in the third quarter of the prior year. This increase was primarily due to an increase in the size of the Company's fixed-rate tanker fleet (including vessels chartered-in), partially offset by an increase in vessel crewing and service costs. The increase in the fixed-rate tanker fleet included the acquisition of two Suezmax and two product tankers from OMI Corporation on August 1, 2007, the addition of two new chartered-in Aframax tankers in January 2008 as part of the previously-announced multi-vessel transaction with ConocoPhillips and the delivery of two new Aframax tankers during January and March 2008.
Liquefied Gas Segment
The liquefied gas segment includes liquefied natural gas (LNG) and liquefied petroleum gas (LPG) carriers.
The Company's cash flow from vessel operations from its LNG and LPG carriers during the third quarter of 2008 was $41.1 million, compared to $29.2 million in the third quarter of the prior year. This increase was primarily due to the contribution from the two Kenai LNG carriers which were acquired in December 2007 and the effect on the Company's Euro-denominated revenues resulting from the depreciation of the U.S. Dollar against the Euro over the same periods of the prior year.
Spot Tanker Segment
The Company's spot tanker segment includes its conventional tankers that operate on voyage and time-charters with an initial term of less than three years.
Cash flow from vessel operations from the Company's spot tanker segment increased to $157.6 million for the third quarter of 2008, from $23.9 million for the third quarter of the prior year, primarily due to a significant increase in spot tanker rates and an increase in the size of the Company's spot tanker fleet, partially offset by an increase in time-charter hire expenses and an increase in vessel crewing costs.
On a net basis, fleet changes increased the total number of revenue days in the Company's spot tanker segment to 7,761 for the third quarter of 2008, compared to 6,417 for the third quarter of the prior year. Revenue days increased in 2008 as a result of the inclusion of vessels acquired from OMI Corporation for the full quarter, two vessel purchases, one newbuilding delivery and seven additional in-charters. Revenue days represent the total number of vessel calendar days less off-hire associated with major repairs, drydockings, or mandated surveys.
Average spot tanker freight rates during the third quarter of 2008 were the highest ever for a third quarter. This counter-seasonal strength in tanker freight rates was primarily due to higher oil production volumes from ton-mile intensive OPEC producers, as well as other factors, including port delays in the United States and Japan and stockpiling of oil ahead of the Olympics in China.
During the fourth quarter of 2008, rates for very large crude carriers (VLCCs) declined as OPEC producers implemented production cutbacks in response to declining oil prices. In comparison, rates for medium-sized crude oil tankers remained relatively firm primarily due to seasonal factors, rising volumes of non-OPEC production corresponding with the completion of summer maintenance in the North Sea and weather-related delays, particularly in the Bosphorus Straits and United States Gulf ports.
The global tanker fleet grew by approximately 5.7 percent (approximately 22 million deadweight tonnes) in 2008 which is slightly lower than average annual fleet growth of 6.1 percent from 2003 to 2007.