Teekay Corporation Ltd.

Welcome to TK Corporation's first quarter 2020 earnings results conference call. During the call, all participants will be in a listen-only mode. Afterwards, you will be invited to participate in a question and answer session. At that time, if you have a question, participants will be asked to press star 1 to register for a question. For assistance during the call, please press star 0 on your touchtone phone. As a reminder, this call is being recorded. Now, for opening remarks and introduction, I would like to turn the call over to the company. Please go ahead.

Before we begin, I'd like to direct all participants to our website at www.tk.com, where you'll find a copy of the first quarter 2020 earnings presentation. Kenneth and Vince will review this presentation during today's conference call. Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from results rejected by those forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the first quarter 2020 earnings release and earnings presentation available on our website. I'll now turn the call over to Kenneth Hvid, TK Corporation's President and CEO to begin.

Thank you, Ryan. Hello, everyone, and thank you very much for joining us today for TK Corporation's first quarter 2020 earnings conference call. I hope that you and your families are all safe and healthy. On the call today, I'm joined by Vince Locke, TK's group CFO. Before we get into our results, I'd like to take a moment to thank all of our seafarers and shore-based staff for their extraordinary dedication to maintain business continuity, and bringing energy to the world with TK Spirit. While COVID-19 is having an unprecedented impact on the world and is clearly a major focus for us, we're truly proud of how our seafarers and onshore colleagues have responded to COVID-19, implementing new standards which focus on the health and well-being of everyone involved in our organization, especially our colleagues at sea, while maintaining consistently safe and efficient operations for our customers. We are also fortunate to be in a position where our operational results are strong so far in 2020 and we have had minimal impacts on our operations due to the pandemic. Moving to our recent highlights on slide 3 of the presentation. The first quarter of 2020 marked the second consecutive quarterly adjusted profit for TK. as we recorded consolidated adjusted net income of $25 million or 25 cents per share compared to an adjusted net loss of $13 million or 13 cents per share in the same period last year. We also generated total adjusted EBITDA of $342 million, an increase of $128 million or 59% from the same period in the prior year. As a reminder, the Q1 2019 result included the contribution from the 14% ownership stake in Altera Infrastructure, formerly TK Offshore, which was sold in May 2019. It is also important to note that these figures only include $11 million of the $67 million upfront payment received for the Foynaven FPSO contract we entered into in late March. I will touch on the accounting treatment for this in more detail in the presentation. Our strong results in the first quarter can be attributed to higher earnings in our main businesses. TK Tankers experienced significantly stronger spot tanker rates, reaching its highest first quarter levels in over a decade, which strengthened into the second quarter. while CK LNG have robust earnings from a complete quarter contribution from its fully delivered LNG fleet. CK Parent generated positive adjusted EBITDA of $5 million which includes EBITDA from our directly owned assets and cash distributions from our publicly traded daughter entities. However, based on US GAAP and our definition of the adjusted EBITDA, only $11 million of the $67 million upfront payment from the new Foyne-Avon FPSO contract was included in our Q1 revenues. However, the remaining $56 million has been included in TK Parent's free cash flow. As a result, TK Parent's free cash flow increased to $53 million, a significant improvement from negative $14 million in the same period of the prior year. The increase was also a result of lower interest expense due to bond repurchases over the past year and our bond refinancing completed in May 2019, a 32% increase in CKL&G's quarterly cash distribution and lower G&A expenses. For further details on our first quarter results as well as our second quarter outlook, please refer to the slides in the appendices to this presentation. Overall, we are expecting another strong quarter in Q2, supported by our stable LNG cash flows and the strong crude spot tanker rates secured so far in the second quarter. Since reporting back in February, we have been busy executing on our strategic priorities, which included the new bare boat contract for the Foynaven FPSO, that covers the vessel all the way through to its eventual retirement and the monetization of our TGP incentive distribution rights or IDRs in exchange for 10.75 million newly issued TGP common units. I will touch on these two transactions in more detail later in the presentation. Turning to slide 4, I want to provide an update on our current operations across the Group during this unprecedented global pandemic. The health and safety of our crew and shore staff is paramount for the TK Group. We have implemented strict measures on all of our assets to protect our seafarers while the vast majority of our shore staff are working remotely from home. Crew changes on our gas and tanker fleets remain a major challenge for the industry as most countries have placed restrictions on travel, visa applications and cruise disembarking from vessels. We're working with industry and intergovernmental organizations to tackle this challenge while remaining in close continuous contact and supporting our colleagues at sea through this period. I'm pleased to report that the team's dedication to health and safety and their professionalism during this time has resulted in no COVID cases on board our gas and tanker vessels and no negative impact on available vessel base. However, on the FPSO side, we unfortunately did experience two COVID cases on the Hummingbird FPSO. But after a deep clean and a full crew change, we were able to fully restart operations and have had uninterrupted operations since. We were well prepared to manage potential spare parts shortages as the teams identified critical items and made advance purchases early in the outbreak in anticipation of delivery challenges with respect to both manufacturing and logistics. In addition, the teams have also been able to obtain class and flag extensions for our vessels, which were due to dry dock in the first half of this year. Overall, our assets have performed well in the first quarter and second quarter to date, and we expect this to continue. Though we will, of course, remain vigilant in ensuring that we are taking all actions and precautions in line with prevailing best practices. Turning to slide five. At our investor day in November last year, we highlighted two themes for TK Corporation that would not be themes at our next investor day. These included the elimination of TGP's IDRs and the divestment and production of our exposure to the offshore business to further simplify and focus the group. Starting with the IDRs, we eliminated the TGP IDRs in exchange for 10.75 million newly issued TGP common units. which we believe is beneficial to both parties. This important transaction creates greater alignment between TK Parent and the rest of TGP's unitholders, simplifies the corporate structure and we believe that it removes one of the primary uncertainties for investors in TK and TGP. The transaction also increases our economic interest in TGP from 34% to approximately 42%, including our GP stake, and increases TK Parents' free cash flows by almost $11 million per annum based on the current TGP distribution level. On the offshore side of things, we're significantly reducing our exposure to this segment with the new void-aiming contract and the upcoming decommissioning of the Banff FPSO and eventual green recycling of this unit starting in June. In late March, we secured a new up to 10-year bare boat contract on the Foynaven FPSO that effectively covers the remaining life and the eventual green recycling of the unit. The new contract includes an upfront payment of $67 million which was received in early April. A nominal per day fee for the contract life that effectively covers any ancillary costs and a lump sum payment at the end of the contract term that is expected to cover any clean up and green recycling costs of the unit. Importantly, this new contract eliminates our operational exposure to the previous loss making contract. Lastly, the Hummingbird FPSO continues to operate on its fixed-rate contract and is currently producing between 7,500 and 8,500 barrels per day. Production on the unit has increased recently following a successful drilling campaign on the field by our customer. These transactions have also further strengthened our balance sheet and improves our profitability going forward. Over the next two slides, I'll briefly touch on the results and highlights of our daughter companies. I would encourage you to listen to their respective earnings conference calls for more details following this call. On slide six, we have summarized TKLNG's recent results and highlights. TKLNG partners reported record high adjusted net income during the quarter, generating total adjusted EBITDA of $188 million and adjusted net income of $52 million or 58 cents per unit, up significantly compared to the same period of the prior year as a result of a complete quarter contribution in Q1 from its fully delivered LNG fleet. TGP has also reaffirmed its 2020 adjusted EBITDA and adjusted net income guidance with adjusted net income expected to increase by 36% to 60% in 2020 versus 2019. Since reporting in February, TGP has secured new time charter contracts on three 52% owned LNG carriers and is now 100% fixed in 2020 and 94% fixed in 2021 and TGP has also repaid its NOC bond this week using existing cash. TGP now has no remaining debt maturities in 2020. Additionally, TGP continues to execute on its balanced capital allocation strategy which includes prioritizing balance sheet delivering for now alongside a second consecutive year of over 30% increase in quarterly cash distributions with a 32% increase in May 2020. As highlighted on the graph on this slide, GDP continues to deliver its balance sheet and has also opportunistically bought back approximately $44 million of stock since the program was announced in December 2018 at an average price of $12.16 per unit. We take a long-term view on TDP's business and prospects. With a strengthening financial foundation and fee leveraging that is expected to provide financial flexibility, market-leading positions, and a very compelling valuation at a four times PE ratio based on the midpoint of its 2020 financial guidance, we believe TDP has significant long-term value potential. which benefits TK given our full alignment of interest and position as the largest common unit holder. For every $1 per unit increase in TTP's unit price, TK's equity interest would increase by 37 cents per share or 12% based on yesterday's closing price of $3.11 per share. Turning to slide 7, TK Tangers reported the highest quarterly adjusted profit generating total adjusted EBITDA of $155 million up from $63 million in the same period of the prior year and adjusted net income of $110 million or $3.27 per share in the first quarter and improvement from $15 million or $0.44 per share in the same period of the prior year. T&K's results were driven by stronger spot tanker rates with rates reaching the highest Q1 levels in the past decade. We also expect T&K's Q2 results to be strong based on the spot rates secured so far in Q2 with 69% of Q2 Suezmax days fixed at $52,100 per day and 62% of our Q2 Afromax size vessels fixed at $33,600 per day compared to $49,100 per day and $34,500 per day in the first quarter, respectively. During the quarter, T&K continued to bolster its balance sheet from its strong operating cash flows and proceeds from asset sales. T&K reduced its net debt by approximately $200 million, or over 20%, G&K Inc. Inc. In total, T&K has now fixed out 13 vessels on fixed-rate contracts totaling approximately $170 million of forward fixed-rate revenues. These new contracts also reduce T&K's free cash flow breakeven to approximately $10,500 per day, which is expected to enable T&K to create shareholder value in almost any tanker market. Looking ahead. While TNK has lowered its breakeven through its time charter coverage, it continues to maintain meaningful operating leverage as highlighted in the graph on the bottom right-hand side of the slide. We also take a long-term view on TNK's business and prospects. TNK has significantly grown its net asset value earning over $240 million of free cash flow in just two quarters, which is compelling relative to its market cap of $540 million and its net debt balance of $730 million. And it has an industry-leading 20% EPS yield in Q1 2020 based on its closing share price yesterday, or 80% on an annualized basis. For every $1 per unit increase in T&K's units, Unit Price, TK's Equity Interest would increase by 10 cents per share or 3% based on yesterday's closing price of $3.11 per share. In summary, for every $1 increase in CGP and TNK's share prices, TK's Equity Interest would increase by 47 cents per share or 15% based on yesterday's closing price of $3.11 per share. I'll now turn the call over to Vince.