Teekay Corporation Ltd.

Welcome to TK Corporation's second 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 zero on your touchtone phone. As a reminder, this call is being recorded. Now for the opening remarks and introductions, 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 second 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 projected 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 second quarter 2020 earnings release and earnings presentation available on our website. I'll now turn the call over to Kenneth to begin.

Thank you, Ryan. Hello, everyone, and thank you very much for joining us today for TK Corporation's second quarter 2020 earnings conference call. I hope that you and your family is all safe and healthy. On the call today, I'm joined by Vince Locke, and TK's Group CFO. Before we get into our results, I'd again like to take a moment to thank all of our seafarers and shore-based staff for their continued and extraordinary dedication to maintain business continuity. The unprecedented impact of COVID-19 continues to be a major area of focus for us, but we have thus far successfully navigated the evolving logistical and regulatory challenges with minimal impact on our operations. We're truly proud and thankful of how our seafarers and onshore colleagues have responded to COVID-19, implementing new standards to ensure the continued 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. Moving to our recent highlights on slide three of the presentation. In the second quarter of 2020, we reported our third consecutive quarterly adjusted profit, recording consolidated adjusted net income of $40 million or $0.39 per share compared to an adjusted net loss of $13 million or $0.13 per share in the same period of the prior year. We also generated total adjusted EBITDA of $316 million, an increase of $119 million or 61% from the same period of last year. Our strong results in the second quarter can be attributed to solid earnings in each of our main businesses. TK LNG reported another quarterly record high in adjusted net income and total adjusted EBITDA. TK TANGERS experienced another quarter of strong spot TANGER rates and our directly owned FPSO operating results improved as a result of the new Bare Boat Charter Contract secured in late March on the Foyne Avon FPSO, which eliminated our exposure to the previous loss-making contract. Looking ahead to next quarter, we expect TK LNG will continue earning stable cash flows as a result of its LNG fleet being fully fixed through the rest of 2020. At TK Tangers, the spot tanger market has come under pressure since mid-May, following three quarters of strong spot tanger rates. The near-term outlook for the tanker market is uncertain at this point and to some degree linked to the global oil production and demand, which presently is about 10% lower than the average demand in 2019. In our tanker business, we continue to follow the prudent path that we laid out at our investor day last November, and we are pleased to have significantly reduced our effective free cash flow break-evens and near-term spot exposure by locking in 23% of the Tanger fleet on fixed-rate contracts at attractive rates and we are encouraged by fleet supply fundamentals which are favorable relative to prior market cycles. Finally, we have now commenced the wind-down of the second of our three FPSOs which are no longer core business. The Banff FPSO ceased production on its field in June 2020 and we have commenced the various decommissioning and subsidy remediation procedures on the field, which I will touch on in more detail on the next slide. We continue to utilize these improved cash flows to further strengthen our financial foundation, which is one of our strategic priorities. Over the past year, we have reduced our consolidated net debt by $887 million, or 20%, which creates significant equity value throughout the group. We have also increased our total consolidated liquidity to approximately $940 million as of June 30th, which provides financial strength and flexibility. Lastly, we have also secured bank commitments for a new equity margin revolver of up to $150 million to refinance TK Corporation's existing revolver that is currently undrawn and matures in December 2020 at substantially similar terms. We continue to further simplify our structure. With the refinancing of TK Tangers for Suezmax Tangers this month, we have eliminated all our remaining guarantees of daughter company debt, which stood at over $225 million just two years ago. and as announced in May, we eliminated the incentive distribution rights or IDRs we held in TK LNG in exchange for 10.75 million TDP common units. Lastly and most importantly, 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 vessels to protect our seafarers while the vast majority of our shore staff are working remotely from home. As a result of the pandemic, the overall maritime industry has experienced significant challenges related to crew changes. But I'm pleased to report that we have managed to at least do a partial refresh of our crews on effectively all of our vessels and our teams are focused on minimizing the number of crews that are overdue. We'll continue to work hard with both the industry and intergovernmental organizations to tackle this challenge. and bring our remaining overdue colleagues home safely as soon as possible. I'm 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. Turning to slide four, we continue with the wind down of our FPSO segment as we discussed at our investor day in November. In late March, we secured a new up to 10-year bearable contract on the Foynaven that effectively covers the remaining life and the eventual green cycling of the unit. We received $67 million of cash pursuant to this new contract in April. In addition, we'll receive 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 cleanup and green recycling costs of the unit. Importantly, this new contract eliminates our operational exposure to the previous loss-making contract. The Banff ceased production on its field in June and is expected to come off the existing field during the third quarter of 2020, with green recycling of the unit expected to be completed by the end of the year. The Banff has a unique contract structure where TK is also responsible for part of the remediation of the subsea infrastructure. We've been accruing for these costs on our balance sheet with the current net asset retirement obligation or ARO of $44 million which is net of an $8 million receivable balance that is to be funded by the customer. Roughly half of this net ARO is expected to be incurred in 2020 with the remaining to be carried out in the summer of 21. as part of a two-phase subsea remediation process. In addition to the ARO costs, we are also expecting to continue to incur certain operating costs associated with the decommissioning of the FPSO and FSO units, most of which we expect will be incurred in the third quarter of 2020, coinciding with when we expect the unit to leave the band field. Lastly, the Hummingbird FPSO, which just completed a planned customer-funded shutdown for maintenance, continues to operate on its fixed-rate contract and is currently producing approximately 7,000 barrels per day. Over the next two slides, I will briefly touch on the results and highlights of our daughter companies. I would encourage you to listen to the respective earnings conference calls for more details following this call. On slide 5, we have summarized TKLNG's recent results and highlights. TKLNG partners reported another record high adjusted net income and total adjusted EBITDA during the quarter, generating total adjusted EBITDA of $192 million and adjusted net income of $63 million or $0.67 per unit. up significantly compared to the same period of the prior year as a result of a complete quarter contribution in Q2 from its fully delivered growth program. Q2 also marked the eighth consecutive quarterly increase in total adjusted EBITDA. TDP's LNG fleet is 100% fixed for the remainder of 2020 and 94% fixed in 2021. GDP's average daily fixed charter rate in 2020 is expected to be above $80,500 per day, which compares very favorably compared to the weak current LNG spot market. To be clear, this $80,500 per day figure is the rate earned on a 100% utilization basis because of the time-chartered nature of the employment. In addition, TDP has also reaffirmed its 2020 adjusted EBITDA and adjusted net income guidance. Lastly, TDP continues to further deliver its balance sheet and make steady progress towards achieving its target leverage range of 4.5 to 5.5 times on a net debt to total adjusted EBITDA basis. In May, TDP repaid its knock-bond maturity with existing cash and on a second quarter annualized basis, GDP ended up at 5.9 times on a net debt to total adjusted EBITDA basis, which includes proportional share of its underlying joint ventures, which is significantly improved from 7.2 times in 2019. With a strengthening financial foundation and deleveraging that is expected to provide financial flexibility, market leading positions and a very compelling valuation at a 4.5 times PE ratio based on the midpoint of TDP's 2020 EPU guidance, we believe that TDP has significant long-time value potential which benefits TK as the largest common unit holder. For every 10% increase in TDP's unit price, TK's equity interest would increase by $0.45 per TK share or 16% based on yesterday's closing price. of $2.74 per share. Please see the appendix to this presentation for more details. Turning to slide six, TK Tankers reported its third consecutive quarter of strong earnings and cash flows. In Q2, T&K generated total adjusted EBITDA of $124 million up from $36 million in the same period of the prior year and adjusted net income of $81 million or $2.39 per share in the second quarter, a significant improvement from an adjusted net loss of $12 million or $0.36 per share in the same period of the prior year. T&K has transformed its balance sheet, bringing its net debt down to $549 million, a decrease of over $180 million or 25% in the second quarter alone and increased its total liquidity to $468 million as of June 30th. Over the past three quarters, T&K has reduced its net debt by $448 million or 45%, In addition, as mentioned in my opening remarks, T&K has secured a new $67 million debt financing secured by four Suezmax tankers to refinance a debt facility maturing in 2021, which eliminated the last remaining daughter company debt guaranteed by TK Corp. T&K now has no debt maturities until 2023. Since reporting in May, T&K has delivered nine vessels onto previously announced time charter contracts, bringing its total number of fixed vessels to 13, or a total of 23% of the fleet. These fixed contracts log in rates at attractive levels and reduce its spot fleet's free cash flow breakeven to $12,700 per day through mid-2021. which means the company is expected to earn positive free cash flow in almost any tanker market. With a low free cash flow breakeven as a result of recent well-timed fixed rate charter contracts, a strong liquidity position, low balance sheet leverage and no debt maturities until 2023, we believe that TK Tankers is financially well positioned for any near-term volatility in the tanker market. The near-term prospects in the crude tanker market are currently unclear, but we take comfort from the fact that the order book has remained well below levels seen in earlier recoveries, limiting vessel supply growth over the next two to three years. Lastly, for every 10% increase in T&K's unit price, T&K's equity interest would increase by 15 cents per T&K share of 5% based on yesterday's closing price of $2.74 per share. In summary, for every 10% increase in GDP and TNK's share prices, TK's equity interest would increase by 60 cents per TK share or 22% based on yesterday's closing price of $2.74 per share. Please see the appendix to this presentation for more details. I'll now turn the call over to Vince.