Teekay Corporation Ltd.

Good day and welcome to TK Corporation's third quarter 2021 earnings results conference call. During the call, all participants will be in a listen-only mode. As a reminder, this call is being recorded. Now, for opening remarks and introductions, I would like to turn the call over to the company. Please go ahead.

Before we begin, I would like to direct all participants to our website at www.tk.com, where you'll find a copy of the third quarter of 2021 earnings presentation. Today's president and CEOs, Kenneth Bidd and TK's CFO, Vince Locke, 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 third quarter of 2021 earnings release and presentations available on our website. Please note that due to the pending merger between TKLNG and Stonepeaks, we are strictly limited in our ability to comment on the planned transactions, and therefore, we will not be holding a Q&A session after the call today. For additional information about the merger, please see TKLNG's proxy statement filed at the SEC on November 2 relating to the pending merger. With that, I'll now turn the call over to Vince to begin.

Thanks, Ryan. Good morning, everyone. And thank you for joining us today for TK Corporation's third quarter 2021 earnings conference call. Before I hand the call over to Kenneth, I will briefly review our financial results for the quarter. Starting with our recent highlights on slide three of the presentation, In the third quarter, we reported a consolidated adjusted profit of 95,000, up slightly from 30,000 in the prior quarter. We also generated total adjusted EBITDA of 165 million, down from 172 million in the previous quarter. Stronger results from our marine services business in Australia and lower vessel operating expenses offset weaker tanker rates and a heavy dry dock schedule in our tanker business during the quarter. while our gas business performed as expected. Looking ahead and viewing the TK consolidated entity in its current configuration, we are expecting our fourth quarter results to be better than the third quarter, mainly due to improving spot tanker rates and fewer dry docking days for both our gas and tanker fleets, partially offset by higher vessel operating expenses, mainly due to timing of repairs and maintenance. For guidance on our fourth quarter results, please refer to the appendix of this presentation. As announced on October 4th, TGP and Stone Peak entered into a merger agreement whereby Stone Peak will acquire all the issued and outstanding common units and general partner units for $17 per unit in cash, representing an enterprise value of $6.2 billion and common unit equity value of $1.5 billion. TK Parent will be selling its entire position in TGP, including our GP interests, for gross proceeds of approximately $640 million. In addition, as part of the transaction, TK will transfer the ownership of various management services companies that currently deliver the operations for TGP and certain of its joint ventures, along with various personnel, while maintaining the required industry-leading capabilities for the remaining TK group. TGP's preferred units will remain outstanding after the merger. On October 27th, TGP held a bondholder meeting to approve certain amendments required to complete the merger. And we are pleased to report that TGP received sufficient bondholder consents for both of its outstanding Norwegian bonds, which mature in 2023 and 2025. The merger can remain subject to certain other closing conditions including approval by the holders of a majority of TGP's outstanding common units. A special meeting of common unit holders to vote on the transaction is scheduled for December 1st, and the transaction is targeted to close on or soon after December 31st, 2021. Kenneth will discuss this transaction in more detail later in the presentation. Lastly, in September, TK Parent secured a contract with the Australian Government Department of Defense to provide marine services for five Australian government vessels for a firm period of six years with options to extend for up to an additional 10 years. TK has had a presence in Australia since 1997, and we are proud to be a partner with this strategic customer where we will now provide services for nine Australian government vessels, which provides a solid foundation to further grow this business. With that, I will now turn the call over to Kenneth.

Thanks, Vince, and good morning, everyone. Turning to slide four, I will comment on TDP's pending merger with Stonepeak and the key transaction highlights. Since TDP's IPO 16 years ago, we have built TDP into the world's third largest independent LNG carrier owner and operator with one of the largest and most diversified portfolios of long-term contracts with leading players in the LNG industry. We leveraged TK's operating franchise and brand and reputation in the shipping industry to grow our market share considerably over the last 16 years, to the point where TDP is now only behind two Japanese LNG shipping companies in terms of size. TDP hasn't ordered a new vessel since May. And to modernize and potentially grow its fleet in an accretive manner, GDP is now at the stage where it requires a significant amount of competitively priced capital for both fleet renewal and potential future growth. Such capital has not been available to the LNG shipping and MLP sectors on competitive terms through public equity markets for a number of years. We believe this is reflected in many of the privatizations that have taken place in recent times, including a number of TDP's peers. In this context, and as Vince mentioned earlier, Stonepeak has agreed to pay $17 per unit or unit equivalent in cash plus the quarterly distribution of approximately 29 cents per unit, which will be paid on November 12 to unit holders on record on November 5th. Including this quarterly distribution, the price paid equates to a 10.2% premium to GDP's closing price on October 1st and 19.5% premium to the 180-day volume-weighted average price. On a year-to-date basis, this represents a total unit holder return of over 60%. We believe this transaction represents a unique opportunity for us and other TDP common unit holders to monetize our existing investments in TDP at an attractive valuation, which was achieved through a broad competitive process. Acting on the recommendation from TGP's Conflicts Committee, comprised solely of independent board members, the TGP Board of Directors unanimously approved the transaction and recommend that all unit holders vote in favor of the merger, with both the TGP Conflicts Committee and the TGP Board of Directors having received fairness opinions from their respective financial advisors. The GDP Corporation Board of Directors also unanimously approved the transaction, and we have signed a voting and support agreement with Stonepeak to vote our 41% common unit position in GDP in favor of the merger. This transaction also allows both TK and TDP common unit holders to realize an attractive return, with TK earning a total shareholder return of 203% and an annual IRR of 12.5% since TDP's IPO in 2005. Lastly, this transaction transforms TK's balance sheet and gives us the financial flexibility and dry powder to pursue future opportunities, which I will touch on in more detail later in this presentation. For more information about the transaction, I would direct you to the proxy statement, which is available on TDP's website. Turning to slide five, we provide our sum of the parts value at the end of 2020, which was when we decided to formally launch a potential sale process relating to our stake in TDP compared to the current sum of the parts value performer for the pending TDP Stonepeak transaction. Since the beginning of the year, our sum of the past value has increased from $208 million, or $2.06 per share, to $464 million, or $4.57 per share, post-merger, which is an increase of $256 million, or $2.51 per share, representing a 122% increase. The increase is mainly due to the pending GDP stone peak merger, which post-transaction and after giving effect, to our anticipated use of merger proceeds to repay debt will result in TK Perrin being completely debt-free with a cash position of about $325 million. The 122% increase also reflects the elimination of our $33 million asset retirement obligation, or ARO, associated with the Banff FPSO and its field in the second quarter, and TNK's year-to-date stock appreciation. And we continue to have a positive outlook for our tanker business with attractive supply and demand fundamentals going forward, which T&K's President and CEO, Kevin Mackay, will discuss in more detail during T&K's earnings conference call following this call. Based on the sum of the paths post-merger, we are currently trading at an 18% discount as of yesterday's closing share price of $3.74 per share. Turning to slide six, TK was founded nearly 50 years ago by our late founder, Torben Karlsson. Over this time, we have built a strong brand and reputation in the shipping sector with a focus on operational excellence, and we have a track record for growing and scaling businesses, customer relationships, and partnerships, along with various other capabilities. Upon completion of the pending merger and subsequent debt repayment, we'll have significantly greater financial flexibility with approximately $325 million in estimated cash balances. This puts us in a position where we again can leverage our operating franchise and industry-leading capabilities to pursue attractive investment opportunities to create long-term shareholder value. As we survey the landscape, we could potentially pursue such opportunities alongside our daughter company, T&K, directly at the TK corporation level or through partnering with others on a public or private basis as we've done in the past. As part of being successful in shipping, we truly believe that it is important to buy assets at the right time, and in order to do that, we need to have a strong balance sheet and prompt access to capital in order to take advantage of attractive investment opportunities and at times act countercyclically. Such future investment opportunities may be in the shipping sector, We already have a meaningful position in tankers through our controlling interest in T&K, where tanker supply and demand fundamentals continue to trend in a positive direction. Based on our operational capabilities, we could also potentially invest in other shipping sectors, some of which we have had experience with in the past. And we also have a long history of expanding into new shipping sectors, bringing substantial value to an existing platform through T&K's financial strength long-standing industry relationships and core competency of scaling and optimizing businesses. We also recognize that the world is changing, and while we believe that oil will remain an important component of the world's energy mix for many decades, we also see that the increasing focus on greater energy diversification and lower emissions will bring our will bring other interesting opportunities where TK's unique capabilities and profile could be a meaningful competitive advantage. This could include new vessel technologies as the shipping sector pushes to decarbonize over time, where we have a track record of embracing new technologies. For instance, we were the first to order LNG-fueled shuttle tankers and the MECI LNG carriers. Just as we did when we first entered the LNG business almost 20 years ago, we expect to maintain an active role in meeting our customers' evolving needs through the energy transition. It may take time for these opportunities to fully come to fruition, but we believe that we have the necessary capabilities to play an important role in this exciting and highly dynamic environment. With an existing operational franchise, industry-leading capabilities, and greater financial flexibility following completion of the pending GDP transaction, We believe that we will be well-positioned to take advantage of future opportunities to create long-term shareholder value. With that, I want to thank everyone for listening and for your continued interest in TK. We certainly appreciate it, and we look forward to speaking to you next quarter.

This concludes today's call. Thank you for your participation. You may now disconnect.