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Text: Before we begin, I'd like to direct all participants to our website at www.
I hope that you and your families are all safe and healthy.
On the call today, I'm joined by Vince Lok, Teekay's Group CFO.
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're 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.
The first quarter of 2020 marked the second consecutive quarterly adjusted profit for Teekay as we recorded consolidated adjusted net income of $25 million or $0.25 per share compared to an adjusted net loss of $13 million or $0.13 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 results included the contribution from the 14% ownership stake in Altera Infrastructure, formerly Teekay 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 Foinaven FPSO contract we entered into in late March.
Our strong results in the first quarter can be attributed to higher earnings in our main businesses.
Teekay Tankers experienced significantly stronger spot tanker rates, reaching its highest first quarter levels in over a decade, which strengthened into the second quarter while Teekay LNG have robust earnings from a complete quarter contribution from its fully delivered LNG fleet.
Teekay 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 Foinaven FPSO contract was included in our Q1 revenues.
However, the remaining $56 million has been included in Teekay Parent's free cash flow.
As a result, Teekay 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 Teekay LNG's quarterly cash distribution; and lower G&A expenses.
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 bareboat contract for the Foinaven 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.
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 Teekay 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 crews disembarking from vessels.
We're working with the 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 operation since.
We were well prepared to manage potential spare parts shortages as the teams identified critical items and made advanced 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.
So 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 5.
At our Investor Day in November last year, we highlighted two themes for Teekay Corporation that would not be themes at our next Investor Day.
These included the elimination of TGP's IDRs and the divestment and reduction 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 Teekay 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 Teekay and TGP.
The transaction also increases our economic interest in TGP from 34% to approximately 42%, including our GP stake, and increases Teekay Parent's 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 a new Foinaven 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 bareboat contract on the Foinaven 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 cleanup 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 barrels 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.
On slide 6, we have summarized Teekay LNG's recent results and highlights.
Teekay LNG 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 $0.58 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 NOK 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 delevering 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, TGP continues to delever 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 TGP's business and prospects.
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 times PE ratio based on the midpoint of its 2020 financial guidance, we believe TGP has significant long-term value potential which benefits Teekay, given our full alignment of interest and position as the largest common unitholder.
For every $1 per unit increase in TGP's unit price, Teekay's equity interest would increase by $0.37 per share or 12% based on yesterday's closing price of $3.11 per share.
Turning to slide 7.
Teekay Tankers 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, an improvement from $15 million or $0.44 per share in the same period of the prior year.
TNK's results were driven by stronger spot tanker rates, with rates reaching the highest Q1 levels in the past decade.
We also expect TNK's Q2 results to be strong based on the spot rates secured so far in Q2, with 69% of Q2 Suezmax days fixed that $52,100 per day and 62% of our Q2 Aframax 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, TNK continued to bolster its balance sheet from its strong operating cash flows and proceeds from asset sales.
TNK reduced its net debt by approximately $200 million or over 20% since the beginning of the year, and increased its total liquidity to $368 million and have subsequently continued to make meaningful progress on both fronts.
TNK also took advantage of the market strength and fixed up another nine vessels on fixed rate contracts ranging between six months and two years, but most of which are for one year, at very attractive rates.
In total, TNK has now fixed up 13 vessels on fixed rate contracts totaling approximately $170 million of forward fixed rate revenues.
These new contracts also reduce TNK's free cash flow breakeven to approximately $10,500 per day, which is expected to enable TNK to create shareholder value in almost any tanker market.
Looking ahead, while Teekay has lowered its breakeven through his 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% earnings per share yield in Q1 2020 based on its closing share price yesterday or 80% on an annualized basis.
For every $1 per unit increase in TNK's unit price, Teekay's equity interest would increase by $0.10 per share or 3% based on yesterday's closing price of $3.11 per share.
In summary, for every $1 increase in TGP and TNK's share prices, Teekay's equity interest would increase by $0.47 per share or 15% based on yesterday's closing price of $3.11 per share.
Turning to slide 8.
Over the past several years, we have focused on derisking our businesses and strengthening our foundation across the Group.
This included divesting and reducing our offshore exposure with the sale of our remaining interest in Teekay Offshore last year and the new bareboat contract structure for the Foinaven FPSO which Kenneth touched on earlier and completing key financings, including Teekay Parent's bond last year and, more recently, Teekay LNG's unsecured revolver and a majority of Teekay Tankers' debt facilities at attractive all-in pricing.
Looking at the graph on the slide, Teekay Corporation has reduced its pro forma consolidated net debt by $830 [Phonetic] million or 19% since the beginning of 2019 and reduced its pro forma net debt to EBITDA from a peak of 9 times to 4.5 times, while increasing our pro forma consolidated liquidity to over $900 million.
We have also reduced Teekay Parent's pro forma net debt by approximately $100 million or 25% since the beginning of 2019 and reduced our daughter debt guarantees to under $90 million as of March 31, which we expect will be completely eliminated by the end of 2020, while also holding a healthy pro forma liquidity position of $150 million.
In short, we have made great progress in reducing our debt, eliminating near-term maturities, reducing remaining exposure to the offshore segment and significantly improving our financial position all around.
As you have heard, it was a very busy quarter, with record TGP and TNK earnings and executing on our strategic priorities, which included completing various asset sales securing new charter contracts across the Group and eliminating TGP IDRs in exchange for new TGP common units.
In addition, in mid-April, we also published our 2019 Sustainability Report, which is our 10th consecutive annual Sustainability Report.
As a leading oil and gas transportation company, Teekay cannot separate ourselves from the longer-term challenges that the world is facing.
We have built our Company on a deep commitment to responsible safety and environmental practices.
Over the past decade, we have worked with industry to pioneer and invest in increasingly more energy efficient vessels.
For instance, our latest LNG carrier newbuildings produce about 50% less CO2 emissions per cubic meter of LNG transported.
As our industry has set itself the challenge of progressively becoming carbon-neutral by 2050, we have an enormous task ahead of us.
We are embarking on new industry partnerships to drive necessary technological developments and we will, in 2020, reassess our reporting framework so that we have the best possible foundation for the important work ahead of us.
In closing, with our balance sheet continuing to strengthen, total pro forma liquidity of over $900 million for the Teekay Group, extensive contracted revenue from Teekay LNG and higher contracted revenue and strong spot rates to date at Teekay Tankers and with no committed growth capex or significant upcoming debt maturities, we believe that the Teekay Group is financially well-positioned for both any potential market volatility in the near term and the longer-term future of marine energy transportation.
With that, operator, we are now available to take questions.

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