Teekay Corporation (TK) Q3 2012 Earnings Report, Transcript and Summary

Welcome to Teekay Corporation's Third Quarter 2012 Earnings Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Now, for opening remarks and introductions, I would like to turn the call over to Mr. Peter Evensen, Teekay's President and Chief Executive Officer. Please go ahead.

Before Mr. Evensen begins, I would like to direct all our participants to our website at www.teekay.com, where you will find a copy of the third quarter 2012 earnings presentation. Mr. Evensen and Mr. Lok 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 2012 earnings release and earnings presentation available on our website. I will now turn the call over to Mr. Evensen to begin.

Thank you, Ryan [ph]. Good morning, everyone, and thank you for joining us today for Teekay Corporation's Third Quarter 2012 Earnings Call. I'm joined this morning by our CFO, Vince Lok, and for the Q&A session, we have our Chief Strategy Officer, Kenneth Hvid; and our Group Controller, Brian Fortier. During our call today, I'll be walking through the third quarter of 2012 earnings presentation, which can be found on our website. Beginning on Slide 3 of the presentation, I will briefly review some recent highlights for Teekay Corporation and our 3 publicly traded daughter companies. For the third quarter of 2012, Teekay Corporation generated $192 million of total consolidated cash flow from vessel operations or CFVO, an increase of approximately 11% from the third quarter of 2011. Teekay Corporation reported a consolidated adjusted net loss of $20 million or $0.29 per share for the third quarter of 2012, an improvement from the $0.58 per share consolidated adjusted net loss that we reported in the third quarter of 2011. The reduction in our adjusted net loss for the quarter reflects the contributions from the strategic acquisitions and new building deliveries over the past year, the redelivery of in-chartered conventional tankers during the same period and the progress we've made on our profitability enhancement initiative. And this improvement is despite the loss of around $9 million per quarter in cash flow due to the Banff FPSO being off-hire since December of 2011. In early October of 2012, we completed a $700 million -- NOK 700 million or approximately USD 123 million equivalent, 3-year unsecured bond offering in the Norwegian bond market at a fixed all-in U.S. dollar rate of 5.5%. This was our first Norwegian bond offering at Teekay Parent, following previous issuances in this market by Teekay Offshore and Teekay LNG, which provides further diversification of our capital sources. On the project side of our business, which I'll focus on more in a moment, the Cidade de Itajai FPSO conversion was recently completed. And following sea trials, the unit is expected to sail this weekend from the shipyard in Singapore for offshore Brazil. Teekay Parent also recently agreed to sell the Voyageur Spirit FPSO to Teekay Offshore for $540 million, with the transaction expected to close in December upon production startup on the new field. Our publicly traded daughter entities have also been active during the fall of 2012, executing on their respective business plans. Teekay LNG Partners is currently actively bidding on several LNG and floating storage and re-gas projects with startup dates in the 2015 to 2017 timeframe. With its September equity raise, Teekay LNG has available liquidity of $559 million and is well positioned for investment in one or more quality growth opportunities without the need to issue equity. For the quarter ended September 30, 2012, Teekay LNG declared a cash distribution of $0.675 per unit, which based on Teekay Parent's current GP and LP ownership interest in Teekay LNG will result in $23 million of cash flow to Teekay Parent for the quarter. As mentioned a moment ago, the Teekay Offshore board recently agreed to acquire the Voyageur Spirit FPSO from Teekay Parent. This accretive acquisition is fully financed, including a new $330 million debt facility secured by the unit. For the third quarter, Teekay Offshore declared a cash distribution of $0.5125 per unit, which based on Teekay Parent's current GP and LP ownership interest, will result in $14.6 million of cash flow to Teekay Parent for the quarter. Teekay Parent has continued to tactically manage its fleet employment profile. In the face of a softening global economic outlook, Teekay Tankers has been adding to its fixed coverage. In October, Teekay Tankers extended an existing time-charter out contract at an attractive rate, increasing the company's fixed coverage for fiscal 2013 from 38% to 42% in fiscal year 2013. For the third quarter, Teekay Tankers generated cash available for distribution, or CAD, of $0.12 per share, down from $0.15 per share in the second quarter of 2012. Cash available for distribution decreased in the third quarter due to a combination of seasonally weak spot tanker rates, a higher-than-usual drydocking schedule and lower time-charter revenue. For the third quarter, Teekay Tankers declared a cash dividend of $0.02 a share, which reflects the higher reserves for debt principal payments following the company's 13 vessel acquisitions in June. Turning to Slide 4. With the 1-year anniversary of our Sevan transaction approaching at the end of this month, I'm pleased to note that this important transaction is yielding tangible results. As a reminder, last year, we agreed to acquire all 3 of Sevan's cylindrical FPSOs and invest in a 40% equity interest in the recapitalized Sevan. I want to take a moment to update you on the progress of each of these investments. Last November, we agreed to fund the remaining capital upgrades to prepare the Voyageur Spirit FPSO for a new contract with E.ON in the North Sea, and then acquire this unit from Sevan once it was operating on the field. In September, after completing upgrades, which primarily related to the topside processing equipment, the unit left the shipyard in Arendal, Norway and arrived on the Huntington Field in early October. The moorage on this unit has now been completed, and we and E.ON are in the process of pulling in risers. The 5-year time-charter contract with E.ON is expected to commence shortly, following first oil, which is targeted for mid-December, at which time the sale to Teekay Offshore will be competed. In addition to the firm period, the time-charter contract with E.ON includes extension options for up to a total of 15 years. Factoring the approximately $130 million of capital upgrade payments funded by Teekay, the assumption of Sevan's $230 million debt facility secured by the Voyageur Spirit and payments to Sevan bondholders, Teekay Offshore's $540 million purchase price is expected to be approximately $90 million above Teekay Parent's cost. Moving on to the Hummingbird Spirit, this FPSO was acquired by Teekay Parent as part of the Sevan transaction, but it came with a shorter duration contract. During the past few months, we successfully negotiated with Centrica to extend the current contract to December 2013 at a higher rate. This contract also has 5 additional 3-month extension options, which, if all exercised by Centrica, would extend the contract out to March 2015. However, we're already working on new long-term charter contract to begin once the Centrica contract expires. Finally, the Piranema Spirit FPSO, which was acquired directly by Teekay Offshore as part of the Sevan transaction, is operating under a contract with Petrobras with 5 years currently remaining and 11 1-year extension options. After acquiring the unit, we made improvements to the operation of this FPSO, which eliminated a $7,000 per day penalty starting in June 2012, and results in approximately $2.5 million of additional run rate cash flows annually. Our equity investment in Sevan Marine has also yielded results. After using the proceeds from the sale of its FPSOs to clean up its balance sheet, Sevan has stabilized its cash flows and is now operating profitably. The new asset-light Sevan has been allowed to focus on its core engineering competency, and during the past year, has been successful generating new business, including FEED studies with Dana Petroleum in the Western Isles project and Statoil on the Skrugard field, and a licensing agreement for use of its cylindrical hull technology on the Western Isles project. Prior to November, Teekay Petrojarl and Sevan were often competing on offshore projects in both the North Sea and Brazil. Now through the cooperation between these 2 businesses, Teekay Petrojarl and Sevan now have the broadest offering in the FPSO space, able to offer competitive solutions using either shipshape or cylindrical hull technology. Turning to Slide 5, during the last quarter's earnings call, I provided an overview of the numerous projects underway at Teekay and our current focus on project execution. During the third quarter and fourth quarter so far, we've continued to make good progress. The ability to deliver these projects on time and within manageable cost parameters is critical for achieving targeted returns, and through the drop-down sale to our daughter companies, raise of capital and resources to de-leverage Teekay Parent's balance sheet and focus on new growth projects in the future. I'll provide brief updates on a few of these projects I touched on during last quarter's earnings call. However, I'd like to take a moment to discuss the status of the Petrojarl 1 FPSO. In late October, we received notification from Statoil that commercial services of the Petrojarl 1 will no longer be required on the Glitne field in the North Sea beyond April of 2013. Overall, we view this as a positive development since production on the Glitne field has been in decline and the Petrojarl 1 was generating only modest cash flow. This development allows us to start planning the redeployment of the Petrojarl 1 into more lucrative employment ahead of schedule, and we currently have strong leads on several attractive project opportunities. The re-contracting of the Petrojarl 1 FPSO is aligned with one of our core strategic areas of focus, which is improving the profitability of our existing assets. Turning to Slide 6. I'll update you on a couple of these notable cost savings initiatives that are currently underway. In our Conventional Tanker operations, the establishment of Teekay Marine Ltd., or TML, has been completed. This new subsidiary company, which is 51% owned by Teekay and 49% by Anglo-Eastern Group, was formed to provide efficient technical management for Teekay's Conventional Tanker fleet. The new company combines Teekay's operational leadership and customer service with Anglo-Eastern's economies of scale and access to marine resources. The transition of technical management to TML commenced in September, and the transfer of all employees and systems is now complete. Through this initiative, we've consolidated operations to Singapore and Glasgow from 4 locations previously, significantly reducing our overhead costs. In September, we also commenced the reorganization of our onshore shuttle tanker operations based in Stavanger, Norway. This reorganization is expected to be completed by mid-2013. Once the cost savings initiatives in our Conventional Tanker and Shuttle Tanker businesses are completed, we expect to realize an annual run rate G&A cost savings of approximately $15 million. In addition, we're also exploring other opportunities to generate vessel operating cost savings going forward. Turning to Slide 7, I'll provide an update on the Cidade de Itajai FPSO conversion project. In late August, the shipyard encountered issues during sea trials, which resulted in a 2-month delay in delivery. The delay will have no material financial impact to Teekay, and the Cidade de Itajai conversion has now been completed and new sea trials on the unit are currently underway. The unit is now scheduled to depart the shipyard in Singapore on November 10 for its field in the Campos Basin of offshore Brazil. Startup in Brazil is scheduled for early Q1 2013, at which time the Cidade de Itajai will commence a 9-year time-charter with Petrobras. Under the Omnibus Agreement between Teekay Parent and Teekay Offshore, Teekay Parent intends to offer its 50% interest in the Cidade de Itajai FPSO to Teekay Offshore following first oil in the first quarter of 2013. Turning to Slide 8. I'll provide a brief update on the Petrojarl Knarr FPSO new building, our largest FPSO project. In September of 2012, the hull was launched from the drydock at the Samsung shipyard in Korea, and installation is now proceeding on the unit's topside equipment and turret. You'll note that the lion's share of work and complexity on an FPSO construction project is in the topsides. Following topside integration and mechanical completion, Petrojarl Knarr FPSO is scheduled to sail for the Knarr field in the North Sea and is expected to commence its time charter contract with BG following first oil in the first half of 2014. I'll now turn the call over to Vince to discuss the company's financial results for the quarter.

Thanks, Peter, and good morning, everyone. Today, I will review our third quarter results and later on, I will provide our outlook for the fourth quarter. Starting with Slide 9, I will review our consolidated results for the quarter, comparing an adjusted income statement for Q3 against an adjusted income statement for Q2, which exclude the items listed in Appendix A to our earnings release. You'd note that we have also adjusted both our Q3 and Q2 income statements, the impact of the predelivery activity of the Voyageur Spirit FPSO, which is treated as a variable interest entity, or VIE, for accounting purposes, which is consolidated into our accounts even though we will not acquire the vessel until it commences operations. You'll notice that the VIE results are noncash to Teekay and have no impact to our bottom line as the net VIE result is backed out of the noncontrolling interest line. Starting at the top, net revenues decreased by $10 million mainly due to higher level of scheduled maintenance activity in our FPSO fleet, which is typical during the summer season in the North Sea, decline in spot Suezmax rates, a heavier drydock schedule and in-chartered re-deliveries in the Conventional Tanker fleet. These were partially offset by higher project revenues in the Shuttle Tanker fleet and higher revenue from the LNG fleet as there was a scheduled drydock for one of our LNG carriers in the second quarter. Vessel operating expenses increased by $7 million into the North Sea maintenance season for the FPSO and Shuttle Tanker fleets, and a heavier drydock schedule for the Convention Tanker fleet in Q3. Although vessel OpEx increased in Q3, the increase was much smaller than we had expected as a result of better cost management and some timing differences. Time charter hire expense decreased by $4 million due to the in-chartered vessel deliveries over the past 2 quarters, partially offset by higher spot in-chartering in our Shuttle Tanker fleet. Depreciation and amortization decreased by $2 million due to vessel sales and the completion of drydock amortization on certain vessels. G&A expenses came in slightly below our expected range and are consistent with the prior quarter. Net interest expense was slightly lower in the third quarter due to higher capitalized interest on our new buildings under construction. Equity income increased by $5 million due primarily to higher equity income for our MALT LNG joint venture. Noncontrolling interest expense decreased to $34 million as a result of lower adjusted earnings in Teekay Tankers, partially offset by higher adjusted Q3 earnings and the September equity offerings in both Teekay Offshore and Teekay LNG. Looking at the bottom line, adjusted net loss per share was $0.29 in the third quarter, a slight decline from the previous quarter's adjusted net loss of $0.25. However, overall, the third quarter results came in better than expected. Turning to Slide 10, we've provided some guidance on our consolidated financial results for the fourth quarter of 2012. Starting with our fixed-rates fleet, revenues from the Foinaven FPSO is expected to increase in Q4 by a total of $29 million. $25 million of this is the additional revenue we recognized in the fourth quarter of each year into the Foinaven contract upon meeting certain annual operating performance measures, oil production levels, and is based on the average oil price for the year. An additional $4 million of revenues is expected from the Foinaven due to the unit returning back to service after its planned shutdown in Q3. This is partially offset by a net reduction of $2 million due to lower project revenues in our Shuttle Tanker fleet, partially offset by the Navion Saga FSO returning to service after its scheduled drydocking in Q3. Spot revenue days are expected to increase by about 90 days as a result of vessels that underwent scheduled drydockings during Q3 returning to service in Q4. So far in Q4, we have fixed approximately 40% of our spot Aframax and Suezmax revenue days, the average TCE rates of $15,000 a day and $13,000 per day, respectively, inherited $12,200 per day and $13,700 per day, respectively, in Q3. And a rough rule of thumb, for each $1,000 per day change in spot tanker TCE rates, results in a $2 million change for consolidated revenues per quarter. Overall, vessel operating expenses are expected to decrease by approximately $2 million in the fourth quarter, which is a completion of our scheduled summer maintenance, which is partially offset by some of the life extension work on the Foinaven FPSO previously scheduled for the third quarter, now deferred to Q4. Time charter hire expense is expected to decrease by further $2 million in the fourth quarter, reflecting the redelivery of an in-chartered vessel during Q3, in line with lower spot in-chartering expected in the Shuttle fleet. There are no scheduled redeliveries during the fourth quarter. Depreciation and amortization is expected to remain consistent with Q3. We expect G&A to be in the range of $48 million to $50 million for Q4. Net interest expense for Q4 is expected to increase by $1 million due to the impact of the Teekay Corp. Norwegian bond issued in October. Equity income is expected to be consistent with Q3, and income tax expense is expected to be approximately $2 million to $3 million in Q4. Noncontrolling interest expense is expected to be approximately $35 million to $37 million in Q4, reflecting higher expected adjusted earnings in Teekay Tankers and the full quarter impact of the September equity offerings in Teekay Offshore and Teekay LNG. So in summary, Q4 is expected to be meaningfully stronger than Q3. Please note that this guidance does not yet include any income from the Voyageur Spirit FPSO, and thus, there's additional upside that first oil will be reached during December for that unit. Voyageur Spirit is expected to contribute annual EBITDA of approximately $70 million. However, we also expect an increase to noncontrolling interest expense as a result of the unit being owned in Teekay Offshore. The unit is fully financed so there's no need to issue further equity as a result of the already completed September equity offering in TOO, and the related $330 million debt facility is on track to be completed in December. There's also additional upside earnings potential going forward should Teekay LNG be successful in making an accretive acquisition of the $180 million of equity that TGP raised in September. With that, I'll turn the call back to Peter to conclude.

Thank you, Vince. Turning to Slide 11, as I mentioned at the start of the call, 2012 is a year of execution for Teekay. After committing to approximately $3 billion of investments in 2011, we're now primarily focused on executing on our current project portfolio and our initiatives to lower operating costs and enhance the profitability of our existing businesses. As the graphic on this slide illustrates, Teekay has a lot on the go, and our projects span the globe. This requires an internationally minded Teekay team with the knowledge and capabilities to efficiently execute on multiple projects simultaneously, leveraging key relationships with shipyards, vendors and customers in all of our operating regions from Singapore to Brazil to Norway, to name just a few. Thank you for joining us on the call today. Operator, we're now ready to take questions.

[Operator Instructions] First question comes from Justin Yagerman from Deutsche Bank.

So I guess the first question is more of a strategic question, Peter. You just kind of summed up by saying that you're going to be executing on current projects in the portfolio, and it feels like a lot of the bidding that's being done right now for new projects is at the daughter level. So how should we think about new projects coming in to the parent level company? What are you guys looking for? You didn't touch too much on LNG here in the presentation. What kind of projects fit your criteria to really get you over the hump to want to do, do stuff at the parent level right now?

Well, that's right. Our concentration on the parent level right now is to de-lever the balance sheet. And so when the Voyageur Spirit gets dropped down, that will be about $500 million in de-levering. And then we have the Knarr FPSO, which will move through in 2014. So we're back on a path of de-arming the gun, as I like to say, up at Teekay Parent, and that's by executing on these projects and dropping them down. And that includes the Cidade de Itajai, although that's much smaller. And so the focus on the new projects is for the daughter companies. When we look at new LNG projects or offshore projects, we always look at whether they'll be accretive in the daughter companies because that's who we're working for. And on the LNG side, as I mentioned, we're seeing a lot more tendering activity, but it's for liquefaction plants that are going to come on in 2015 to 2017. And we're really excited about that opportunity. What we're seeing in the near term is, of course, that LNG prices in Asia have come down from the summer, from $18 down to about $13. And that's meant that a little bit of the steam has -- or froth has come off of that market, and so you've seen fixtures both drop in the actual rate that they're getting and the actual amount of fixtures. But that doesn't affect us at Teekay LNG Partners because everything we have is fixed out. The other thing that we're trying to look at is that the daughters can do direct acquisitions. And that's why Teekay LNG Partners raised its money to look at a near-term acquisition and not wait for the tendering activity. And in, of course, Teekay Offshore Partners, they have the shuttle tankers, which they bid on directly and which will be delivered in succession over the back of 2013. So if I go back and talk about what's happening at Teekay Corporation, they're benefiting from these GP cash flows, and we're really not looking to add fixed assets up at Teekay Corporation.

Okay. And so looking at a couple of the projects you'll be working on, when you think about the Petrojarl 1, what type of charter do you guys want to get in order to get that asset to a place where you can potentially drop it down and use that as another de-levering opportunity?

Well, the Petrojarl 1 has been redeployed something like 10 or 11x since it was delivered. So it has this benefit of being a unit which is acceptable on the North Sea. And because it's a older unit, it has a replacement cost that it competes against new buildings. We're quite confident we'll get a much -- well, we're very confident we'll get a much better rate than what we had on the Glitne field. But it competes favorably because -- and the alternative is to order a new building.

Are there upgrades that would be needed to make that asset more competitive?

Yes, there's always upgrades that you put in place that are usually field-specific. And since it's been out on the Glitne field for a while, we would make upgrades. But that is, of course, covered in the new contract.

Okay. And, Peter, looking at the Petrojarl Knarr, you guys have talked a little bit about JV possibilities there. I didn't hear anything new there. Is that something that you're still looking to market or you intend on going in alone on that asset?

I don't think we've given specificity on whether we would bring in partners on that. Right now, we're concentrating. We put in place a pre-delivery financing, and we're waiting for BG to declare whether it will be a 6-year or a 10-year asset. And then we'll put in place post-delivery financing. And then we'll look at whether we drop it all down into Teekay Offshore or whether we look for partners.

Okay. And then the last question just on vessel OpEx, given that was where at least some of the deploys [ph] are estimates, curious if you could go into a little bit more detail on how the relationship with Anglo-Eastern is benefiting Teekay Parent and where you see the real advantages to that scale that they got it.

Well I'll talk about the advantages, but actually, we haven't seen the benefit of Teekay Marine Ltd. yet in our numbers. It's something that's going to flow through mostly a little bit in the fourth quarter, but much more in 2013. So the savings that we had in this quarter were really by our guys working the assets much harder, especially on the operating cost that we had in Stavanger. Vince, would you add anything?

That's right. I think, as we said before, Anglo-Eastern provides us with additional scale, but also access to a bigger pool of seafarers. And so over time, we hope to achieve additional vessel OpEx savings in addition to the G&A savings.

Next question comes from Michael Webber from Wells Fargo.

I wanted to jump back in first and talk about the FPSOs, and I'll follow-up first, I guess, on the Petrojarl 1. We had that rolling off in 2014. Did that terminate early or were we just baking in options there? And then in terms of, again, putting that back out in the market, can you maybe give some sort of EBITDA range as to what you guys might expect, maybe even $10 million to $15 million now, or is that still viable?

Yes, it did terminate early. We had planned on 2014, but Statoil put a rig out on the field, drilled it and got a dry hole. So then they realized that they would cease production earlier. And the amount of EBITDA that we'll get on the contract really depends on which opportunity we take. So we're not in a position to give guidance on that right now.

Fair enough. Is there going to be a termination payment associated with ending that contract early?

No.

No, okay. On the Voyageur, I think we had kind of a November timeframe baked in. I think that's what you guys came out [ph] with at the Investor Day and it's December now. Was there a significant delay there, I guess a material delay there? Or is that just kind of just the slight movement on it? What's happening with the Voyageur?

Well, we're ready, but the subsea that E.ON is responsible for, they're having a few issues with. And therefore, we're a little dependent on when they get to hook it up. And so they've had some rough weather out there, and so the -- unfortunately, the date is moving around a little bit. And we might miss the mid-December. But in any case, we're there, we're hooked up, we're pulling in the risers, but they do have some subsea -- not material, I want to go ahead. Not material issues, but they do have some subsea issues with hooking up. So that's E.ON's responsibility, but it could delay the first oil.

All right, okay. So that mid-December timeframe is kind of floating at this point, too?

It is. Just [indiscernible].

Yes. And I guess along that line, this is my follow-up question to that, I mean, I guess the idea behind not raising TOO's distribution now or announcing it now and waiting until Q1, is that just kind of a nod to the kind of the incremental possibilities of delays there, some lingering risks? And maybe just a little, I guess, some color on your thought process around kind of delaying that TOO move.

No, that's just our -- the way we do business, which is we wait for the cash flow and then we raise it. We don't preempt it. And so when we earn the cash, we increase it. And that's what I indicated in the release for Teekay Offshore.

Yes. Okay. I guess one more with the Knarr oil and the FPSOs. You already touched on the Knarr briefly in Justin's question, but you mentioned first oil kind of mid-'14, kind of base 1 '14. Is that still on pace to deliver in the beginning of the year? Has that timeframe changed at all?

Well, the timeframe is floating because BG is thinking about whether they should make any changes to it. But that's why we've widened out the field startup to say first half of 2014. So it'll either be at the beginning of that year or toward the middle of the year.

Okay. But nothing...

And that depends on BG. If they come and say they want to make some variations, then that'll make it later rather than earlier. And that's just a normal part of when you're building an FPSO.

Right. But nothing from the construction from the yard, it's nothing coming from that end?

No, that's going very well, especially as a new build, yes.

Okay. I guess maybe kind of moving -- kind of higher level. I want to talk a bit about the kroner bond you guys did at the Parent. Obviously, you've got some kind of built-in levers here to de-lever, so I guess, I would kind of like to get the thought process around kind of aside from kind of getting a foothold in that market as to why did -- what the thought process was in terms of adding that incremental debt at the Parent, and potentially, uses, and then how that factors in to your buyback math potentially in the first half of next year?

With the Norwegian bond, as you know, we've been successful on accessing that market in TGP and TOO. And so it's following that success. Quite simply, we wanted to access that market at the parent, gain some financial flexibility. As you know, we have the Petrojarl Banff FPSO that's out of commission right now and requires some upgrades. We may need some upgrades on the Petrojarl 1 for redeployment. So it just really gives us additional financial flexibility towards that.

Okay. I mean in terms of potentially returning value to shareholders down the line, I mean does raising that money and then a higher yield on the equity, has it -- did that factor in, I guess, to your thought? Because the guidance you guys had talked about is, I guess, you guys gave at your Investor Day around potentially buybacks as early as the first half of next year and potential dividend upside in the back half of 2013, 2014. Does that factor in at all or is it just purely just from kind of a short-term flexibility kind of raise?

No, we didn't give any guidance on that, first of all. And we actually measure ourselves more by net debt. So if we raise a little bit of debt and put it in as cash to have financial flexibility, as Vince said, that doesn't affect any of our plans.

Got you. All right. I mean, I guess just going back to the buyback and dividend. I mean it wasn't necessarily guidance, but it was definitely a talking point at the Investor Day. Can you maybe talk about how you think about buybacks here and/or dividend upside? And has that changed at all, I guess, since we all got together in June in New York?

Well, again, I would say we didn't give guidance on it. So all I'm saying is Teekay has been quite clear that we levered up, and we're in the process of de-leveraging, moving down. And there's lot of movements going forward, especially the financing of -- the long-term financing of the Knarr. And so that's what we're putting in place. And so that's why we put the share buyback on hold for a while.

Got you. All right. That's helpful. One more for me, and I'll turn it over. On the LNG side, you guys have been talking -- you talked about FSRU there for a while, and we've seen some of your competitors go out and win business kind of using some new build swats [ph]. And we're starting to get to a point whether new build deliveries would start delivering kind of in the timeframe you guys have talked about, starting to warm up to just having some LNG exposure. Is it reasonable to think that you could see -- you guys could place LNG new build orders sometime in the next year?

Yes, that's what Teekay LNG has said. When I was on that call, I said that's something we're looking at, which is ordering LNG new buildings. I think it's a better window to order right now. Steel prices have come off, supplier equipment doesn't have the tightness in the supply chain, and frankly, shipyards are more eager. But as we've been pretty public about, we wouldn't want an LNG carrier in 2013 or 2014. We want it when the equity gas is coming in 2015, 2016, 2017. And now with the Panama Canal opening, we're seeing the Atlantic Max [ph], which is more 170,000, 173,000 cubic. And that just freights better than 155,000, 160,000 cubic. So we're doing what Teekay does, which is go out, listen to the customers, hear what they want, and then go and look at the specs that will meet that customer requirement. We're more conservative, I would say. And so we have a build-to-suit type of strategy or understand the customer requirements and then order against that. But the -- and on the FSRUs, we bid on a lot, and we've lost it. But that's okay because that means that we're always looking for the most profitable type of unit. And I would just say that the FSRUs are changing as well. It used to be something where you would convert an existing one. And now, people are once again asking for a bigger cubic on the floating storage. People were converting 125,000, 145,000 cubic. But with the standard size being more like 160,000 to 173,000 cubic, you want a big enough storage vehicle so that when you pull up, you don't have to wait there for an extra 3 or 4 days. I mean there's real economics involved with this. So I'm quite pleased that we can go and do new FSRUs straight out of the yard rather than look to conversions.

Great. And I guess along those lines, Peter, I mean having a new build order booked with those larger assets, has that gotten away a little bit of some of that FSRU you're tendering to date and you think new build orders should significantly help that?

I didn't understand the question.

I guess the lack of an order book at TPG and the lack of kind of slots, those larger slots, has that got in the way of any of those FSRU tenders to date? And do you think placing some would potentially help?

No, I would just say that we've been more conservative in our bidding. That's all I would say. And there's a lot that's involved in an FSRU. Maybe we've taken some of our knowledge on bidding on FPSOs and moved over to the gas side as well.

The next question comes from Omar Nokta from Dahlman Rose. Omar M. Nokta - Dahlman Rose & Company, LLC, Research Division: I just wanted to bounce back on to the Petrojarl 1. It's obviously gone, you said, maybe 10 or more fields over the past several years. Should we expect the downtime for upgrades, is that a couple of quarters that we would expect? Is this more like a 2-year type of situation?

No. When it goes in between fields, it generally, I would say, would be out for 6 months, maybe worst case, 9 months. And then during that time, we would capitalize up the upgrades that would go on. So you won't see it as much. It was only making -- the Glitne field was producing around 4,000 barrels of oil a day. And that unit can produce 30,000 to 40,000 a day. So it was underutilized. That gives us the chance to redeploy it onto a field where you can get much higher production, and therefore, get much higher EBITDA. Omar M. Nokta - Dahlman Rose & Company, LLC, Research Division: Got you. And I think the vessel, was it originally delivered, I think, was it the mid-'90s?

No, it's 1986. It was the very first FPSO. It came into the North Sea. I'm going to date myself here but... Omar M. Nokta - Dahlman Rose & Company, LLC, Research Division: How much life do you think there's left on the vessel?

We see that with upgrades, we could last another 10 years comfortably. Because there's a -- just to repeat myself, not all FPSOs are compliant with the North -- in the Norwegian sector of the North Sea. So it has a scarcity value. And because some of the fields that people are looking at, you can't afford a new build on, it's the perfect kind of unit for a smaller type of field, which is why it's been redeployed so many times. And as I said in my prepared remarks, we've got some good, strong leads that we're working on. Omar M. Nokta - Dahlman Rose & Company, LLC, Research Division: Got it. Also, just you mentioned the projects that you're seeing in the LNG segment. Is there any opportunities that you see in LPG? You've obviously operated some of the smaller ships at Teekay LNG. Do you see yourselves getting into that market maybe on a bigger scale?

Yes, we continue to look at the LPG market. We think it's interesting. We're down in the ethylene side of things, little bit conservative working with Skaugen. We see that as a good niche opportunity. You have to be very careful about which sizes that you go into. And we would certainly never be in a size smaller than where we are on the ethylene side. If we did anything, it would be more midsize, large size. Omar M. Nokta - Dahlman Rose & Company, LLC, Research Division: Okay. And so are you saying maybe that -- maybe not conventional LPG would be more something along the size of ethylene or some of the semi-refrigerated tankers? Is that more your specialty that you're looking for?

We have the crews. So it's just a matter of getting the customers. And so if we go out and talk to people, and as you know, in a lot of times, it's a byproduct of the LNG production. So if we find the right opportunity with contracts, yes, we would look at that. Omar M. Nokta - Dahlman Rose & Company, LLC, Research Division: Got it. And then just one final thing and more kind of strategic. Five years ago, you had a pretty sizable in-charter Conventional Tanker fleet. And you've obviously scaled it down significantly here. Do you envision, looking out, of ever ramping that business back up? And if you did, I presume it'd be at Teekay Tankers. Is that -- obviously, you want to keep Teekay asset-light going forward. But I guess, looking ahead, do you ever see yourselves ramping that business back up again?

No. Well, I never say never. It is not the intention of Teekay Parent to go back into the in-chartering side. Teekay Corporation, if you go back and look at it 5 years ago and now, Tankers is 15% of what we do. So we're much more focused at Teekay Corporation, and growing our offshore and LNG business. And there's a wealth of opportunities there. So I don't see Teekay Corporation getting back into the in-charter business. You can ask Bruce in about an hour of what he would do on the Teekay Tankers side, but he's already starting to in-charter some ships there more on a short term basis. And so that's something that Teekay Tankers has, I guess I would say, inherited from Teekay Parent.

The next question comes from Brandon Oglenski from Barclays.

This is Keith Mori filling in for Brandon. Just want to kind of start up with some higher-level questions, maybe. At the Analyst Day, you spoke about some of the growth initiatives outside of FPSOs and things. Can you maybe give us an update on where you are with some of those?

Sure. We talked about 2 -- at Analyst Day, we talked about 2 real things that are outside of our core markets. And they were our wind farm installation vessel and the, well, I guess the One Spirit conventional tanker as well. And on the wind farm, we continue to develop it. I'm pretty adamant over the fact that we have to have a customer. So we're waiting for -- so we go out, listen to the customer, get the right specs. And if we do that and get a customer contract, then you might find that we will order. Similarly on One Spirit conventional tanker, which is a fuel-friendly. If anyone's interested, there's a great video on our website showing that. We continue to talk to customers, as well as shipyards. And so if we were to complete an order, we find that is something Teekay Tankers would do.

Okay. That's some good color there, appreciate it. And then, I guess, going into the quarter a little bit. I think we expect a little bit more expense on the assets operating in the North Sea. Maybe you can talk a little bit about the normalized expense there? Going forward, should we maybe expect third quarter next year to be just similar to this year or is this -- what is more of a normalized expense there?

Yes, there is some seasonality to some of the OpEx for the offshore fleet just because they typically do more maintenance during the summer months. So we did expect Q3 OpEx to be higher, as I mentioned. But we did manage to reduce our cost and just better managed our cost. There are some of that -- there were some of that work on the Foinaven being deferred into Q4. So there are some timing differences. But we are expecting Q4 OpEx to be down a little bit, about a couple of million. So that's a good sort of run rate for the winter months. In the summer months here for next year, Q3, all things being equal, I guess you would expect maybe the OpEx would be a little bit higher if we're actually able to do more than maintenance. But overall, I think we've moved into these business units, reorganized our business units so that they have full P&L. And what we're seeing is those business units are better managing those costs and making better decisions, both technically and commercially. So hopefully that will yield results going forward.

[Operator Instructions] There are no further questions at this time. Please continue.

Okay. Thank you very much. Those were great questions and we enjoyed answering them. We will look forward to reporting to you next quarter. Thank you.