Welcome to Teekay Corporation's Third Quarter and 2018 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. [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. Kenneth Hvid, Teekay's President and Chief Executive Officer. Please go ahead.

Before we begin, I'd like to direct all participants to our website at www.teekay.com, where you'll find a copy of the third quarter 2018 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 third quarter 2018 earnings release and earnings presentation available on our website. I will now turn the call over to Vince to begin.

Thanks, Ryan. And thank you all for joining us today for Teekay Corporation's third quarter 2018 earnings conference call. I will briefly review our third quarter results before I handover the call to Kenneth. Starting with slide three of the presentation. Our third quarter results came in better-than-expected. Teekay Corporation generated total consolidated cash flow from vessel operations or CFVO of $196 million, which is an increase of $32 million or 20% for the $164 million in the prior quarter. We also reported consolidated adjusted net loss of approximately $11 million, or $0.11 per share, an improvement from the adjusted net loss of $22 million or $0.21 per share in the prior quarter. The third quarter results marked the best quarter of 2018 so far with improved results, primarily driven by higher cash flows from Teekay Parent's three directly owned FPSO units, which had upside exposure to the stronger oil prices and production volume during the quarter, as well as the contract startup of several growth projects across the Teekay Group, and to counter seasonally strong spot tanker market. As a reminder, since we deconsolidated Teekay Offshore on September 25th of last year, our consolidated CFVO in the third quarter only includes 14% of Teekay Offshore’s CFVO whereas in the periods prior to the fourth quarter of last year, it included 100% Teekay Offshore’s CFVO. Had we continued to consolidate Teekay Offshore, our reported total CFVO would have been approximately $340 million in the third quarter of 2018 compared to $238 million in the third quarter of 2017, which would have resulted in an increase of 43%. Also in the quarter, Teekay Parent generated adjusted CFVO of approximately $20 million, which includes CFVO from our directly owned assets and cash distributions from our publicly traded Daughter Entities, which is up from $17 million in the prior quarter and also marks the best quarterly results for 2018. The improvement was driven primarily by higher cash flows from the oil price-linked production tariffs on the Banff and Hummingbird Spirit FPSO units. Looking ahead into the fourth quarter. We expect to see a temporary decline in the Banff and Foinaven’s CFVO, mainly due to unplanned maintenance shutdowns during Q4. However, this will be partially offset by higher expected revenue from the true-up of annual performance-based revenues under the Foinaven contract. Despite this, we are expecting our consolidated results to be stronger in the fourth quarter compared to the third quarter due to higher forecasted earnings in each of our Daughter Entities. Also, commencing in 2019, Teekay Parent’s adjusted CFVO will benefit from Teekay LNG’s intended distribution increase which Kenneth will touch on later in the next slide. For further details on our third quarter results as well as our fourth quarter outlook, please refer to the slides in the appendices to this presentation. I will now turn the call over to Kenneth.

Thanks, Vince. I will just briefly review the next four slides on our Daughter Entities, as I’ll assume most of you listened in to their respective earnings calls earlier today. On slide four, we have summarized Teekay LNG’s recent results and highlights, and the status of its growth projects. Teekay LNG Partners generated CFVO of a $133 million and adjusted net income of $20 million or $0.16 per unit with total CFVO up 15%, adjusted net income per unit up 44%, and adjusted earnings per unit up 78% compared to the previous quarter. Since June, Teekay LNG has taken delivery of three LNG carriers and a floating storage unit which will trade in the spot market until it delivers to the Bahrain regasification project early next year. The deliveries also included our second ARC 7 LNG carrier newbuilding for the Yamal LNG project which delivered two months ahead of the original scheduled delivery date. To-date, the Partnership has taken delivery of approximately half of the estimated $310 million of total CFVO growth associated with the newbuilding program. A further 7 LNG carriers are still to deliver along with the startup of the Bahrain regasification project which will drive further cash flow growth and the delevering of its balance sheet. Looking at the fundamentals. The current spot LNG shipping market continues to strengthen to new multi-year highs. Teekay LNG has taken advantage of this development, recently securing new charters at higher rates for one vessel and is well-positioned to further benefit as three additional vessels have short-term charters maturing through May 2019. In addition, we expect to take delivery of 6 LNG carrier newbuildings, three to five months ahead of schedule, all of which are expected to add significant CFVO in 2019 and beyond. I'd like to take a moment to…

Thank you. [Operator Instructions] Our first question comes from Michael Webber of Wells Fargo. Please go ahead.

Hey, good morning, guys. How are you?

Good morning, Mike.

Feels like a light day with only three Teekay earnings call today. So, I appreciate you spreading that out this year. I asked most of the companies the sector specific questions on the respective calls. But, I guess with regards Teekay Parent, I guess, Vince, first around FPSOs -- Kenneth you mentioned, looking for a long term charter for those or kind of terming out that employment and really kind of looking under every rock there and kind of exhaust all your resources there before you think about selling. Is it right to think about that as kind of one of the levers you guys are looking at near term in terms of handling the bonds that come due in 2020? Like, is that right way to think about that, is that something you would want to get a handle on and figure out what you're doing there before we think about you kind of sourcing other forms of capital to handle those upcoming maturities?

Yes. Hi, Mike. Yes. First of all, we still have a lot of time to address the bond, which is in 2020. And in some ways, when we're -- the more time you wait for these, the make-whole price of the existing bonds decreases over time as well. Right now, as you know, we did buy back some bonds midyear. So, we're down to about $540 million outstanding right now. Our cash balance is over $200 million including the Sevan sale. So, first of all, I think when we're going to look at refinancing the bond, it will be a smaller amount, because we can apply some of this cash and potential proceeds from offshore assets -- asset sales. And so, it’ll be a smaller bond refinancing. And so, you're right that there is I think the ability to further delever if we are able to monetize some of these assets prior to that. I don’t think we’re completely dependent on that. I think it would be a nice thing to do, but we want to focus on making sure we maximize the value of these assets first and foremost. And if we do -- let’s say, do a bond, we want to also look for some prepayment flexibility in case we do sell some of these assets in the future. So, there is a length there to these three FPSOs, but not specifically.

So, there is no obvious sequencing to how you will tackle those. It’s going to be kind of opportunistic I guess.

That’s right.

Okay. And I guess, maybe this ties into a broader question, and maybe this is for Kenneth. But, just in terms of how you think about Teekay's exposure to offshore longer term, obviously you don't control the GP for TOO any more. The way it’s presented is changed a bit in terms of the aggregated data. Aside from your interest in TOO and the three older FPSOs, is that something where you think over time that you just have a much more passive exposure to the offshore space, or is it something where you think you could see maybe a year or two from now active investment and out of the Teekay Parent level or through some other entity back into the offshore space.

No. We wouldn’t see that. We are very focused on the two segments, the tankers, which we’ve been in for four to five years, and the gas business, which we’ve been in for 15 years now. That's what we consider our core businesses. The offshore has definitely became a lot less core last year through the transaction that we did. At the same time, we are intrigued of course by the offshore fundamentals at the moment, and it’s all about value creation. But, you’re not -- you’re most likely not going to see us invest more in the offshore space.

So, it’s just gradually becoming a bit more passive around offshore, kind of passive exposure...

Yes. That’s right. I mean, offshore obviously still carries Teekay on the funnel, and there is a great customers overlap and there is a brand promise, and we have a lot opportunities by operating together with Teekay Offshore. But from a capital allocation point of view, it is very clear that Brookfield is in the driver’s seat on investing in TOO. And they’re of course a great sponsor for the entity, and we’re happy to take a backseat on that and focus on the two areas here that we consider more core for Teekay going forward.

And just so I’m clear, in terms of bearing the brunt, maybe kind of any costs associated with FEED speed work around other new FPSO projects or continue shuttle tanker investment, is that all being done at TOO now or is it still somewhat split between the Parent and TOO?

That’s a 100% contained within Teekay Offshore. So, they handle -- the Varg project actually got funded by the customer, the FEED work done there but it is contained within Teekay Offshore that any development work or R&D work or FEED work on the vessel.

And then, just one more for me and then I will just turn it over. Can you remind us, what percentage of the TGP units that are held by Teekay are already collateralized?

I think most of it is collateralized under the equity margin loan for TGP. We have some units in TNK and Teekay Offshore that are not.

Thank you. Our next question comes from Melvin Shieh of Bank of America.

Good afternoon, guys. I just want to ask a general market question, specifically. Where do you see the risks or what concerns you the most about the story, the story of improving markets for LNG tankers and I guess also the offshore sector?

Well, I think we covered a lot of the of the market fundamentals in the gas space and that’s clearly where we have the greatest balance sheet exposure as a company and as a group. And we've been in the business for 15 years now. And I always remind people about how we looked at it when we got into it and that was at a time when Henry Hub was at $6, and what a difference that we're facing today. One thing that we've always seen is that once the liquefaction investment has been made, then the production of LNG obviously becomes a marginal cost. And we've seen that essentially all of the LNG produced needs to be transported somewhere. And then, it really becomes a more traditional shipping play, which is around the arbitrages that we've seen that moves around. And every time that we have an arbitrage that kicks in, then it's normally good for shipping. And from time to time we have a deficit of ships to cover the cargo that needs to be transported, which is what we're seeing at present. And that gives us some periodic imbalances in the supply and demand, and that is what we're managing. Our core model, as you know from our presentations in TGP is to have the largest portion of our fleet covered by long-term contracts. And therefore, we don't have a huge exposure to that volatility. But, when we do, then, that's obviously additional profits such as we are facing right now. So, in short, we don't really see any concerns. I think, it's mostly a matter of the pace of which FIDs will take place. And as these plants start producing LNG, it needs to be transported.

Go it. Great. Thanks . That's helpful. And then, just for -- as cash flow is increasing, given improvement in the Daughter Entities, you talked a little bit about your priorities, perhaps what are your thoughts around shareholder returns versus deleveraging?

I think we've been pretty consistent with our messages in the past several quarters about focusing on delevering the balance sheets across the group and paying down debt and strengthening the balance sheet. So, that that would be I would say our first priority at this point in time is really strengthening the balance sheet across each of the entities.

Great. Thank you. And then, just lastly, are the three FPSOs -- or FPSOs at the Teekay Parent Corp., are they impacted in any way by the IMO sulfur caps?

No, they're not.

Great. Thank you.

Thank you. Our next question comes from Fotis Giannakoulis from Morgan Stanley.

Yes. Hi, gentlemen. Thank you. I would like to ask you about the FPSO, the oil-linked upside. If you can give us a sensitivity of how does this change overall, how does the cash flow for vessel operations change overall each dollars of increase in oil prices?

Hi, Fotis. Yes. As you look at the slide eight, you can see sensitivity of the CFVO to different oil prices. So, if you look at sort of normalized fourth quarter production, the $20 change in Brent here, the $60 to $80 would give you CFVO range from 10 to $20 million for the quarter. So, I guess for every dollar, it's roughly $0.5 million for the quarter or $2 million annualized.

Thank you. And regarding the long-term plan, the strategy of Teekay Parent. Now that Teekay Offshore is driven primarily by Brookfield, and TGP is going to become 1099 filer, does not really depend so much its parent. How do you the previously declared strategy of becoming an asset-light company? And how feasible it is in the current environment to dispose the 3 FPSO assets that are still at the parent level?

Yes. As we said in our prepared remarks, we think the first priority and where we kind of expect the most value from these assets is obviously by having the right contracts on them. So, that's what we are focusing on right now. In parallel, we're having discussions with potential buyers. So, I would say, it's very much alive. And you're absolutely right. Those three legacy assets would be the last ones to become really asset-light here and no assets upstairs at the balance sheet. So, as Vince said, our focus in terms of the MOPs is that I don't think that the 1099 changes a whole lot in terms of how we look at GDP from how we've looked at GDP a year ago. We are still very much focused on building a stronger balance sheet, building a lot of underlying value, which we're doing by paying down debt rapidly. And with that, we will increase our flexibility to create some meaningful value to the LP holders, but also very importantly for the GP.

Have you given any thought about the plan and the purpose of Teekay Parent, after you achieve this goals, and meaning the contracting of three FPSOs, and potential disposal, either to TOO or some other party, and after you delever your balance sheet? Any thoughts of buying back assets or even rolling over the entity to its daughters or investing in other sectors other than the ones that two daughter companies are involved in?

Yes. The answer is probably yes to all of the above. But, as we've also said all along here, our primary focus has been to build the financial flexibility and the strategic flexibility, which is exactly what you're talking about is how we do capital allocation. But, that flexibility you only have -- if you can be truly independent of -- partly independent of what the markets are doing and that's come through having a much stronger balance sheet and that's what we are really focused on here. And we believe that we will get there in the next couple of years.

Thank you. And ladies and gentleman, that does conclude today’s question-and-answer session. I'd like to turn the conference back over to Mr. Kenneth Hvid for any additional or closing remarks.

Thank you first of all for participating in our call today. Through the year, we have been focused on executing on our projects and operating our assets well. Our underlying results have continued to improve through the year. And we look forward to reporting back to you on our progress in the February. Thank you.

Thank you. And, ladies and gentlemen, that does conclude today’s conference call. We do thank you for your participation. You may now disconnect.