Welcome to Teekay 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. [Operator Instructions] 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.teekay.com, where you'll find a copy of the second quarter of 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 Teekay Corporation's second quarter 2020 earnings conference call. 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. 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 on-shore 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 3 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 a 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. Teekay LNG reported another quarterly record high in adjusted net income and total adjusted EBITDA. Teekay Tankers experienced another quarter of strong spot tanker rates, and our directly owned FPSO operating results improved as a result of the new…

Thanks, Ken. Turning to Slide 7. Over the past year, we have significantly strengthened our financial foundation. This includes de-levering our balance sheet, increasing our cash flows, and improving our profitability. We have reduced our consolidated net debt to $3.5 billion at the end of June, a decrease of $887 million or 20%. We reduced our consolidated net debt to cap from 62% to 57%, and increased our total consolidated liquidity to approximately $940 million compared to $644 million a year ago. On the last 12 months or LTM basis, our total adjusted EBITDA was $1.18 billion, an increase of $298 million or 34% from the same period of the prior year. This included consolidated G&A savings of $10 million, or 11%. We have also significantly improved our profitability, as we recorded consolidated adjusted net income of $72 million or $0.71 per share, compared to an adjusted net loss of $40 million or $0.39 per share in the prior period. Our LTM Q2 '20 adjusted earnings per share of $0.71 translates to a PE ratio of only 3.9 times, based on Teekay's closing share price of yesterday. Looking ahead, as usual, we have provided some guidance on next quarter's results in the appendix to this presentation. Compared to the strong results in the second quarter, we expect the third quarter's results to be lower, as a result of seasonally lower spot tanker rates, but also due to some temporary factors, such as the decommissioning costs on the Banff FPSO and a much heavier than normal level of scheduled dry dockings in Q3, the latter of which was strategically timed, with the expected seasonally weaker Q3 spot tanker rates. However, we would expect our earnings and cash flows to become more normalized in the fourth quarter, with significantly lower decommissioning costs on the Banff FPSO, a much lighter dry docking schedule, and the potential for some tanker rate spikes to occur in the winter months. With that, I will now turn the call back over to Kenneth for his closing comments.

Thanks, Vince. In closing, the full effects of the COVID pandemic on the global economy remain unknown. However, over the last year, Teekay Corp, Teekay LNG, and Teekay Tankers have each strengthened their financial positions and made significant progress insulating each of the businesses from possible market volatility and positioning the Teekay group to create long-term shareholder value. With that, operator, we are now available to take questions.

Thank you. [Operator Instructions] Our first question will come from J Mintzmyer with Value Investor's Edge.

Hi. Good morning, gentlemen. Thanks for taking my calls, and congrats on strong daughter company performance.

Morning, J.

Thanks, J.

As Teekay Corp continues this transition, we've done the GPIDR buyout, it's basically just a holding company with daughter shares, and two FPSOs on their way out. We saw some slides on that in the presentation. Along those notes, we asked last quarter, but just to check up again, what is the G&A that's not reimbursed? What is the core parent G&A and how can we consider that on annual basis? I realize that fluctuates quarter to quarter, but what is sort of the only -- the parent company overhead that we still have to deal with?

Hi, J. This is Vince. The second quarter G&A of the parent was higher than normal because of some tips and one-time factors. We had some fees related to the IDR transaction that was completed in May, and we also had stock-based grants that were issued in June. So if you look at the first half G&A for the parent on a more normalized basis, excluding those items, we're looking at about probably around $5 million. We also had other income that offset that total about $5.5 million for the first half. So looking at the first half, our net G&A was actually pretty much zero. Now, the other income in the first half was probably higher than normal. So if I normalize that on a full-year basis, I would expect our net G&A for the full year would be about $6 million to $7 million on a net basis. That's sort of the run rate.

Okay. Thanks, Vince. That's pretty helpful. So $6 million to $7 million annualized. And is that reasonable to say that would be going forward for '21 and beyond? Or is that a little bit elevated because of the FPSOs?

No, the G&A related to the FPSOs is separate in the FPSO line items. So the $6 million to $7 million is good in terms of the corporate level.

Okay. Thanks, Vince. Turning to the FPSOs, you talked about the Banff. It has a $44 million asset retirement obligation that's been disclosed for a while. I realize you kind of already accounted for that in the income statement. The first part of that is how does that impact your cash balances? How much of that is already kind of reserved in separate accounts? And how much of that would pull directly from Teekay parent's cash balance? And then the second part of that is, of course, you noted there might be some additional OpEx and recycling fees associated. What do you anticipate that net cost to be for the recycling? I understand green recycling is a little more expensive in addition to that $44 million. So how much above that $44 million are we going to go?

First of all, we have a fairly strong liquidity position at the parent. It was about $170 million as of June 30. And when we complete the refinancing of the existing revolver, that should go up to close to $200 million. So we have good a good strong liquidity position at the parent. As you mentioned, the net ARO or asset retirement obligation at June 30 was about $44 million. We expect roughly half of that to be incurred in in this year, and then the rest of it in the summer of 2021. In terms of other operating expenses, we're estimating that to be roughly about $20 million on top of that in the third quarter, and that's mainly related to the decommissioning of the FPSO and the FSO unit. We might then -- looking at the fourth quarter, in terms of recycling costs, we don't have a good number yet on that. We're still getting some estimates and scoping out what's required for that. That's likely to be incurred in the fourth quarter. I would expect it to be probably in the -- sort of a few million dollars or so.

Okay. Well, we'll have to check in next quarter and see where that goes. Along those lines, you have a very sufficient liquidity balance, as you mentioned. You have to revolver rolled. You have a very high cost of debt remaining on the Company outside of that revolver, right? You have the 9.25% secured bonds, and you also have a convertible bond that's only 5%. But it trades on the open market at about a 13% yield to maturity. I mean, this is at a time where the majority of even your shipping peers, even the higher-risk peers, are borrowing from banks at 4% to 5% or 6%. So definitely some outliers here. Are there any sort of avenues you can take in 2020 to maybe refinance some of this debt or start to chip away at it? Or is that something we need to wait until next year to address?

As you know, in the past few years, we have been chipping away at that and reduced our expensive debt considerably over the past few years. That continues to be our goal. We recognize that we need to reduce our cost of capital over the long term. And so, that is our goal. We have the maturity on these securities starting to mature in late 2022 and early 2023. So we have some time to address that. And in the meantime, we are continuing to increase our free cash flows to build asset coverage with the daughter equities. And as part of that, we want to improve the cost of capital and credit profile of the parent, along with the daughter companies.

All right. Thanks for taking my questions, and we'll check in next quarter with you.

Thanks.

Thank you. Our next question will come from Sandy Burns with Stifel.

Hi. Good morning, everyone. Maybe just to follow up on the previous question about the debt obligations with the parents. Could you just talk big picture? Is your goal for the parent to be a debt free type entity, or by monetizing some of the asset value you have in the company? Or do you see yourself still having some debt obligations up there, which would more come about through a refinancing of the bonds and convert at some point down the road?

It's kind of, obviously, a stated target for us to reduce our debt upstairs. I don't think we have a stated target per se of reducing it to zero. I think what we are -- as we touched on in on the previous questions, what we are focused on right now is that with the significant and then growing asset coverage that we have, how do we make sure that we bring down both the overall debt but also very importantly the overall debt cost? So I think at company, we're definitely looking forward to have that flexibility where we have more investment flexibility, and that's what we've been very focused on over the past three years to recreate at the Teekay. So that doesn't mean that we don't carry any debt at all, but it means that we basically have the flexibility to also allocate capital to create long-term value, and of course from time to time, would mean that we would carry some debt.

Okay, and just one last one for me. The revolver -- good news that you were able to extend that for two years. When the time comes for the potential refinancing of debt at the at the parent, are you allowed to borrow under the revolver and use those proceeds to refinance the current debt obligations? Or is that only for general corporate purposes like the decommissioning costs and other expenses that arise?

We're allowed to use those funds. We can draw on the revolver for refinancing purposes as well. As you know, right now, that entire revolver is undrawn, and we're sitting on about $70 million of cash. So we don't really need to draw on the revolver in the near term, but it is available for other reasons.

Okay, great. Thank you, and good luck with everything.

Thank you.

Thank you.

Thank you. That concludes today's question-and-answer session. At this time, I will turn the conference back over to the Company for any additional or closing remarks.

Well, thanks for joining us today, and again, please join us for our calls in Teekay Tankers and Teekay LNG. We look forward to reporting back to you next quarter. Thank you.

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