Welcome to Teekay Corporation's Third Quarter 2013 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, sir.

Before Mr. Evensen begins, I'd like to direct all participants to our website at www.teekay.com, where you'll find a copy of the third quarter 2013 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 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 on our third quarter of 2013 earnings release and earnings presentation available on our website. I'll now turn the call over to Mr. Evensen to begin.

Thank you, Ryan. Good morning, everyone, and thank you for joining us today for Teekay Corporation's Third Quarter of 2013 Earnings Call. I'm joined this morning by our CFO, Vince Lok. And for the Q&A session, we also have our Chief Strategy Officer, Kenneth Hvid; and our Group Controller, Brian Fortier. During our call today, we will be taking you through the third quarter of 2013 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 entities. For the third quarter of 2013, Teekay Corporation generated $195 million of total consolidated cash flow from vessel operations, or CFVO, compared to $184 million for the second quarter of 2013. Teekay Corporation reported a consolidated adjusted net loss of $36 million or $0.51 per share for the third quarter of 2013, compared to a consolidated adjusted net loss of $20 million or $0.29 per share in the third quarter of 2012. The increase in our adjusted net loss year-over-year is mainly attributable to lower revenues in our FPSO fleet, partially offset by contributions from strategic acquisitions and organic projects that delivered throughout the past year and savings from the redelivery of 15 chartered-in conventional tankers since the start of 2012 and other cost-reduction initiatives. The repairs to the Voyageur Spirit FPSO's defective gas compressor have been completed, and the unit has been on hire at full rate from -- with the charterers since August 27. We are now awaiting formal certification of final acceptance from the charterer, which I will touch on later in the presentation. Based on the recent growth in our offshore and gas businesses, both Teekay LNG Partners and Teekay Offshore Partners intend to increase their limited…

Thanks, Peter, and good morning, everyone. Starting with Slide 7, I will review our consolidated results for the quarter. In order to present the results on a comparative basis, as we do each quarter, we have shown an adjusted income statement for the third quarter against an adjusted income statement for the second quarter, which exclude the items listed in Appendix A to our release. Later on, I will also provide our outlook for the fourth quarter. Turning at the top of the page. Net revenues increased by $23 million, mainly due to $17 million in revenues and customer-funded fleet studies relating to 2 FPSO projects we are pursuing. In addition, the revenues from the Voyageur FPSO increased as the unit commenced full hire on August 27, which was partially offset by a decrease in revenues from the Petro 1 FPSO, I was -- as it was in lay-up for the full quarter and the Foinaven FPSO was shut down for part of the third quarter as we discussed on last quarter's earnings conference call. And so operating expenses also increased by $23 million, mainly due to $20 million relating to the 2 FEED studies I referred to earlier, in addition, cost increase from a full quarter of operations for the Voyageur Spirit FPSO and an increase in maintenance costs relating to the repair of the Foinaven FPSO compressors, partially offset by a decrease in costs for the Petro 1 FPSO, which, again, was in lay-up for the fourth quarter and decreases in operating cost in the conventional tanker fleet. Time-charter hire, depreciation and amortization and G&A expenses were consistent with the prior quarter. Interest expense increased slightly due to the delivery of the BG shuttle tanker newbuildings and the impact of the new Norwegian bond issued by Teekay LNG.…

Thanks, Vince. Turning to Slide #9, Teekay Corporation remains focused on the execution of the core elements of our corporate strategy, which includes delevering Teekay Parent's balance sheet, primarily through the sale of assets from its existing portfolio of FPSO and conventional tanker assets either to one of the Teekay daughter entities or third parties. The Knarr FPSO, our largest and most significant FPSO project to date, is expected to have the greatest delevering effect on Teekay Parent's balance sheet, and it is dropped down to Teekay Offshore. We continue to be focused on improving the profitability of our existing assets, including the successful execution of our growth projects, rechartering our existing assets at higher rates, redelivering out-of-the-money conventional tanker in charters and managing costs across our operations and offices. Lastly, Teekay Parent remains focused on taking advantage of the strong fundamentals in the offshore and LNG markets to find new opportunities that will support growth directly at Teekay LNG and Teekay Offshore, which, in turn, generate higher cash flows for our -- to our general partnership interest. Each of these core elements underpin our corporate objective of creating value for Teekay Corporation shareholders by increasing Teekay Parent's free cash flows and growing our underlying net asset value per share. Thank you for joining us on the call today. Operator, we are now ready to take questions.

[Operator Instructions] And we have a question from Justin Yagerman from Deutsche Bank.

This is Taylor Mulherin on for Justin. So I wanted to ask you, looking at the update on the FPSOs from the -- from an operational standpoint, could you provide a little bit more information about how you expect that to impact your expectations for the run rate profitability at Teekay Parent in '14?

Yes, the -- obviously, the delays or the issues that we've had, mostly in the third quarter and partially in the second quarter, have impacted our ability to reach run rate profitability in 2013. But as we mentioned, most of those issues are now behind us, and those units are on the way to returning to full production. And in the case of Voyageur's, it's earning for its full rate. So I guess the run rate profitability goal has been slightly -- temporary delayed. And so it -- that doesn't change our -- I think our original plans in terms of the profitability of 2014, with the exception, I guess, with the delay of the Banff returning to operations now are good for the second quarter of 2014.

Yes. I would say the Banff and the Knarr is a question of delay rather than having changed the strategy. And that's unavoidable, but that's part of our project business. So we remain confident we'll achieve the profitability, and we can see it. It's just delayed, as Vince said.

Sure. And then when I was looking at the sum-of-the-parts update, I noticed there's a fairly large difference just on the implied value of the GP equity. Is there anything interesting going on there, or any change to how it was calculated, anything like that?

Well, just that when we look at our competitors, as we say in the box on the right, it's on Slide 13 for everyone else, we can see that the value of GPs has been going up. So it attracts a different multiple. And we're also, of course, seeing that, as we say in the other box there, that we will get an uplift.

Yes. You noticed that we've applied the average of these 4 publicly traded GPs, which is about 34x, which is closer to where TGP and TOO are in the high splits. So we think that that's probably a better comparable to where we are in the high splits. We should -- as noted on Slide 13, this also does not include the intended Q4 distribution increase, which will further increase the sum-of-the-parts value.

We have a question from Brandon Oglenski from Barclays.

But I guess when you look at the improvement here or getting back to run rate profitability on some of these projects, what's the outlook now for dropping down, let's say, the Foinaven and the Banff? Is there a set time schedule on that where TOO is going to be looking at this pretty aggressively?

We -- those are eligible to be dropped down, but we haven't given an exact timetable on when the Foinaven and the Banff will come back on contract. So as we've talked about the Banff gets an uplift starting in 2015, but then it gets a better -- it is more -- it's better to drop the Banff down after it gets its uplift in its contract, which will occur at beginning of 2015. And we continue to work with the charterer on the Foinaven in order to get their permission in order to drop it down. And so the good news is we have a very good dialogue with the charterer on the Foinaven now that we've been working on the technical side. We've had some subsea issues that -- we had some issues with our compressors and so we have a much more active dialogue with them. Hopefully, that'll result in us getting permission.

Okay. And can we go back over some of the project pipeline both at Offshore and for the LNG? I think in the past, you've mentioned the number of projects that are out there and the ones that could be competitive. Are you seeing an expansion in the opportunities looking forward?

Yes. Well, each is a little different. So if we look at the LNG side, we're seeing more tenders as the -- for 2016, 2017 start-up. And as we've mentioned, it'll be -- we see a surplus of LNG ships in the run-up to 2016. That's okay for us at Teekay LNG because we're sold out. We chartered all of our ships. So we're okay with that. But we do note that there are certain ships that don't have employment right now or, basically, are waiting around. That cost money, but it doesn't cost us anything because we've chartered everything at Teekay LNG. But -- so we're competing on a bunch of tenders coming out. I won't mention them exactly by name for competitive reasons, but we're pleased with the flow that we see there. On the FPSO side, we get a little bit more of a look at new projects. And so -- because we're doing these front-end engineering studies, that takes a lot of time. And as Vince said, we had a lot of those that we expensed through the P&L this quarter. So we're seeing -- we're concentrating on our 2 basins, which are in Brazil, as well as in the North Sea. And there's been a lot of -- that's a lot of oil that's been found in the North Sea. So I can see for several -- the next several years, there will be a requirement for FPSOs. We also have marginal oil fields, especially in the U.K. sector, which are coming on and so both for FSOs, where we're building 2 of them, which -- you saw the Salamander and the Gina Krog, those are new projects this year. So we're hitting on some. We're not hitting on all of them, but were actually holding to our profitability targets. It's easy to win projects if you bid low and -- but we've been holding to our profitability targets, which is why I really like the MLPs because you have to do accretive deals.

Right. And these forward projects would be growth at the daughter companies, right, not Teekay Parent?

That is correct. We don't -- with the exception of the Knarr, we don't have any units up at Teekay Corporation that are being, so-called, warehoused or dropped down. We do have some legacy assets, which we talked about and which was mentioned by you and the previous question about when those will get dropped down. But it is not our intention to add new projects up at Teekay Corporation, rather, as I said, the daughter companies will do those contracts directly. And that allows us to delever the balance sheet and rely upon the growth in the MLPs.

Okay. And the last one for me. With the increase in free cash that you're going to get from the increased distributions, what's the priorities right now at Teekay Parent?

Well, we've eliminated the capital investment, as I've just said. So ultimately, as we finish the delevering of the balance sheet, then that is cash that'll be available for distribution to shareholders.

We have a question from Michael Webber from Wells Fargo.

I wanted to jump in and talk about the Knarr just a bit. And, Peter, you mentioned in your prepared remarks that first oil is likely in the back end of Q4. And we're still a year away, but have you guys thought about how that impacts the dropdown timing, whether you need first oil to drop that down or whether you could drop it down while it's in drydock? And if you haven't thought about it, that could very well be the case. I'm just curious as to how that kind of impacts that liquidity inflection point.

Well, it's sort of new to us that the timing was delayed back out by approximately 6 months in total now. So we also have to get the unit around from Korea to Norway, and we haven't figured out if that'll be a dry tow or a wet tow. So we don't have a timing yet on when it'll get dropped. But good news, which we didn't talk about, is that we're well along the way to getting the debt facility in place on Knarr, which is another important step.

That's right. We're -- yes, we're making -- we're very close to finalizing the long-term financing for the Knarr, which is an important part of the being able to drop that down to Teekay Offshore.

Right. That's actually my next question. Any specific time for there or just you guys are closer than you were last quarter?

We were targeting to get all the commitments in by the end of the year, this year.

Got you. In terms of what's actually delaying the Knarr. And it seems like longer term, it might actually be a positive, and one of the longer-term risks around FPSOs is that we've heard from the talking at the channels is the risk that they have to change fields, which will require CapEx upgrades and off-hire and kind of erode those returns. The additional risers, the additional field service, it seems like it might be a long-term positive. Can you guys kind of quantify maybe the bumps in the size of the fields, the useful life of the fields that the Knarr will now be servicing, does that kind of take some of the risk out of the back end of that project?

Well, that's a really good point. The fact is that we've chartered it for a minimum of 6 years. But when we look of the fields and the associated fields around it, we can see that it'll probably stay on the field much longer. So we have our own internal estimates, which we don't generally share. But I -- it is a good positive that there's already looking at tying in associated fields around the Knarr field or, as we used to call it, the Jordbaer field. And so we actually see that it'll -- when an oil company is willing to invest more money upfront, then, obviously, they want to amortize it over a longer period of time. So in our projections, that means that Knarr will stay on longer than its minimum period, which is good news for our unitholders, ultimately.

So now that's helpful. One more for me and I'll turn it over. And, Peter, you already have touched on this in terms of some of the FEED studies that are ongoing are now around the FPSO and FSO space. And just curious, earlier in the year, I think you guys threw out a $3 billion number. You already hit on one of those FSOs. So the implication is it's about $2.7 billion worth of potential offshore projects that you're looking at TOO. Any material update there, specifically around those 3 FPSOs that you guys are looking at, and certainly, the pretty big catalyst for post-Knarr kind of the GP cash flows? But any color there would be helpful. And whether that $2.7 million is still applicable, I mean, could be bigger or smaller?

Yes. We've actually seen some new projects for further periods start to come on to the radar screen. So yes, we won one out of the 2 floating storage projects. We lost the second one. Well, actually, we won -- those were in the U.K. sector, and we won one other one in the Asia timeframe or Asia geography. And then on the FPSO side, we've also, of course, been focused in on the Petrojarl 1 came off. So we're focusing in on the redeployment there. We've had a lot of reverse inquiry with people coming in and saying, "Is that unit available?" So we have to get our technical guys figuring out if that unit is suitable and what kind of upgrades it would require. And we continue to bid with both a ship shape design, as well as the Sevan design. I would say more of our opportunities were focusing on using the Sevan design, because we think it's a cheaper way of bringing in the oil. So we can offer more competitive rate than some of our competitors. And that's what we're looking at. I would say we're spending less time on conversions. We prefer the newbuildings. That gives us great redeployment opportunities. And so we downplayed it, not gone after some of the conversion opportunities that have been out there. And we haven't bid on some of the pre-salt, but I'm starting to see many more opportunities coming out of the Brazil sector for conventional oil fields.

That's okay. Can you guys put a number on what you guys are involved in now from a fee perspective on the [indiscernible]? [indiscernible] opportunities, sir, not [indiscernible].

That'll be $3 billion.

We have a question from TJ Schultz from RBC Capital Markets.

What's your outlook on timing to consider the potential for Teekay dividend growth as you move through the delevering process? Obviously, the Knarr drop is a major impact. But would you think that ahead of that you would at least have a view to share on how you would possibly handle a reset or the growth progression that you feel you can support into '15 and '16, given the growing GP IDR cash flows?

Yes, TJ. We -- as we've said, the big condition precedent or big event for us is that we complete the Knarr and drop it down. Then we will have delevered Teekay Corporation and then we'll be in a position to return more cash to the shareholders. So I would say that, that probably has been pushed a little bit out by the delay that we talked about in the Knarr to Q4 '14. But the big thing is to get it financed that way. We know we have the debt financing. And then I think the dropdown will happen in the second half of 2014, which is the other condition precedent.

Okay. And the Hummingbird, is the dropdown dependent on Centrica extending the additional 12 months, or is the existing contract sufficient in your view for the FPSO to reside in Offshore?

I think from our point of view, we would like to know what the employment is beyond March 2016, before we drop it. So Centrica has a option to extend it, but we also have some other alternatives or plan Bs for where we could put the unit should they not declare the option. And as that becomes clarified, then we will -- then it'll become eligible for dropdown.

We have a question from Lin Chen [ph] from [indiscernible] Asset Management.

You just mentioned that you saw some surplus in LNG vessels to 2016. But all your vessels has been fully contracted. So I'm just wondering when will be your -- next time you need to recontract your vessels for LNG?

So Teekay LNG has one ship coming open in 2015, one ship coming open in 2016. But we're -- we have some ships on order that we're looking at contracting. As we've said in the slide, we have 4 firm orders. 2 of those have already been chartered. That's great when you can charter a ship 3 years out in front of it. And we're already working on the employment for the other 2, and we're confident we'll get those chartered before they're delivered.

Can you talk about -- I mean, like a -- why the other LNG firm is still building their vessel without a firm contract? I mean, what's dynamic for their outlook [ph] you think?

Well, I think it goes to people's business models. Our business model at Teekay LNG is more built to suit. We get a contract, we build against it. Other people have taken the view that if we build it, they will come. And then lots of people see opportunity, but we know that our ships that we have are preferred because they are this MEGI design, which is a simpler design. It saves money on fuel, and they're also sized up to be the maximum that can go through the Panama Canal. So it's a higher-risk, higher-return model to build it without contracts, and we've been more of a build to suit, which I think satisfies our shareholders that we have at Teekay LNG Partners. They want more stable cash flows rather than more feast and famine. So it's just a different kind of business model that we had. There is a spot market for LNG and some people are in it, but that's not really our market because that one, you have to wait around, get a contract/and our unit holders and our business model is to have more stable long-term contracts. We have grown to be the second largest independent LNG carrier on the back of doing business on these long-term stable cash flows, and so it's just a change in business models. Sometimes you make a lot of money, and sometimes you don't make a lot of money. And what we've been indicating to people is that we have a lot of stability so you shouldn't look at the short-term market. You should look at more of what our portfolio is and what our stability is. So that's what I was trying to say in my prepared remarks.

Yes, great. Another question is we're happy to see you announce increased distribution like 2.5% in Q4. Given your strong balance at TGP and also coverage, do you think you can continue to grow your distribution like the same speed like it was in the next couple of years?

Yes. We're confident we can grow the Teekay LNG distribution by mid-single digits. Please tune in tomorrow when I talk about Teekay LNG and please ask the same question. But as it relates to it from Teekay Corporation's point of view, yes, we are. We have a combination of doing organic projects, as well as being able to make acquisitions like we did last quarter, and so we have a lot of different ways to grow that. We can grow it through the LNG point-to-point transportation. We have these FSRUs, which we're working on, as well as on the LPG side. So -- but it all underpins whether you have an industry that's growing. And what we see all around the world is that the demand for gas, it continues to grow both. And now we're starting to see the course of the transportation fuel. You see it even more in China. So we're confident that the demand for gas will continue to grow. And there aren't pipelines everywhere like they are in the United States. Therefore, the way you get that gas in is through LNG. So we're pretty pleased at that. And when we go out and talk with customers, people are building huge networks to be able to supply that LNG. From the LPG side, LPG side, that's propane, that's probably about a 60% retail market around the world. A lot of people use, of course, LPG as propane in their grills in North America. But it is used around the world because it's a great way to have energy. And so we continue to see as the -- more people want to move into middle class, there's more people who want to -- as their incomes rise, the demand for LPG will come on. But -- so the big news is that the infrastructure is being built, and we're part of that infrastructure. So that's why we've been more aggressive on the LPG side going forward, and that's underpinned by base contracts that we have for LPG, as well as ammonia.

[Operator Instructions] And we have a question from Michael Webber from Wells Fargo.

Just one follow-up question on the Hummingbird, in terms of the option with Centrica and/or putting on new employment. When you guys look at that from a budgeting perspective, do you think that it now falls pre- or post-Knarr, how should we think about it?

I think that depends on what we get out of Centrica. If they extend it, then -- or we find another employment beyond it, then we'll be satisfied that it has enough of a stable cash flow, that it becomes eligible for dropdown. But we do have other growth coming in 2014. As we've said, we have the BG, we have the Remora. And toward the back half of the year, we have an FSO project. It's not like we're lacking at that. And while Hummingbird stays upstairs, it helps us get back to run rate profitability.

That makes sense. I'm just thinking about it from a capital perspective because the Knarr is such a big drop. Just thinking of whether or not that fits before and after, but it seems like it's still contingent on the contract.

I see them as totally independent. One doesn't depend on the other. It's just -- if we get the right kind of contract on the Hummingbird -- whenever we get any of the legacy assets upstairs in the position where they have the right characteristics, then we're going to drop them.

And there are no further questions at this time. Please continue.

All right. Thank you, all, very much. We look forward to reporting back with you on the quarter in February. And I just want to say that it's -- I've been really pleased with how the whole Teekay team has tackled our operational issues that we talked about and quickly righted the ship. So I want to give a big shout-out to the whole Teekay team. Thank you.

Ladies and gentlemen, this concludes the conference call for today. We thank you for your participation. You may now disconnect your line, and have a great day.