Welcome to Teekay Corporation's Second 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, sir.

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 2018 earnings presentation. Kenneth 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 2018 earnings release and earnings presentation available on our website. I will now turn the call over to Kenneth to begin.

Thank you, [Lee]. And thank you all for joining us today for Teekay Corporation's second quarter 2018 earnings conference call. I'm joined today by our CFO, Vince Lok. Starting with Slide 3 of the presentation. In the second quarter, Teekay Corporation generated total consolidated cash flow from vessel operations, or CFVO, of approximately $164 million and a consolidated adjusted net loss of approximately $22 million or $0.21 per share. Our results significantly improved compared to the same period of the prior year. This was primarily driven by higher cash flows from Teekay Parent's three directly owned FPSO units that have upside exposure to oil prices and production volume as well as the delivery and contract start-up of several growth projects across the group. Our improved results were partially offset by weaker spot crude oil tanker rates. As a reminder, since we deconsolidated Teekay Offshore on September 25 of last year, our consolidated CFVO in the second quarter only includes 14% of Teekay Offshore's CFVO, whereas in the period prior to the fourth quarter of last year, it included 100% of Teekay Offshore's CFVO. Had we continued to consolidate Teekay Offshore, our reported total CFVO would have been approximately $307 million in the second quarter of 2018 compared to $254 million in the second quarter of 2017. Lastly, it is important to note as a result of adopting the new revenue accounting standard at the beginning of 2018, we were required to gross up certain revenues and expenses resulting in an increase of approximately $68 million in voyage expenses and approximately $20 million in vessel operating expenses in the second of 2018. But this had no impact on the bottom line since revenues increased by the same amount. Also in the quarter, Teekay Parent generated adjusted CFVO of approximately $17 million,…

Thank you. [Operator Instructions] And we do have a question from Sahm Cho with Wells Fargo Securities.

Hey, guys. Good afternoon. Just assuming the strategy at the parent level and the kind of policy of trying to move assets off hasn't changed and Brent's sitting in the mid-70s, can you provide us an update on kind of what the sale conditions look like for the three FPSOs?

Hi, Sahm. Yes, I think this has been a recurring theme, I'll say, over the past number of years. And as you will recall, after the oil price dropped, we said we had to sit on these assets for quite some years until we saw the oil market recovering. What we've been focused on now is really improving some of the underlying contracts as we've done both on the Hummingbird and Banff, as we reported this quarter. And that, of course, makes these assets more interesting. We see our customers are investing in existing fields. We see new interest coming in and we are out talking about various alternatives for these assets now. So I would say now's the time and that we are encouraged by the conversations we're having. But I can't really share more details on that at this point.

And you touched on this a little bit, but you're clearly on a noticeable path to [indiscernible]. Is there a target net debt number that you have in mind by this time next year? There have been some pretty significant progress and kind of as we look at the ability of the Parent to support the Daughters, kind of how much capacity they have, that can be kind of a useful metric.

Hi, Sahm, it's Vince. Yes, you're right, as you've seen, we've been able to chip away at our debt at the Parent company and you've seen us repurchase some of our bonds recently as well. So our 2020 bond is now $540 million. So as Kenneth mentioned, in addition to the Sevan share sale, if we're able to execute on some of these FPSO sales as well as getting increased cash flows in these assets, that will help drive further delevering. I think if we can get down to something that is sort of in the $250 million to $300 million range, I think that's where we would be quite comfortable with.

And then, I guess, just my last question is, I know we've revisited the capital allocation conversation pretty frequently. But as some of the growth projects at the Daughters kind of come into fruition, has there been any discussion on updating your dividends?

Yes, if you listen then to – I think the one where we also receive that question every quarter is particularly for GDP. And I think Mark Kremin on a call yesterday laid out how we're thinking about it. It's clear that the dividend capacity is growing and it's also clear that we're looking at the whole MLP space and the right way to structure that dividend. I think we've said over the past year that we would – we expect to come out in the fourth quarter this year and give some guidance, and we are – we're carefully evaluating that and – to come up with a new policy that's - and so stay tuned for that.

Okay. And then you might have dropped out there, but did you have a timeframe for that type of announcement?

Yes, first quarter.

Okay. Great. Thank you. That’s it for me.

Our next question will come from Fotis Giannakoulis from Morgan Stanley.

Hi, gentlemen and thank you. Can you give us a little bit more color about the new contract of the Banff and how the oil-linked tariff works for this particular asset?

Hi Fotis. I can’t give specific details; they're commercially sensitive information. But there is a fixed rate component that generates positive EBITDA and then there's oil-linked tariff that is tied to oil prices and production. So that provides additional upside. The oil price link starts at about $45 and above, so we get the upside from that level.

Thank you. And regarding the field, would you be able to share your views about potential further extension beyond August 2019?

Yes, I think when we had this call a year ago; I think we expected the Banff unit to go off station this year, actually this summer. And I think a combination of strong gas production, in particular on the field and, of course, a very different oil price environment resulted in the extension now. And it's always difficult to forecast production levels at mature fields, but we've seen that at pretty stable production over the past year. So let's see, same time next year, maybe there is an environment where we will see further extensions. So far, we have similar production levels that we are seeing on our side at least.

Thank you. And one more question about sort of latest orders. Vessels that are Aframax sized, how shall we think about the acquisition cost versus previous Suezmax vessels? And why Aframax size? Is it just diversification or it's demand for customers? If you can give us a little bit more details on these two orders and also about potential returns.

Yes, as you know, we have a very significant offering in the North Sea for our shuttle tanker business and we have a mix of both Suezmax and Aframax tankers operating there already. So we always look at – we have a number of fields where we take smaller parcels, especially on the UK side, and where we need some good workhorses. So essentially, it's the same technology as we're using on the Suezmax, i.e. they are LNG fueled, which we're obviously very excited about because that's the most effective way to address the IMO 2020, which was a topic of much discussion on the previous call we had with Teekay Tankers. So we are excited to be in a segment here where we can really order the ideal engine configuration with LNG as a fuel. The reason for that is that we guaranteed the lifting points because we know these will be trading around the North Sea. The actual size of it is really just how we're optimizing our lifting program, where we have contract of affreightments that run for a number of years, and we just look at that program and configure the fleet accordingly.

And regarding – how does this compare versus the Suezmax’s?

They’re quite similar. They might be – it's a little bit cheaper just given the size, but overall, they're quite similar in terms of cost.

Thank you. One last question about all these three FPSO assets that you have at the parent level, has there been any discussion with Brookfield about potential sale of these assets to Teekay Offshore?

Yes, there is an Omnibus agreement in place, as you know, Fotis, where we're required to offer these assets first – if we decide to sell them, we need to offer these to TOO first. So there is that Omnibus agreement in place. So if there's a – if we do have other interested buyers, who do need to give TOO that option to look at it.

I understand, but I was wondering if you have entertained any conversations about that given that the environment – the oil environment is much more favorable than what it was a few months ago.

Yes. I think these assets. Some of them are a little bit shorter term in nature. I think some of the – its three assets, right? Some of them fit well into – maybe one of them fit better into the TOO portfolio and the other two maybe less so. So I would say we're likely to find other buyers for these assets based on the indications we're receiving from TOO. But at the same time, it's a dynamic environment and again, the situation looks very different today than it did a year ago. So let's see how things unfold over the next quarter.

Thank you. I appreciate. End of Q&A

And that does conclude our question-and-answer session for today, and I'd like to turn the call over to Mr. Kenneth Hvid for closing remarks.

I'd like to thank you all for listening in to all our four calls today. And as you've heard, we've had another busy quarter across the group as we continue to execute on our financings, our vessel deliveries and continue to have very strong and safe operations. I'm pleased with the progress that we're making in all our companies, and look forward to reporting back to you next quarter. Thank you.

That does conclude our conference for today. Thank you for your participation.