Teekay Corporation (NYSE: TK) is the largest operator of medium-sized tankers and offshore shuttle tankers (ships designed for oil transport from off-shore oil sources) by number of ships.[1] The company ships crude oil, petroleum products, and liquefied natural gas all over the world.[2] Teekay entered into the budding LNG transportation sector in 2004, and the company currently offers fixed-rate, long-term contracts to major energy companies for LNG shipping.[3]
From 2005 through early 2008, Teekay faced falling revenues and higher costs. The number of tankers and the overall tonnage available to transport crude oil grew faster than world oil demand from 2005 through 2007, driving down the rates that tanker companies were able to charge for their services. Teekay's net income fell 25% in 2005 and another 54% in 2006 as a steady supply of tanker capacity came online. Tanker rates continued to fall in 2007 as a record 84.5 million deadweight tonnes in new vessels ordered in 2006 became operational.[4] Meanwhile oil prices have also risen, leading to $257 million in additional costs 2006 and $465 million in 2007.[5]
[edit] Company Overview
As of the end of February 2008, Teekay managed a fleet of 170 vessels with 29 new ships on order. Thhe operating fleet was on average 9.7 years old.[6] The company's fleet has a total carrying capacity of 20.6 million deadweight tonnes.[7] Expanding into the offshore shuttle tanker segment, entering into the LNG business in 2004, and expanding their fleet of LNG carriers in 2005.[8] From 2003 to 2007, TK more than doubled the value of its total assets[9]. Most of the company's new assets were financed through debt, and as a result, TeeKay's total debt has more than doubled during the same period.[10]
Teekay's business has multiple business segments.
- The company's offshore segment is the world's largest. It uses vessels to provide storage and transportation services to oil companies that operate offshore oil field installations, mostly in the North Sea. Offshore tankers are different from regular tankers in that they are fitted with equipment usually have loading equipment specific to the oil fields they are transporting from.
- The fixed-rate tanker segment includes crude oil and petroleum product tankers.
- Their liquefied gas segment (as of the end of February 2008) consists of 10 vessels (with 13 more on order)[11] chartered out to transport liquefied natural gas and liquefied petroleum gas products.
These segments largely provide their services on long-term, fixed-rate contracts, giving TK a steady cash flow.
- The spot tanker segment includes nearly all of their conventional crude oil and petroleum product carriers on short-term, fixed-rate contracts.[12]
TK's revenue increased significantly from 2003 to 2004. A lack of spare oil tankers during the third and fourth quarter of that year, led to higher spot rates and utilization rates approaching 100%.[13] Net income since then has been more modest. In TK's case, this has been primarily a result of lower income from vessel operations in 2005 and 2006 compared to 2004, and significantly higher voyage expenses.[14] Revenues have remained relatively consistent since TK maintains a more equitable balance between spot market business and long-term chartered activities than its competitors do.
[edit] Trends and Forces
- Tanker demand outpaces supply. Pre-2004, growth of oil demand by developing countries such as China and India drove high utilization rates for tanker companies. Starting in 2005, however, growth in the world tanker fleet began to outpace world oil demand growth (a proxy for tanker demand). From 2005 to 2007, the former grew approximately 18% versus just under 6% for the latter[17]. The imbalance in tanker demand and supply has resulted in a 50% decrease in spot rates for an Afremax tanker, a common type of midsized vessel. While TK has certainly felt the bite of lower spot rates, its ongoing efforts to expand its fixed-rate offshore and liquefied natural gas segments offset some its exposure to the crude oil spot markets.
- TK is betting on the liquefied natural gas (LNG) market, with plans to expand its fleet by 13 vessels (as of February 2008).[18] This is not a trivial investment; the price for a new LNG vessel is four times that of a conventional tanker of the same size.[19] The percentage of TK's net revenues earned by LNG segment vessels was 3% in 2004 and grew to 7% in 2006. LNG presents a growing revenue opportunity for Teekay because the LNG market has grown at an annual rate that is 38% greater than the growth of world oil demand. Moreover, while the LNG shipping business has traditionally been a market dominated by long-term time-charter contracts, the short-term spot voyage market is starting to play a major role. It grew from less than 2% of all voyages to 12% in 2004.[20]
- The declining value of the dollar impacts TK's revenues. A majority of TK's revenues are earned in U.S. dollar, and changes in the value of the dollar relative to other currencies such as the Canadian dollar, the Euro, the Japanese Yen, and the British pound will have an impact on reported revenues and earnings.
Currency units per USD, averaged over the year[21]
|
| 2005
| 2006
| 2007
|
| Euro
| 0.8033
| 0.7960
| 0.7293
|
| Japanese Yen
| 110.11
| 116.31
| 117.76
|
| Pound Sterling
| 0.5493
| 0.5425
| 0.4995
|
| Canadian dollar
| 1.2115
| 1.1340
| 1.0734
|
The dollar has depreciated against each of these currencies over the past three years, except for the yen. If the dollar continues to depreciate, TK will have to convert more of its cash into foreign currencies, which causes significant foreign currency exchange losses each period.
[22] The company reported $45 million in foreign exchange losses in 2006 and $22 million in 2007.
[23]
[edit] Competitors
Some of TK's major competitors include:
- Frontline, a crude oil shipping company that operates 83 vessels worldwide and has a total tonnage of approximately 19.35 million dwt.[24]
- Overseas Shipholding Group, a U.S.-based tanker company that transports crude oil, petroleum product, and liquefied natural gas internationally. Domestically, the company also operates a U.S. Flagged fleet[25].
- General Maritime, a company that pursues a strategy of utilizing only mid-size Aframax and Suezmax vessels. It is a smaller tanker company but maintain strong relationships with their customers.
- Tsakos Energy Navigation is a Bermuda-based tanker company that maintains a fleet that is diverse and largely capable of traveling through icy waters.
TK is unique for operating off-shore tankers and having one of the larger LNG-carrying fleets. Like its competitors, however, it makes most of its money from competing in the spot market.
Energy Transportation Company Statistics (2006)
| Company
| Ships owned
| Ships chartered
| Total DWT (millions)
|
| TK
| 82
| 47
| 19.3
|
| GMR
| 18
| 0
| 2.4
|
| TNP
| 14
| 26
| 4.5
|
| OSG
| 74
| 63
| 11.7
|
| FRO
| 20
| 63
| 19.35
|
Note that dwts measure shipping capacity.
2004 Data
2005 Data
2006 Data
2007 Data
2008 Data
Most Recent Data Available
[edit] Footnotes
- ↑ Teekay Corporation Structure
- ↑ TK Operating Routes
- ↑ Teekay History
- ↑ TK Q4 2007 Tanker Market Report
- ↑ TK Fourth Quarter Earnings Release
- ↑ TK Fleet List
- ↑ Teekay Fleet Spreadsheet
- ↑ Teekay History
- ↑ Teekay Annual Report, Financial Highlights
- ↑ Google Finance: TK Balance Sheet
- ↑ TK Fleet List
- ↑ Teekay Annual Report, Page 15-16
- ↑ Energy Bulletin Article
- ↑ Teekay Annual Report, Pages 28-29
- ↑ Google Finance: TK Income Statement
- ↑ TK 2006 Annual Report, Page 28-29
- ↑ Tanker Market Report Fourth Quarter 2007
- ↑ TK Fleet List
- ↑ Petrochemical Group
- ↑ How the LNG Business is Done
- ↑ Federal Reserve Release
- ↑ Teekay 2006 Annual Report, Page 12
- ↑ TK Q4 Earnings Report
- ↑ FRO 2006 10-K, page 26
- ↑ OSG 2006 10-K, Page 9
- ↑ 26.0 26.1 FRO , 2006 20-F, Item 3, Pg 1
- ↑ FRO , 2006 20-F, Item 4, Pg 13
- ↑ 28.0 28.1 This Sheet
- ↑ 29.0 29.1 29.2 29.3 2007 GMR, 10-K, Item 6, Page 29
- ↑ 2007 GMR, 10-K, Item 1, Page 4
- ↑ 31.0 31.1 OSG - 10-K of 2007, Item 6, pg 39
- ↑ 32.0 32.1 OSG - 10-K of 2007, Item 1, pg 9
- ↑ 33.0 33.1 TK - 20-F of 2006, Item 3 pg 5
- ↑ TK - 20-F of 2006, Item 4 pg 12
- ↑ TK - 20-F of 2006, Item 4 pg 17
- ↑ TK - 20-F of 2006, Item 6 pg 33
- ↑ 37.0 37.1 TK - 20-F of 2006, Item 19 pg F-3
- ↑ TK - 20-F of 2006, Item 4 pg 23
- ↑ 39.0 39.1 TK - 20-F of 2006, Item 3 pg 4
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