Teekay unlocks extra cash
Teekay Corporation has unveiled an amendment to an existing contract on one of its floating production storage and offloading units that would realise the company $60m in cash by the end of the third quarter.
In addition to this bonanza, which pertains to the contracted FPSO Foinaven"s performance in previous years, Teekay would also realise incremental cash flow and net income of $30m-$40m per annum going forward, effective retroactively from January 1 this year.
This additional revenue will fall straight to Teekay"s bottom line for this year. However, this was not enough for equity analysts at Jefferies to upgrade Teekay"s share from "Hold" to "Buy".
In maintaining the "Hold" rating, Jefferies cited as a reason Teekay"s conservative reliance on long-term timecharters for its conventional tanker arm. This means ?Teekay is not as leveraged to a potential increase in Organisation of the Petroleum Exporting Countries production as some of its peers?, Jefferies noted. Teekay"s share is already solidly valued, it added.
Nonetheless, the amendment to the Foinaven contract, and the freeing up of cash as a result, is a minor milestone for Teekay, which since last year has been on a multi-faceted drive to pare debt.
Teekay"s takeover of Teekay Petrojarl in 2008 brought with it four FPSO contracts, which the company has previously said had terms less favourable than the prevailing market at the time of acquisition.
The company so far had amended one contract, with Talisman Energy for the FPSO Petrojarl Varg, to more favourable terms. The Foinaven discussions, with operator Britoil and co-venturer Marathon Petroleum, were routinely flagged up in recent company financials as the next amendment in line.
The FPSO Foinaven has operated since 1997 on the Foinaven oil field west of Shetland on the UK Continental Shelf. The amended contract, running until at least 2021, would increase revenue generated via a new daily rate that further would be adjusted annually based on industry indices, and production and supplemental tariffs.
Teekay now has two Petrojarl FPSO contracts remaining that need amendment. The company said it is working on this angle, which could increase cash flows further.
Teekay chief executive Bjorn Moller said of the Foinaven deal: ?We are pleased to take this major step towards our stated objective of improving the profitability of our existing assets. We are currently engaged in negotiations to extend the contract on another FPSO unit and hope to announce further progress later in 2010.?
Teekay and its three offshoots, Teekay LNG Partners, Teekay Offshore Partners and Teekay Tankers, have a total owned and operated fleet of 158, comprising all classes of conventional tankers as well as offshore units.
Of the five FPSOs that are part of this fleet, Teekay owns four and Teekay Offshore Partners owns one.