SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
|☐||REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934|
|ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
For the fiscal year ended December 31, 2020
|TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
|SHELL COMPANY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
Date of event requiring this shell company report
For the transition period from to
Commission file number 1-12874
(Exact name of Registrant as specified in its charter)
Republic of The Marshall Islands
(Jurisdiction of incorporation or organization)
(Translation of Registrant’s name into English)
4th Floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM 08, Bermuda
Telephone: (441) 298-2530
(Address and telephone number of principal executive offices)
N. Angelique Burgess
4th Floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM 08, Bermuda
Telephone: (441) 298-2530
Fax: (441) 292-3931
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered, or to be registered, pursuant to Section 12(b) of the Act.
|Title of each class||Trading Symbol(s)||Name of each exchange on which registered|
|Common Stock, par value of $0.001 per share||TK||New York Stock Exchange|
Securities registered, or to be registered, pursuant to Section 12(g) of the Act.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
Indicate the number of outstanding shares of each issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
101,108,886 shares of Common Stock, par value of $0.001 per share.
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ý
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No ý
Indicate by check mark if the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark if the registrant (1) has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer", "accelerated filer,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ¨ Accelerated Filer ý Non-Accelerated Filer ¨ Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ¨
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ý No ¨
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
|U.S. GAAP||x||International Financial Reporting Standards as issued|
by the International Accounting Standards Board
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: Item 17 ¨ Item 18 ¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
INDEX TO REPORT ON FORM 20-F
This annual report of Teekay Corporation on Form 20-F for the year ended December 31, 2020 (or Annual Report) should be read in conjunction with the consolidated financial statements and accompanying notes included in this report.
Unless otherwise indicated, references in this Annual Report to “Teekay,” “the Company,” “we,” “us” and “our” and similar terms refer to Teekay Corporation and its subsidiaries. References in this Annual Report to "Teekay LNG" refer to Teekay LNG Partners L.P. (NYSE: TGP), and to "Teekay Tankers" refer to Teekay Tankers Ltd. (NYSE: TNK). In addition, references in this Annual Report to "Altera" refer to Altera Infrastructure L.P., previously known as Teekay Offshore Partners L.P. (NYSE: TOO), which was a subsidiary of Teekay Corporation until September 2017, and an equity-accounted investment until May 8, 2019.
In addition to historical information, this Annual Report contains forward-looking statements that involve risks and uncertainties. Such forward-looking statements relate to future events and our operations, objectives, expectations, performance, financial condition and intentions. When used in this Annual Report, the words “expect,” “intend,” “plan,” “believe,” “anticipate,” “estimate” and variations of such words and similar expressions are intended to identify forward-looking statements. Forward-looking statements in this Annual Report include, in particular, statements regarding:
•our future financial condition and results of operations and our future revenues, expenses and capital expenditures, and our expected financial flexibility and sources of liquidity to pursue capital expenditures, acquisitions and other expansion opportunities, including vessel acquisitions;
•our dividend policy and our ability to pay cash dividends on our shares of common stock or any increases in quarterly distributions, and the distribution and dividend policies of our publicly-listed subsidiaries, Teekay LNG and Teekay Tankers (or the Daughter Entities), including any increases in distribution or dividend levels of the Daughter Entities;
•our liquidity needs and meeting our going concern requirements, including our working capital deficit, anticipated funds and sources of financing for liquidity needs and the sufficiency of cash flows, and our estimation that we will have sufficient liquidity for at least the next 12 months;
•our ability and plans to obtain financing for new projects and commitments (including Teekay Tankers’ recent declarations of purchase options on certain tankers), refinance existing debt obligations and fulfill our debt obligations;
•our plans for Teekay Parent, which excludes our interests in the Daughter Entities and includes Teekay Corporation and its remaining subsidiaries, to reduce or eliminate operational risk in any floating production, storage and offloading (or FPSO) units, and to increase its free cash flow per share, reduce its net debt and further strengthen its balance sheet;
•the expected scope, duration and effects of the novel coronavirus pandemic, including its impact on global supply and demand for liquefied natural gas (or LNG), liquefied petroleum gas (or LPG), crude oil and petroleum products and fleet utilization, and the consequences of any future epidemic or pandemic crises;
•conditions and fundamentals of the markets in which we operate, including the balance of supply and demand in these markets and charter and spot rates, estimated growth in world fleets and vessel scrapping, and oil production, refinery capacity and competition for providing services;
•our expectations regarding tax liabilities, including whether applicable tax authorities may agree with our tax positions;
•our expectations as to the useful lives of our vessels;
•our future growth prospects;
•the impact of future changes in the demand for and price of oil, and the related effects on the demand for and price of natural gas;
•expected costs, capabilities, acquisitions and conversions, and the commencement of any related charters or other contracts;
•our ability to maximize the use of our vessels, including the re-deployment or disposition of vessels no longer under long-term time charter or on a short-term charter contracts;
•our expectations regarding the ability of our customers to make charter payments to us;
•the possibility of future resumption of the LNG plant in Yemen operated by Yemen LNG Company Limited (or YLNG) and the expected repayment of deferred hire amounts from YLNG on Teekay LNG's two 52%-owned vessels, the Marib Spirit and Arwa Spirit;
•expected results of modifications of the M-type, Electronically Controlled, Gas Injection (or MEGI) engines in certain LNG carriers;
•our expectations regarding the timing and schedule for completion of the receiving and regasification terminal in Bahrain in accordance with all necessary conditions, requirements and applicable consents by Bahrain LNG W.L.L., a joint venture owned by Teekay LNG (30%), National Oil & Gas Authority (or NOGA) (30%), Gulf Investment Corporation (or GIC) (24%) and Samsung C&T (or Samsung) (16%) (or the Bahrain LNG Joint Venture), as well as the current and future performance of the terminal (including assumptions concerning its operational status) and our expectation of continued receipt of terminal use payments from the customer under its long-term contract;
•the status and outcome of any pending legal claims, actions or disputes;
•Teekay Tankers’ expected recovery of fuel price increases from the charterers of its vessels through higher rates for voyage charters;
•the future valuation or impairment of our assets, including goodwill;
•our expectations and estimates regarding future charter business, with respect to minimum charter hire payments, revenues and our vessels' ability to perform to specifications and maintain their hire rates in the future;
•compliance with financing agreements and the expected effect of restrictive covenants in such agreements;
•operating expenses, availability of crew and crewing costs, number of off-hire days, drydocking requirements and durations and the adequacy and cost of insurance, and expectations as to cost-saving initiatives;
•the effectiveness of our risk management policies and procedures and the ability of the counterparties to our derivative and other contracts to fulfill their contractual obligations;
•the impact on us and the shipping industry of environmental liabilities and developments, including climate change;
•the impact of any sanctions on our operations and our ongoing compliance with such sanctions;
•the expected impact of the cessation of the London Inter-Bank Offered Rate (or LIBOR), Brexit, the adoption of the “Poseidon Principles” by financial institutions or any change in jurisdictional economic substance requirements;
•the impact and expected cost of, and our ability to comply with, new and existing governmental regulations and maritime self-regulatory organization standards applicable to our business, including, among others, the expected cost to install ballast water treatment systems (or BWTS) on our vessels;
•the impact of increasing scrutiny and changing expectations from investors, lenders, customers and other stakeholders with respect to environmental, social and governance (or ESG) policies and practices, and the Company’s ability to meet its corporate ESG goals;
•our ability to obtain all permits, licenses and certificates with respect to the conduct of our operations;
•the expectations as to the chartering of unchartered vessels;
•our entering into joint ventures or partnerships with companies;
•our hedging activities relating to foreign exchange, interest rate and spot market risks, and the effects of fluctuations in foreign currency exchange, interest rate and spot market rates on our business and results of operations;
•the potential impact of new accounting guidance or the adoption of new accounting standards; and
•our business strategy and other plans and objectives for future operations.
Forward-looking statements involve known and unknown risks and are based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially include, but are not limited to, those factors discussed below in “Item 3 – Key Information – Risk Factors” and other factors detailed from time to time in other reports we file with the U.S. Securities and Exchange Commission (or the SEC).
We do not intend to revise any forward-looking statements in order to reflect any change in our expectations or events or circumstances that may subsequently arise. You should carefully review and consider the various disclosures included in this Annual Report and in our other filings made with the SEC that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations.
Item 1.Identity of Directors, Senior Management and Advisors
Item 2.Offer Statistics and Expected Timetable
Item 3.Key Information
Selected Financial Data
Set forth below is selected consolidated financial and other data of Teekay for fiscal years 2016 through 2020, which have been derived from our consolidated financial statements. The data below should be read in conjunction with the consolidated financial statements and the notes thereto and the Reports of the Independent Registered Public Accounting Firm thereon with respect to fiscal years in the three-year period ended December 31, 2020 (which are included herein) and “Item 5 – Operating and Financial Review and Prospects.”
Our consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (or GAAP).
| ||Years Ended December 31,|
|Income Statement Data:||(in thousands of U.S. Dollars, except share and per share data)|
|Revenues||$||1,815,672 ||$||1,945,391 ||$||1,707,758 ||$||1,880,332 ||$||2,328,569 |
Income from vessel operations (1)
|314,579 ||204,042 ||164,319 ||6,700 ||384,290 |
|Interest income||8,342 ||7,804 ||8,525 ||6,290 ||4,821 |
|Realized and unrealized losses on non-designated derivative instruments||(35,857)||(13,719)||(14,852)||(38,854)||(35,091)|
|Equity income (loss)||77,333 ||(14,523)||61,054 ||(37,344)||85,639 |
|Foreign exchange (loss) gain||(20,718)||(13,574)||6,140 ||(26,463)||(6,548)|
Loss on deconsolidation of Altera (2)
|— ||— ||(7,070)||(104,788)||— |
|Income tax expense||(8,988)||(25,482)||(19,724)||(12,232)||(24,468)|
|Net income (loss)||90,982 ||(148,986)||(57,747)||(529,072)||86,664 |
|Net (income) loss attributable to non-controlling interests||(173,915)||(161,591)||(21,490)||365,796 ||(209,846)|
|Net loss attributable to shareholders of Teekay Corporation||(82,933)||(310,577)||(79,237)||(163,276)||(123,182)|
|Per Common Share Data:|
|Basic and diluted loss attributable to shareholders of Teekay Corporation||(0.82)||(3.08)||(0.79)||(1.89)||(1.62)|
|Cash dividends declared||— ||0.0550 ||0.2200 ||0.2200 ||0.2200 |
|Balance Sheet Data (at end of year):|
|Cash and cash equivalents||$||348,785 ||$||353,241 ||$||424,169 ||$||445,452 ||$||567,994 |
|Restricted cash||57,105 ||101,626 ||81,470 ||106,722 ||237,248 |
|Vessels and equipment||4,483,430 ||5,033,130 ||5,517,133 ||5,208,544 ||9,138,886 |
Net investments in direct financing and sales-type leases
|528,641 ||818,809 ||575,163 ||495,990 ||660,594 |
|Total assets||6,945,912 ||8,072,864 ||8,391,670 ||8,092,437 ||12,814,752 |
Total debt (3)
|3,766,072 ||4,702,844 ||4,993,368 ||4,578,162 ||7,032,385 |
|Capital stock and additional paid-in capital||1,057,319 ||1,052,284 ||1,045,659 ||919,078 ||887,075 |
|Non-controlling interest||1,989,883 ||2,089,730 ||2,058,037 ||2,102,465 ||3,189,928 |
|Total equity||2,471,291 ||2,571,593 ||2,867,028 ||2,879,656 ||4,089,293 |
|Number of outstanding shares of common stock||101,108,886 ||100,784,422 ||100,435,210 ||89,127,041 ||86,149,975 |
|Other Financial Data:|
|$||578,406 ||$||438,423 ||$||483,885 ||$||231,099 ||$||961,102 |
Adjusted EBITDA (4)
|1,086,126 ||951,913 ||775,633 ||951,118 ||1,287,003 |
Total debt to total capitalization (5)
|60.4 ||%||64.6 ||%||63.5 ||%||61.4 ||%||63.2 ||%|
Net debt to total net capitalization (6)
|57.6 ||%||62.3 ||%||61.0 ||%||58.3 ||%||60.4 ||%|
|Expenditures for vessels and equipment||$||26,507 ||$||109,523 ||$||693,792 ||$||1,054,052 ||$||648,326 |
(1)Income from vessel operations includes, among other things, the following:
|Years Ended December 31,|
|(in thousands of U.S. Dollars)|
Write-down and loss on sale
|Gain on commencement of sales-type lease||44,943 ||— ||— ||— ||— |
(2)On September 25, 2017, Teekay, Altera and Brookfield Business Partners L.P., together with its institutional partners (collectively, Brookfield), completed a strategic partnership (or the 2017 Brookfield Transaction), which resulted in the deconsolidation of Altera as of that date. For additional information regarding the deconsolidation of Altera, please read "Item 18 – Financial Statements: Note 13" in the Company’s Annual Report on Form 20-F for the year ended December 31, 2019.
(3)Total debt represents short-term debt, the current portion of long-term debt and long-term debt, and the current and long-term portion of obligations related to finance leases.
(4)EBITDA and Adjusted EBITDA are non-GAAP financial measures. EBITDA represents earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA represents EBITDA before foreign exchange (loss) gain, other loss, write-down and loss on sale of assets, adjustments for direct financing and sales-type leases to a cash basis, amortization of in-process revenue contracts, credit loss provision adjustments, unrealized gains (losses) on derivative instruments, realized losses on stock purchase warrants and interest rate swaps, realized losses on interest rate swap amendments and terminations, loss on deconsolidation of Altera, write-downs related to equity-accounted investments, and our share of the above items in non-consolidated joint ventures which are accounted for using the equity method of accounting. EBITDA and Adjusted EBITDA are used as supplemental financial performance measures by management and by external users of our financial statements, such as investors. EBITDA and Adjusted EBITDA assist our management and security holders by increasing the comparability of our fundamental performance from period to period and against the fundamental performance of other companies in our industry that provide EBITDA or Adjusted EBITDA-based information. This increased comparability is achieved by excluding the potentially disparate effects between periods or companies of interest expense, taxes, depreciation or amortization (or other items in determining Adjusted EBITDA), which items are affected by various and possibly changing financing methods, capital structure and historical cost basis and which items may significantly affect net income between periods. We believe that including EBITDA and Adjusted EBITDA benefits security holders in (a) selecting between investing in us and other investment alternatives and (b) monitoring our ongoing financial and operational strength and health in order to assess whether to continue to hold our equity, or debt securities, as applicable.
Neither EBITDA nor Adjusted EBITDA should be considered as an alternative to net income, operating income or any other measure of financial performance presented in accordance with GAAP. EBITDA and Adjusted EBITDA exclude some, but not all, items that affect net income and operating income, and these measures may vary among other companies. Therefore, EBITDA and Adjusted EBITDA as presented below may not be comparable to similarly titled measures of other companies.
The following table reconciles our historical consolidated EBITDA and Adjusted EBITDA to net income (loss).
|Year Ended December 31,|
Income Statement Data:
|(in thousands of U.S. Dollars)|
|Reconciliation of EBITDA and Adjusted EBITDA to Net income (loss)|
|Net income (loss)||$||90,982 ||$||(148,986)||$||(57,747)||$||(529,072)||$||86,664 |
|Income tax expense||8,988 ||25,482 ||19,724 ||12,232 ||24,468 |
Depreciation and amortization
|261,131 ||290,672 ||276,307 ||485,829 ||571,825 |
Interest expense, net of interest income
|217,305 ||271,255 ||245,601 ||262,110 ||278,145 |
|578,406 ||438,423 ||483,885 ||231,099 ||961,102 |
Foreign exchange loss (gain) (a)
|20,718 ||13,574 ||(6,140)||26,463 ||6,548 |
Other loss (b) (c)
|18,062 ||14,475 ||2,013 ||53,981 ||39,013 |
|Write-down and loss on sale||200,238 ||170,310 ||53,693 ||270,743 ||112,246 |
|Gain on commencement of sales-type lease||(44,943)||— ||— ||— ||— |
Direct finance lease payments received in excess of revenue recognized
|13,164 ||21,636 ||11,082 ||18,737 ||28,348 |
Amortization of in-process revenue contracts and other
|Realized and unrealized losses on non-designated derivative instruments||35,857 ||13,719 ||14,852 ||38,854 ||35,091 |
|Realized gains (losses) from the settlements of non-designated derivative instruments||(864)||1,532 ||— ||2,047 ||(8,646)|
|Loss on deconsolidation of Altera||— ||— ||7,070 ||104,788 ||— |
Adjustments related to equity (loss) income (d)
|266,890 ||282,375 ||219,395 ||217,866 ||137,496 |
|1,086,126 ||951,913 ||775,633 ||951,118 ||1,287,003 |
(a)Foreign currency exchange loss (gain) includes an unrealized gain of $26.8 million in 2020 (2019 – loss of $13.2 million, 2018 – gain of $21.2 million, 2017 – gain of $82.7 million, and 2016 – gain of $75.0 million) on cross currency swaps.
(b)In June 2016, as part of its financing initiatives, Altera canceled the construction contracts for its two UMS newbuildings. As a result, Altera accrued for potential damages resulting from the cancellations and reversed contingent liabilities previously recorded that were relating to the delivery of the UMS newbuildings. This net loss provision of $23.4 million for the year ended December 31, 2016 was reported in other loss in our consolidated statement of income. The newbuilding contracts were held in Altera's separate subsidiaries and obligations of these subsidiaries were non-recourse to Altera.
(c)During the year ended December 31, 2016, the Company recorded a write-down of a cost-accounted investment of $19.0 million. This investment was subsequently sold in 2017, resulting in a gain on sale of $1.3 million. During 2017, the Company recognized an additional tax indemnification guarantee liability of $50.0 million relating to Teekay LNG's 70%-owned consolidated subsidiary Teekay Nakilat Corporation.
(d)Adjustments related to equity (loss) income is a non-GAAP financial measure and should not be considered as an alternative to equity income or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjustments related to equity (loss) income exclude some, but not all, items that affect equity (loss) income, and these measures may vary among other companies. Therefore, adjustments related to equity (loss) income as presented in this Annual Report may not be comparable to similarly titled measures of other companies. Adjustments related to equity (loss) income includes depreciation and amortization, net interest expense, income tax expense, amortization of in-process revenue contracts, adjustments for direct financing and sales-type lease to a cash basis, write-down and loss (gain) on sales of vessels, realized and unrealized loss (gain) on derivative instruments and other items, realized loss (gain) on foreign currency forward contracts, and write-down and gain on sale of equity-accounted investments, in each case related to our equity-accounted entities, on the basis of our ownership percentages of such entities. Adjustments related to equity (loss) income are as follows:
|Year Ended December 31,|
|(in thousands of U.S. Dollars)|
Depreciation and amortization
|53,065 ||68,921 ||111,019 ||82,706 ||69,702 |
Interest expense, net of interest income
|112,259 ||99,567 ||98,731 ||57,956 ||45,962 |
|Income tax expense||1,504 ||1,757 ||900 ||503 ||245 |
Amortization of in-process revenue contracts and other
Adjustments for direct financing and sales-type lease to a cash basis
|38,118 ||24,574 ||19,486 ||14,402 ||13,231 |
|Write-down and loss on sale||17,000 ||— ||16,277 ||5,479 ||5,304 |
Other items including realized and unrealized loss (gain) on derivative instruments
|48,736 ||18,746 ||(18)||12,667 ||8,534 |
Write-down and (gain) on sale of equity-accounted investments
|— ||72,603 ||(21,576)||48,571 ||— |
|Adjustments related to equity (loss) income||266,890 ||282,375 ||219,395 ||217,866 ||137,496 |
(5)Total capitalization represents total debt and total equity.
(6)Net debt is a non-GAAP financial measure. Net debt represents total debt less cash, cash equivalents and restricted cash. Total net capitalization represents net debt and total equity.
Some of the risks summarized below and discussed in greater detail in the following pages relate principally to the industry in which we operate and to our business in general. Other risks relate principally to the securities market and to ownership of our common stock. The occurrence of any of the events described in this section could materially and adversely affect our business, financial condition, operating results and ability to pay interest or principal or dividends on, and the trading price of our public debt and common stock.
Risk Factor Summary
Risks Related to Our Industry
•Changes in the oil and natural gas markets could result in decreased demand for our vessels and services.
•A decline in natural gas or oil prices may adversely affect our growth prospects and results of operations.
•Adverse economic conditions, including disruptions in the global credit markets, could adversely affect our business, financial condition and results of operations.
•Marine transportation and oil production are inherently risky, and an incident involving loss or damage to a vessel, significant loss of product or environmental contamination by any of our vessels could harm our reputation and business.
•The cyclical nature of the tanker industry may lead to volatile changes in charter rates and significant fluctuations in the utilization of our vessels.
•The novel coronavirus (or COVID-19) pandemic is dynamic. The continuation of this pandemic, and the emergence of other epidemic or pandemic crises, could have material adverse effects on our business, results of operations, or financial condition.
•Terrorist attacks, increased hostilities, political change or war could lead to further economic instability, increased costs and business disruption.
•Acts of piracy on ocean-going vessels continue to be a risk, which could adversely affect our business.
Risks Related to Our Business
•Adverse economic conditions or other developments may affect our customers’ ability to charter our vessels and pay for our services and may adversely affect our business and results of operations.
•The intense competition in our markets may lead to reduced profitability or reduced expansion opportunities.
•The loss of any key customer or its inability to pay for our services could result in a significant loss of revenue in a given period.
•Our ability to repay or refinance debt obligations and to fund capital expenditures will depend on certain financial, business and other factors, many of which are beyond our control. We will need to obtain additional financing, which financing may limit our ability to make cash dividends and distributions, increase our financial leverage and result in dilution to our equityholders.
•Charter rates for conventional oil and product tankers may fluctuate substantially over time and may be lower when we are attempting to re-charter these vessels. Any changes in charter rates for LNG and LPG carriers could adversely affect redeployment opportunities.
•Current market conditions limit our access to capital and our growth.
•Our future performance and ability to secure future employment for our LNG and LPG vessels depends on continued growth in LNG production, demand and supply for LNG and LPG, and associated demand and supply for LNG and LPG shipping.
•Teekay LNG may have more difficulty entering into long-term, fixed-rate LNG time-charters if the active short-term, medium-term or spot LNG shipping markets continue to develop.
•Reductions to the value of the Teekay LNG common units and Teekay Tankers common stock pledged as collateral for our equity margin credit facility could result in breaches of such credit facility.
•Declining market values of our vessels could adversely affect our liquidity and result in breaches of our financing agreements.
•Over time, the value of our vessels may decline, which could result in both write-downs and an adverse effect on our operating results.
•We have recognized asset impairments in the past and we may recognize additional impairments in the future.
•Our cash flow depends substantially on the ability of our subsidiaries, primarily our Daughter Entities, to make distributions to us.
•Teekay Parent may need to divest assets or issue additional securities to raise capital to meet its future liquidity needs.
•Our insurance may not be sufficient to cover losses that may occur to our property or as a result of our operations.
•The duration of our FPSO contracts is the life of the relevant oil field or is subject to early termination options by the field operator or vessel charterer. If a unit is not redeployed or sold on termination of its contract, we may incur costs to decommission and scrap the unit.
•We have substantial debt levels and may incur additional debt.
•Exposure to interest rate fluctuations will result in fluctuations in our cash flows and operating results.
•Use of LIBOR is scheduled to cease, and interest rates on our LIBOR-based obligations may increase in the future.
•Financing agreements containing operating and financial restrictions may restrict our business and financing activities.
•Our and many of our customers’ substantial operations outside the United States expose us and them to political, governmental and economic instability.
•Maritime claimants could arrest, or port authorities could detain, our vessels, which could interrupt our cash flow.
•Many of our seafaring employees are covered by collective bargaining agreements and the failure to renew those agreements or any future labor agreements may disrupt operations and adversely affect our cash flows.
•We and certain of our joint venture partners may be unable to attract and retain qualified, skilled employees or crew to operate our business.
•Exposure to currency exchange rate fluctuations results in fluctuations in our cash flows and operating results.
•Our operating results are subject to seasonal fluctuations.
•We may experience operational problems with vessels that reduce revenue and increase costs.
•Actual results of new technologies or technology upgrades may differ from expected results and affect our results of operations.
•Sanctions against key participants in the Yamal LNG Project could impede performance of the Yamal LNG Project.
•Failure, shutdown or other adverse events impacting the Yamal LNG Project may result in Teekay LNG’s inability to re-deploy the ARC7 LNG carriers.
•Teekay LNG or its joint venture partners may be unable to operate an LNG receiving and regasification terminal and may be exposed from time to time to conditions, developments, or requirements that may adversely affect Teekay LNG or its joint venture.
•Our joint venture arrangements impose obligations upon us but limit our control of the joint ventures.
•We depend on certain joint venture partners to assist us in operating our businesses and competing in our markets.
•We may be unable to realize benefits from acquisitions and growth through acquisitions may harm our financial condition and performance.
•The Daughter Entities may expend substantial sums during the construction of future potential newbuildings or upgrades to their existing vessels, without earning revenue and without assurance that they will be completed.
•We may make substantial capital expenditures to expand the size of our fleet and generally are required to make significant installment payments for acquisitions of newbuilding vessels. Depending on how we finance our expenditures, our financial leverage could increase or our shareholders could be diluted.
•Teekay Tankers’ U.S. Gulf lightering business competes with alternative methods of delivering crude oil to ports, which may limit its earnings in this area of its operations.
•Teekay Tankers’ full service lightering operations are subject to specific risks that could lead to accidents, oil spills or property damage.
Legal and Regulatory Risks
•Past port calls by our vessels, or third-party vessels from which we derived revenue sharing agreements (or RSA) revenues, to countries that are subject to sanctions imposed by the United States and the European Union could harm our business.
•Failure to comply with the U.S. Foreign Corrupt Practices Act, the UK Bribery Act, the UK Criminal Finances Act, and other similar legislation in other jurisdictions could result in fines, criminal penalties, contract terminations and an adverse effect on our business.
•Our operations are subject to substantial environmental and other regulations, which may significantly increase our expenses.
•Climate change and greenhouse gas restrictions may adversely impact our operations and markets.
•Increasing scrutiny and changing expectations from investors, lenders, customers and other market participants with respect to ESG policies and practices may impose additional costs on us or expose us to additional risks.
•Regulations relating to ballast water discharge may adversely affect our operational results and financial condition.
•Our operations may be subject to economic substance requirements in the Marshall Islands and other offshore jurisdictions.
Information and Technology Risks
•A cyber-attack could materially disrupt our business.
•Our failure to comply with data privacy laws could damage our customer relationships and expose us to litigation risks and potential fines.
Risks Related to an Investment in Our Securities
•Because we are organized under the laws of the Marshall Islands, it may be difficult to serve us with legal process or enforce judgments against us, our directors or our management.
•U.S. tax authorities could treat us as a “passive foreign investment company,” which could have adverse U.S. federal income tax consequences to U.S. shareholders.
•We are subject to taxes. The imposition of taxes, including as a result of a change in tax law or accounting requirements, may reduce our cash available for distribution to shareholders.
Risks Related to Our Industry
Changes in the oil and natural gas markets could result in decreased demand for our vessels and services.
Demand for our vessels and services in transporting, production of oil, petroleum products, LNG and LPG depend upon world and regional oil, petroleum and natural gas markets. Any decrease in shipments of oil, petroleum products, LNG or LPG in those markets could have a material adverse effect on our business, financial condition and results of operations. Historically, those markets have been volatile as a result of the many conditions and events that affect the price, production and transport of oil, petroleum products, LNG or LPG, and competition from alternative energy sources. A slowdown of the U.S. and world economies may result in reduced consumption of oil, petroleum products and natural gas and decreased demand for our vessels and services, which would reduce vessel earnings.
A decline in natural gas or oil prices may adversely affect our growth prospects and results of operations.
Oil prices are volatile and have recently reached their lowest levels since 1998 for certain crude oil grades. Low energy prices may negatively affect both the competitiveness of natural gas as a fuel for power generation and the market price of natural gas, to the extent that natural gas prices are benchmarked to the price of crude oil. Low energy prices have adversely affected, and may continue to adversely affect energy and master limited partnership capital markets and available sources of financing for our capital expenditures and debt repayment obligations. A sustained low energy price environment may adversely affect our business, results of operations and financial condition and our ability to make cash distributions, as a result of a number of factors, some of which may be beyond our control, including:
•fluctuations in worldwide and regional supply of, demand for and price of natural gas;
•the termination of production of oil at the fields we service, which may result in early termination of FPSO contracts;
•lower demand for vessels of the types we own and operate, which may reduce available charter rates and revenue to us upon redeployment of our vessels following expiration or termination of existing contracts or upon the initial chartering of vessels, or which may result in extended periods of our vessels being idle between contracts;
•customers potentially seeking to renegotiate or terminate existing vessel contracts, failing to extend or renew contracts upon expiration, or seeking to negotiate cancelable contracts;
•the inability or refusal of customers to make charter payments to us due to financial constraints or otherwise; or
•declines in vessel values, which may result in losses to us upon vessel sales or impairment charges against our earnings.
Adverse economic conditions, including disruptions in the global credit markets, could adversely affect our business, financial condition and results of operations.
Economic downturns and financial crises in the global markets could produce illiquidity in the capital markets, market volatility, increased exposure to interest rate and credit risks and reduced access to capital markets. If global financial markets and economic conditions significantly deteriorate in the future, we may face restricted access to the capital markets or bank lending, which may make it more difficult and costly to fund future growth. Decreased access to such resources could have a material adverse effect on our business, financial condition and results of operations.
The United Kingdom exited the European Union (or EU) on January 31, 2020. On December 24, 2020, the United Kingdom reached a trade agreement with the EU. While the trade agreement did not impose any new tariffs or quotas on goods, there is a risk that the disruption of free movement between the United Kingdom and the EU could result in disruption of the exchange of people, business and services. As a result, uncertainty regarding the relationship between the United Kingdom and the EU following this exit may create economic instability in the United Kingdom and elsewhere, which could affect our operations, including our access to bank loans, and may lead to an adverse effect on our business. While we will seek to minimize associated risk by implementing mitigation plans, any such plans may not be effective.
Marine transportation and oil production are inherently risky, and an incident involving loss or damage to a vessel, significant loss of product or environmental contamination by any of our vessels could harm our reputation and business.
Our vessels, crew and cargoes are at risk of being damaged, injured or lost because of events such as:
•bad weather or natural disasters;
•grounding, fire, explosions and collisions;
•piracy (hijacking and kidnapping);
•acute-onset illness in connection with global or regional pandemics or similar public health crises;
•mental health of crew members;
•human error; and
•war and terrorism.
An accident involving any of our vessels could result in any of the following:
•significant litigation with our customers and other third parties;
•death or injury to persons, loss of property or environmental damage or pollution;
•delays in the delivery of cargo;
•liabilities or costs to recover any spilled oil and to restore the environment affected by the spill;
•loss of revenues from or termination of charter contracts;
•governmental fines, penalties or restrictions on conducting business;
•higher insurance rates; and
•damage to our reputation and customer relationships generally.
Any of these results could have a material adverse effect on our business, financial condition and operating results. In addition, any damage to, or environmental contamination involving, oil production facilities serviced by our vessels could result in the suspension or curtailment of operations by our customer, which would in turn result in loss of revenues to us.
The cyclical nature of the tanker industry may lead to volatile changes in charter rates and significant fluctuations in the utilization of our vessels, which may adversely affect our earnings and profitability.
Historically, the tanker industry has been cyclical, experiencing volatility in profitability due to changes in the supply of and demand for tanker capacity and changes in the supply of and demand for oil and oil products. The cyclical nature of the tanker industry may cause significant increases or decreases in the revenue we earn from our vessels and may also cause significant increases or decreases in the value of our vessels. If the tanker market is depressed, our earnings may decrease, particularly with respect to the conventional tanker vessels owned by Teekay Tankers, which accounted for approximately 49% of our consolidated revenues during each of 2020 and 2019. These vessels are primarily employed on the spot-charter market, which is highly volatile and fluctuates based upon tanker and oil supply and demand. Declining spot rates in a given period generally will result in corresponding declines in operating results for that period. The successful operation of our vessels in the spot-charter market depends upon, among other things, obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling unladen to pick up cargo. Future spot rates may not be sufficient to enable our vessels trading in the spot tanker market to operate profitably or to provide sufficient cash flow to service our debt obligations. The factors affecting the supply of and demand for tankers are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable.
Factors that influence demand for tanker capacity include:
•demand for oil and oil products;
•supply of oil and oil products;
•regional availability of refining capacity;
•global and regional economic and political conditions;
•the distance oil and oil products are to be moved by sea;
•demand for floating storage of oil; and
•changes in seaborne and other transportation patterns.
Factors that influence the supply of tanker capacity include:
•the number of newbuilding deliveries;
•the scrapping rate of older vessels;
•conversion of tankers to other uses;
•the number of vessels that are out of service; and
•environmental concerns and regulations.
Changes in demand for transportation of oil over longer distances and in the supply of tankers to carry that oil may materially affect our revenues, profitability and cash flows.
The COVID-19 pandemic is dynamic. The continuation of this pandemic, and the emergence of other epidemic or pandemic crises, could have material adverse effects on our business, results of operations, or financial condition.
The novel coronavirus pandemic is dynamic, including the developments of variants of the virus, and its ultimate scope, duration and effects are uncertain. We expect that this pandemic, and any future epidemic or pandemic crises, could result in direct and indirect adverse effects on our industry and customers, which in turn may impact our business, results of operations and financial condition. Although global demand for LNG has remained relatively stable, the pandemic has resulted and may continue to result in a significant decline in global demand for LPG, crude oil and petroleum products. As our business includes the transportation of LNG, LPG, oil and petroleum products on behalf of our customers, any significant decrease in demand for the cargo we transport could adversely affect demand for our vessels and services. COVID-19 has been a contributing factor to the decline in spot tanker rates and short-term time charter rates since mid-May 2020 and has also increased certain crewing-related costs, which has reduced our cash flows, and was a contributing factor to the non-cash write-down of certain of Teekay LNG's multi-gas vessels, certain tankers owned by Teekay Tankers and one FPSO unit, as described in "Item 18 – Financial Statements: Note 18 - Write-down and Loss on Sale.”
Other effects of the current pandemic include, or may include, among others:
•disruptions to our operations as a result of the potential health impact on our employees and crew, and on the workforces of our customers and business partners;
•disruptions to our business from, or additional costs related to, new regulations, directives or practices implemented in response to the pandemic, such as travel restrictions (including for any of our onshore personnel or any of our crew members to timely embark or disembark from our vessels), increased inspection regimes, hygiene measures (such as quarantining and physical distancing) or increased implementation of remote working arrangements;
•potential delays in the loading and discharging of cargo on or from our vessels, and any related off hire due to quarantine, worker health, vetting requirements, or regulations, which in turn could disrupt our operations and result in a reduction of revenue;
•potential shortages or a lack of access to required spare parts for our vessels, or potential delays in any repairs to, scheduled or unscheduled maintenance or modifications, or drydocking of, our vessels, as a result of a lack of berths available by shipyards from a shortage in labor or due to other business disruptions;
•potential delays in vessel inspections and related certifications by class societies, customers or government agencies;
•potential reduced cash flows and financial condition, including potential liquidity constraints;
•reduced access to capital, including the ability to refinance any existing obligations, as a result of any credit tightening generally or due to declines in global financial markets, including to the prices of publicly-traded securities of us, our peers and of listed companies generally;
•a reduced ability to opportunistically sell any of our vessels on the second-hand market, either as a result of a lack of buyers or a general decline in the value of second-hand vessels;
•a decline in the market value of our vessels, which may cause us to (a) incur additional impairment charges or (b) breach certain covenants under our financing agreements (including our secured facility agreements and financial leases) relating to vessel-to-loan covenants; and
•potential deterioration in the financial condition and prospects of our customers, or joint venture or business partners, or attempts by customers or third parties to invoke force majeure contractual clauses as a result of delays or other disruptions.
Although disruption and effects from the COVID-19 pandemic may be temporary or moderated by expanding vaccine accessibility, given the dynamic nature of these circumstances and the worldwide nature of our business and operations, the duration of any potential business disruption and the related potential financial impact to us cannot be reasonably estimated at this time but could materially affect our business, results of operations and financial condition in the future.
Terrorist attacks, increased hostilities, political change or war could lead to further economic instability, increased costs and business disruption.
Terrorist attacks, and the current or future conflicts in Libya, the Middle East, East Asia, South East Asia, West Africa and elsewhere, and political change, may adversely affect our business, operating results, financial condition, and ability to raise capital and future growth. Recent hostilities in the Middle East especially among Qatar, Saudi Arabia, the United Arab Emirates, Iran, Yemen and elsewhere may lead to additional armed conflicts or to further acts of terrorism and civil disturbance in the United States or elsewhere, which may contribute to economic instability and disruption of oil, LNG and LPG production and distribution, which could result in reduced demand for our services and have an adverse impact on our operations and or our ability to conduct business.
In addition, oil facilities, shipyards, vessels, pipelines and oil fields could be targets of future terrorist attacks and warlike operations and our vessels could be targets of hijackers, terrorists or warlike operations. Any such attacks could lead to, among other things, bodily injury or loss of life, vessel or other property damage, increased vessel operational costs, including insurance costs, and the inability to transport oil to or from certain locations. Terrorist attacks, war, hijacking or other events beyond our control that adversely affect the distribution, production or transportation of oil, LNG and LPG to be shipped by us could entitle customers to terminate charters, which would harm our cash flow and business.
Acts of piracy on ocean-going vessels continue to be a risk, which could adversely affect our business.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea, Gulf of Guinea and the Indian Ocean off the coast of Somalia. While there continues to be a significant risk of piracy incidents in the Southern Red Sea, Gulf of Aden and Indian Ocean, recently there have been increases in the frequency and severity of piracy incidents off the coast of West Africa and a resurgent risk of piracy and/or armed robbery in the Straits of Malacca, Sulu & Celebes Sea, Gulf of Mexico and surrounding waters. If these piracy attacks result in regions in which our vessels are deployed being named on the Joint War Committee Listed Areas, war risk insurance premiums payable for such coverage may increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew costs, including costs which are incurred to the extent we employ on-board security guards and escort vessels, could increase in such circumstances. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, hijacking as a result of an act of piracy against our vessels, or an increase in cost or unavailability of insurance for our vessels, could have a material adverse impact on our business, financial condition and results of operations.
Risks Related to Our Business
Adverse economic conditions or other developments may affect our customers’ ability to charter our vessels and pay for our services and may adversely affect our business and results of operations.
Adverse economic conditions or other developments relating directly to our customers may lead to a decline in our customers’ operations or ability to pay for our services, which could result in decreased demand for our vessels and services. Our customers’ inability to pay for any reason could also result in their default on our current contracts and charters. The decline in the amount of services requested by our customers or their default on our contracts with them could have a material adverse effect on our business, financial condition and results of operations.
The intense competition in our markets may lead to reduced profitability or reduced expansion opportunities.
Our vessels operate in highly competitive markets. Competition arises primarily from other vessel owners, including major oil companies and independent companies. We also compete with owners of other size vessels. Our market share is insufficient to enforce any degree of pricing discipline in the markets in which we operate, and our competitive position may erode in the future. Any new markets that we enter could include participants that have greater financial strength and capital resources than we have. We may not be successful in entering new markets.
One of our objectives is to enter into additional long-term, fixed-rate charters for our LNG and LPG carriers. The process of obtaining new long-term time charters is highly competitive and generally involves an intensive screening process and competitive bids, and often extends for several months. We expect competition for providing services for potential gas and offshore projects from other experienced companies, including state-sponsored entities. Our competitors may have greater financial resources than us. This increased competition may cause greater price competition for charters. As a result of these factors, we may be unable to expand our relationships with existing customers or to obtain new customers on a profitable basis, if at all, which would have a material adverse effect on our business, results of operations and financial condition.
The loss of any key customer or its inability to pay for our services could result in a significant loss of revenue in a given period.
We have derived, and believe that we will continue to derive, a significant portion of our revenues from a limited number of customers. No customer accounted for over 10% of our consolidated revenues during 2020 (2019 – one customer for 12%, or $227.6 million; 2018 – one customer for 11%, or $195.0 million). The loss of any significant customer or a substantial decline in the amount of services requested by a significant customer, or the inability of a significant customer to pay for our services, could have a material adverse effect on our business, financial condition and results of operations.
We could lose a customer or the benefits of a contract if:
•the customer fails to make payments because of its financial inability, disagreements with us or otherwise;
•we agree to reduce the payments due to us under a contract because of the customer’s inability to continue making the original payments;
•upon our breach of the relevant contract, the customer exercises certain rights to terminate the contract;
•the customer terminates the contract because we fail to deliver the vessel within a fixed period of time, the vessel is lost or damaged beyond repair, there are serious deficiencies in the vessel or prolonged periods of off-hire, or we default under the contract;
•under some of our contracts, the customer terminates the contract because of the termination of the customer's sales agreement or a prolonged force majeure affecting the customer, including damage to or destruction of relevant facilities, war or political unrest preventing us from performing services for that customer; or
•the customer becomes subject to applicable sanctions laws which prohibit our ability to lawfully charter our vessel to such customer.
If we lose a key customer, we may be unable to obtain replacement long-term charters. If a customer exercises its right under some charters to purchase the vessel, or terminate the charter, we may be unable to acquire an adequate replacement vessel or charter. Any replacement newbuilding would not generate revenues during its construction and we may be unable to charter any replacement vessel on terms as favorable to us as those of the terminated charter.
The loss of any of our significant customers or a reduction in revenues from them could have a material adverse effect on our business, results of operations and financial condition and our ability to pay dividends and service our debt.
Two of the six MALT LNG Carriers in Teekay LNG's 52%-owned MALT Joint Venture, the Marib Spirit and Arwa Spirit, were chartered-out to Yemen LNG under long-term charter contracts with YLNG. However, due to the political unrest in Yemen, YLNG decided to temporarily close operation of its LNG plant in Yemen in 2015. As a result, commencing January 1, 2016, the MALT Joint Venture agreed to successive deferral arrangements with YLNG pursuant to which a portion of the charter payments were deferred. Concurrently with the expiration of the most recent deferral arrangement, in April 2019, the MALT Joint Venture entered into a suspension agreement with YLNG (the Suspension Agreement) pursuant to which the MALT Joint Venture and YLNG agreed to suspend the two charter contracts for a period of up to three years from the date of the agreement.
Our ability to repay or refinance debt obligations and to fund capital expenditures will depend on certain financial, business and other factors, many of which are beyond our control. We will need to obtain additional financing, which financing may limit our ability to make cash dividends and distributions, increase our financial leverage and result in dilution to our equityholders.
To fund existing and future debt obligations and capital expenditures and to meet the minimum liquidity requirements under the financial covenants in our credit facilities, we will be required to obtain additional sources of financing, in addition to amounts generated from operations. These anticipated sources of financing include raising additional debt and capital, including equity issuances.
Our ability to obtain external financing may be limited by our financial condition at the time of any such financing as well as by adverse market conditions in general. Even if we are successful in obtaining necessary funds, the terms of such financings could limit our ability to pay cash dividends or distributions to security holders or operate our businesses as currently conducted. In addition, issuing additional equity securities may result in significant equityholder dilution and would increase the aggregate amount of cash required to maintain quarterly dividends and distributions. The sale of certain assets will reduce cash from operations and the cash available for distribution to equityholders. For more information on our liquidity requirements, please read “Item 18 – Financial Statements: Note 16b – Commitments and Contingencies – Liquidity."
Charter rates for conventional oil and product tankers may fluctuate substantially over time and may be lower when we are attempting to re-charter these vessels, which could adversely affect our operating results. Any changes in charter rates for LNG carriers and LPG carriers could also adversely affect redeployment opportunities for those vessels.
Our ability to re-charter our conventional oil and product tankers following expiration of existing time-charter contracts and the rates payable upon any renewal or replacement charters will depend upon, among other things, the state of the conventional tanker market. Conventional oil and product tanker trades are highly competitive and have experienced significant fluctuations in charter rates based on, among other things, oil, refined petroleum product and vessel demand. For example, an oversupply of conventional oil tankers can significantly reduce their charter rates. There also exists volatility in charter rates for LNG and LPG carriers, which could also adversely affect redeployment opportunities for those vessels. If upon scheduled expiration or any early termination we are unable to renew or replace fixed-rate charters on favorable terms, if at all, or if we choose not to renew or replace fixed-rate charters, we may employ applicable vessels in the volatile spot market. Increasing our exposure to the spot market, particularly during periods of unfavorable market conditions, could harm our results of operations and make them more volatile.
Current market conditions limit our access to capital and our growth.
We have relied primarily upon bank financing and debt and equity offerings, primarily by the Daughter Entities, to fund our growth. Current market conditions generally in the energy and shipping sectors and for master limited partnerships have significantly reduced our and the Daughter Entities’ access to capital, particularly equity capital, compared to periods prior to mid-2014. Issuing additional common equity given current market conditions is more dilutive and costly than it has been in the past. Lack of access to debt or equity capital at reasonable rates would adversely affect our growth prospects and our ability to refinance debt and pay dividends to our equityholders.
Our future performance and ability to secure future employment for our LNG and LPG vessels depends on continued growth in LNG production, demand and supply for LNG and LPG, and associated demand and supply for LNG and LPG shipping.
A significant portion of our future performance will depend on growth in LNG production, demand and supply for LNG and LPG, and associated demand and supply for LNG and LPG shipping services.
Expansion of the LNG and LPG shipping sectors depends on growth in world and regional demand and supply for LNG and LPG and marine transportation of LNG and LPG, as well as the supply of LNG and LPG. Demand or supply for LNG and LPG and for the marine transportation of LNG and LPG could be negatively affected by a number of factors, such as:
•increases in the cost of natural gas derived from LNG relative to the cost of natural gas generally;
•increases in the cost of LPG relative to the cost of naphtha and other competing petrochemicals;
•increases in the production of natural gas in areas linked by pipelines to consuming areas, the extension of existing, or the development of new, pipeline systems in markets we may serve, or the conversion of existing non-natural gas pipelines to natural gas pipelines in those markets;
•decreases in the consumption of natural gas due to increases in its price relative to other energy sources or other factors making consumption of natural gas less attractive;
•increases in availability of additional sources of natural gas, including shale gas;
•increases in the number of LNG or LPG newbuilding vessels, which could lead to an oversupply of vessels in the market and in turn create downward pressure on the demand for LNG and LPG shipping services;
•changes in weather patterns leading to warmer winters in the Northern Hemisphere and lower gas demand in the tradition peak heating season;
•increases in availability of alternative or renewable energy sources; and
•negative global or regional economic or political conditions, particularly in LNG and LPG consuming regions, which could reduce energy consumption or its rate of growth, including labor or political unrest or military conflicts affecting existing or proposed areas of LNG production or regasification.
Furthermore, spot charter rates initially came under pressure commencing in February 2020 due to the impact of the COVID-19 pandemic. In addition, trading prices of our equity securities have been volatile due in part to the recent impact of the pandemic on the energy and financial markets overall. The ongoing pandemic may significantly impact global economic activity (including the demand for LNG and LPG, and associated shipping rates, which may in turn negatively affect our spot chartered vessels) and may disrupt, delay or lead to cancellations of the construction of new LNG projects (including production, liquefaction, regasification, storage and distribution facilities), which in turn could negatively affect our business, results of operations and financial condition.
Reduced demand for LNG and LPG shipping could have a material adverse effect on our future growth and could harm our business, results of operations and financial condition.
Teekay LNG may have more difficulty entering into long-term, fixed-rate LNG time-charters if the active short-term, medium-term or spot LNG shipping markets continue to develop.
LNG shipping historically has been transacted with long-term, fixed-rate time-charters, usually with terms ranging from 15 to 20 years. One of Teekay LNG’s principal strategies is to enter into additional long-term, fixed-rate LNG time-charters. In recent years, the amount of LNG traded on a spot and short-term basis (defined as contracts with a duration of three years or less) has been increasing.
If the active spot, short-term or medium-term markets continue to develop, Teekay LNG may have increased difficulty entering into long-term, fixed-rate time-charters for its LNG carriers and, as a result, its cash flow may decrease and be less stable. In addition, an active short-term, medium-term or spot LNG shipping market may require Teekay LNG to enter into charters with rates based on changing market prices, as opposed to contracts based on a fixed rate, which could result in a decrease in its cash flow in periods when the market price for shipping LNG is depressed.
Reductions to the value of the Teekay LNG common units and Teekay Tankers common stock pledged as collateral for our equity margin credit facility could result in breaches of such credit facility.
Teekay Parent’s $150 million equity margin revolving credit facility is secured by common units of Teekay LNG and shares of Class A common stock of Teekay Tankers that are owned by Teekay Parent. Availability under the credit facility relates to the value of the common units and common stock pledged as collateral for the facility. The value of the pledged securities of Teekay LNG and Teekay Tankers will likely vary significantly over time due to various factors affecting the trading prices of such securities, including many factors outside our or their control. If the value of the collateral were to decline and to cause loan-to-value requirements in the credit facility not to be satisfied, and we are unable to effect a cure within the applicable grace period, our lenders could accelerate our debt and require us to repay all outstanding amounts in full and/or terminate the commitments under the facility. If we are unable to repay such amounts from our liquidity reserves or other sources of financing, our lenders could enforce on our collateral security under the facility (including the pledged securities), which could adversely affect our business, results of operations and financial condition. No amount is drawn under the equity margin revolving credit facility as of the date of this Annual Report.
Declining market values of our vessels could adversely affect our liquidity and result in breaches of our financing agreements.
Market values of vessels fluctuate depending upon general economic and market conditions affecting relevant markets and industries and competition from other shipping companies and other modes of transportation. In addition, as vessels become older, they generally decline in value. Declining vessel values could adversely affect our liquidity by limiting our ability to raise cash by refinancing vessels. Declining vessel values could also result in a breach of loan and obligations under finance lease covenants and events of default under certain of our credit facilities that require us to maintain certain loan-to-value ratios. If we are unable to cure any such breach within the prescribed cure period in a particular financing facility, the lenders under these facilities could accelerate our debt or obligations under finance lease and foreclose on our vessels pledged as collateral or require an early termination of the credit facility or finance lease. In certain circumstances, such a breach could result in cross-defaults under our other financing agreements. As of December 31, 2020, the total outstanding debt credit facilities and obligations under finance leases with this type of loan-to-value covenant tied to conventional tanker values was $609.6 million and tied to LNG carrier values was $359.4 million. We have nine financing arrangements that require us to maintain vessel value to outstanding loan and lease principal balance ratios ranging from 77.5% to 135%. As of December 31, 2020, we were in compliance with these required ratios.
Over time, the value of our vessels may decline, which could adversely affect our operating results.
Vessel values for oil and product tankers, and LNG and LPG carriers can fluctuate substantially over time due to a number of different factors, including:
•prevailing economic conditions in oil and energy markets;
•a substantial or extended decline in demand for oil or natural gas;
•increases in the supply of vessel capacity;
•the age of the vessel relative to other alternative vessels that are available in the market;
•competition from more technologically advanced vessels; and
•the cost of retrofitting or modifying existing vessels, as a result of technological advances in vessel design or equipment, changes in applicable environmental or other regulations or standards, or otherwise.
Vessel values may decline from existing levels. If operation of a vessel is not profitable, or if we cannot redeploy a chartered vessel at attractive rates upon charter termination, rather than continue to incur costs to maintain and finance the vessel, we may seek to dispose of it. Our inability to dispose of the vessel at a fair market value or the disposal of the vessel at a fair market value that is lower than its book value could result in a loss on its sale and adversely affect our results of operations and financial condition.
Further, if we determine at any time that a vessel’s future useful life and earnings require us to impair its value on our financial statements, we may need to recognize a significant impairment charge against our earnings. Such a determination involves numerous assumptions and estimates, some of which require more discretion and are less predictable. We recognized asset impairment charges of $188.7 million, $182.3 million and $53.9 million in 2020, 2019, and 2018, respectively. The 2020 charge included impairments of $70.7 million for two of our FPSO units, the Petrojarl Banff and Sevan Hummingbird, $51.0 million for seven of Teekay LNG’s multi-gas carriers and $67.0 million for nine of Teekay Tankers’ Aframax tankers. The 2019 charge included impairments of $178.3 million for three of our FPSO units, the Petrojarl Banff, Sevan Hummingbird and Petrojarl Foinaven. The FPSO units were fully written down in 2020. If a unit is not redeployed or sold on termination of its contract, we may incur costs to decommission and scrap the unit.
We have recognized asset impairments in the past and we may recognize additional impairments in the future, which will reduce our earnings and net assets.
If we determine at any time that an asset has been impaired, we may need to recognize an impairment charge that will reduce our earnings and net assets. We review our vessels for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable, which occurs when an asset's carrying value is greater than the estimated undiscounted future cash flows the asset is expected to generate over its remaining useful life. We review our goodwill for impairment annually and if a reporting unit's goodwill carrying value is greater than the estimated fair value, the goodwill attributable to that reporting unit is impaired. We evaluate our investments in equity-accounted joint ventures for impairment when events or circumstances indicate that the carrying value of such investment may have experienced an other-than-temporary decline in value below its carrying value.
Our cash flow depends substantially on the ability of our subsidiaries, primarily our Daughter Entities, to make distributions to us.
The source of our cash flow includes cash distributions and dividends from our subsidiaries, primarily Teekay LNG and Teekay Tankers. The amount of cash our subsidiaries can distribute to us principally depends upon the amount of distributions or dividend declared by each of their Boards of Directors and the amount of cash they generate from their operations. Teekay LNG has paid a quarterly distribution of $0.25 per common unit commencing with its quarterly distribution paid in May 2020 and anticipates increasing the distribution amount to $0.2875 per common unit commencing with the first quarter of 2021 quarterly distributions to be paid in May 2021. Teekay Tankers has not paid a quarterly dividend since March 2018, as it focuses on building net asset value through balance sheet delevering and reducing its cost of capital.
The amount of cash our subsidiaries generate from their operations may fluctuate from quarter-to-quarter based on, among other things:
•the rates they obtain from their charters, voyages and contracts;
•the price and level of production of, and demand for, crude oil, LNG and LPG;
•the level of their operating costs, such as the cost of crews and repairs and maintenance;
•the number of off-hire days for their vessels and the timing of, and number of days required for, dry docking of vessels;
•the rates, if any, at which our subsidiaries may be able to redeploy vessels, after they complete their charters or contracts and are redelivered to us;
•the rates, if any, at which Teekay Tankers can deploy tankers in the spot market;
•delays in the delivery of any future newbuildings or in any future conversions of upgrades of existing vessels, and the beginning of payments under charters relating to those vessels;
•the utilization levels of their vessels trading in the spot or short-term market;
•prevailing global and regional economic and political conditions;
•currency exchange rate fluctuations; and
•the effect of governmental regulations and maritime self-regulatory organization standards on the conduct of business.
The actual amount of cash our subsidiaries have available for distribution also depends on other factors such as:
•the level of their capital expenditures, including for maintaining vessels or converting existing vessels for other uses and complying with regulations;
•their debt service and cash reserve requirements, financial covenants and restrictions on distributions contained in their debt agreements, including financial ratio covenants which may indirectly restrict loans, distributions or dividends;
•fluctuations in their working capital needs;
•their ability to make working capital borrowings; and
•the amount of any cash reserves, including reserves for future working capital and other matters, established by the Boards of Directors of the Daughter Entities at their discretion.
The amount of cash our subsidiaries generate from operations may differ materially from their profit or loss for the period, which will be affected by non-cash items and the timing of debt service payments. As a result of this and the other factors mentioned above, our subsidiaries may make cash distributions during periods when they record losses and may not make cash distributions during periods when they record net income.
Teekay Parent may need to divest assets or issue additional securities to raise capital to meet its future liquidity needs.
As at December 31, 2020, Teekay Parent had total cash and cash equivalents of $44.8 million and total liquidity, including cash, cash equivalents and undrawn credit facilities, of $173.4 million. As at December 31, 2020, the outstanding principal amounts of Teekay Parent’s 9.25% senior notes that mature in November 2022 and of its 5.0% convertible senior notes that mature in January 2023 were $243.4 million and $112.2 million, respectively. If we are unable to meet these or other liquidity needs or to refinance these future obligations, we may need to evaluate alternatives such as divesting of interests in the Daughter Entities or other assets or seeking to raise capital through the issuance of debt, hybrid or equity securities. However, there can be no assurance that we would be able to complete any such transactions on acceptable terms, if at all.
Our insurance may not be sufficient to cover losses that may occur to our property or as a result of our operations.
The operation of oil and product tankers, lightering vessels, oil and gas transfer operations, LNG and LPG carriers, FPSO units and LNG Facilities is inherently risky. Although we carry hull and machinery (marine and war risk) and protection and indemnity insurance, and other liability insurance covers, all risks may not be adequately insured against, and any particular claim may not be paid or paid in full. In addition, only certain of our LNG and LPG carriers carry insurance covering the loss of revenues resulting from vessel off-hire time based on its cost compared to our off-hire experience. Any significant off-hire time of our vessels could harm our business, operating results and financial condition. Any claims relating to our operations covered by insurance would be subject to deductibles, and since it is possible that a large number of claims may be brought, the aggregate amount of these deductibles could be material. Certain of our insurance coverage is maintained through mutual protection and indemnity associations and as a member of such associations we may be required to make additional payments over and above budgeted premiums if member claims exceed association reserves. In addition, the cost of this protection and indemnity coverage has significantly increased and may continue to increase. Even if our insurance coverage is adequate to cover our losses, we may not be able to obtain a timely replacement vessel in the event of a total loss of a vessel.
We may be unable to procure adequate insurance coverage at commercially reasonable rates in the future. For example, more stringent environmental regulations have led in the past to increased costs for, and in the future may result in the lack of availability of, insurance against risks of environmental damage or pollution. A catastrophic oil spill, marine disaster or natural disaster could result in losses that exceed our insurance coverage, which could harm our business, financial condition and operating results. Any uninsured or under-insured loss could harm our business and financial condition. In addition, our insurance may be voidable by the insurers as a result of certain of our actions, such as our ships failing to maintain certification with applicable maritime regulatory organizations.
Changes in the insurance markets attributable to structural changes in insurance markets, economic factors, the impact of the COVID-19 pandemic, outbreaks of communicable diseases, terrorist attacks, environmental catastrophes or political changes may also make certain types of insurance more difficult for us to obtain. In addition, the insurance that may be available may be significantly more expensive than our existing coverage or be available only with restrictive terms.
The duration of our FPSO contracts is the life of the relevant oil field or is subject to early termination options by the field operator or vessel charterer. If the oil field no longer produces oil or is abandoned or the contract term is terminated early or not extended, we will no longer generate revenue under the related contract and will need to seek to redeploy, sell or scrap the affected vessels.
As at December 31, 2020, we had two FPSO units operating in our fleet. The duration of our FPSO contract for the Sevan Hummingbird FPSO unit is subject to early termination options. The likelihood of the contract being terminated early may be negatively affected by reductions in oil field reserves, low oil prices generally or other factors. If we are unable to promptly redeploy the unit at rates at least equal to those under the existing contract, if at all, our operating results will be harmed. Any potential redeployment may not be under a long-term contract, which may affect the stability of our business and operating results. If the unit is not redeployed or sold, we may incur costs to decommission and scrap the unit.
On termination of the FPSO contract for the Petrojarl Foinaven FPSO unit, it will be recycled in accordance with EU ship recycling regulations. We expect to receive a lump sum payment from the customer at the end of the contract, which may not cover the costs of recycling the FPSO unit.
Factors that may affect an operator’s decision to initiate or continue production include: changes in oil prices; capital budget limitations; the availability of necessary drilling and other governmental permits; the availability of qualified personnel and equipment; the quality of drilling prospects in the area; and regulatory changes. The rate of oil production at fields we service may decline from existing or future levels, and may be terminated, which could harm our business and operating results. Oil production levels are affected by several factors, all of which are beyond our control, including: geologic factors, including general declines in production that occur naturally over time; mechanical failure or operator error; the rate of technical developments in extracting oil and related infrastructure and implementation costs; and operator decisions based on revenue compared to costs from continued operations.
In the first quarter of 2020, CNR International (U.K.) Limited (or CNRI) provided formal notice to Teekay of its intention to decommission the Banff field and remove the Petrojarl Banff FPSO and the Apollo Spirit FSO from the field in 2020. The oil production under the existing contract for the Petrojarl Banff FPSO unit ceased on June 1, 2020, at which time Teekay Parent began incurring decommissioning/asset retirement costs. The actual asset retirement and decommissioning costs may exceed our current estimates.
We have substantial debt levels and may incur additional debt.
As of December 31, 2020, our consolidated long-term debt and obligations related to finance leases totaled $3.8 billion and we had the capacity to borrow an additional $0.6 billion under our revolving credit facilities. These credit facilities may be used by us for general corporate purposes. In addition to our consolidated debt, our total proportionate interest in debt of joint ventures we do not control was $2.1 billion as of December 31, 2020, of which Teekay Tankers or Teekay LNG has guaranteed $1.2 billion and the remaining $0.9 billion has limited or no recourse to Teekay LNG. Our consolidated debt, finance lease obligations and joint venture debt could increase substantially. We will continue to have the ability to incur additional debt, subject to limitations in our credit facilities. Our level of debt could have important consequences to us, including:
•our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes, and our ability to refinance our credit facilities may be impaired or such financing may not be available on favorable terms, if at all;
•we will need to use a substantial portion of our cash flow to make principal and interest payments on our debt, reducing the funds that would otherwise be available for operations, future business opportunities, repurchases of equity securities and dividends to shareholders;
•our debt level may make us more vulnerable than our competitors with less debt to competitive pressures or a downturn in our industry or the economy generally; and
•our debt level may limit our flexibility in obtaining additional financing, pursuing other business opportunities and responding to changing business and economic conditions.
Exposure to interest rate fluctuations will result in fluctuations in our cash flows and operating results.
We are exposed to the impact of interest rate changes primarily through our borrowings that require us to make interest payments based on LIBOR, EURIBOR or NIBOR. Significant increases in interest rates could adversely affect our profit margins, results of operations and our ability to service our debt and finance lease obligations. In accordance with our risk management policy, we use interest rate swaps on certain of our debt and cross currency swaps on the NOK bonds to reduce our exposure to market risk from changes in interest rates. The principal objective of these contracts is to minimize the risks and costs associated with our floating rate debt. However, any hedging activities entered into by us may not be effective in fully mitigating our interest rate risk from our variable rate indebtedness.
In addition, we are exposed to credit loss in the event of non-performance by the counterparties to the interest rate swap agreements. For further information about our financial instruments at December 31, 2020, that are sensitive to changes in interest rates, please read "Item 11 - Quantitative and Qualitative Disclosures About Market Risk."
Use of LIBOR is currently scheduled to cease in the future, and interest rates on our LIBOR-based obligations may increase in the future.
LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. In March 2021, the UK Financial Conduct Authority, which regulates LIBOR, announced that it will cease the publication of LIBOR after December 31, 2021, with the exception of certain tenors of U.S. dollar LIBOR which will cease publication after June 30, 2023. It is unclear whether an extension will be granted or new methods of calculating LIBOR will be established such that it continues to exist after the scheduled expiration dates, or if alternative rates will be adopted. Global regulators are working with the financial sector to transition away from the use of LIBOR and towards the adoption of alternative reference rates. For example, the U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by Treasury securities (or SOFR). SOFR is observed and backward-looking, which stands in contrast with LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members. Whether or not SOFR attains market acceptance as a LIBOR replacement tool remains in question and there can be no assurance that the transition to a new benchmark rate or other financial metric will be an adequate alternative to LIBOR or produce the economic equivalent of LIBOR. As a result, it is not possible at this time to know the ultimate impact that a phase-out of LIBOR may have.
While some of the agreements governing our revolving credit facilities, term loan facilities, interest rate swaps and finance lease facilities provide for an alternate method of calculating interest rates in the event that a LIBOR rate is unavailable, if LIBOR ceases to exist or if the methods of calculating LIBOR change from their current form, there may be adverse impacts on the financial markets generally and interest rates on borrowings under our revolving credit facilities, term loan facilities, interest rate swaps and finance lease facilities may be materially adversely affected.
In addition, we may need to renegotiate certain LIBOR-based revolving credit facilities, term loan facilities, interest rate swaps and finance lease facilities, which could adversely impact our cost of debt. There can be no assurance that we will be able to modify existing documentation or renegotiate existing transactions before the discontinuation of LIBOR.
Financing agreements containing operating and financial restrictions may restrict our business and financing activities.
The operating and financial restrictions and covenants in our revolving credit facilities, term loans, lease obligations, indentures and in any of our future financing agreements could adversely affect our ability to finance future operations or capital needs or to purs