Welcome to Teekay Corporation's 2nd Quarter 2020 Earnings Results Conference Call. During the call, all participants will be in a listen only mode. Afterwards, you will be invited to participate in a question and answer session. As a reminder, this call is being recorded. Now for the opening remarks and introductions, I would like to turn the call over to the company.
Please go ahead.
Before we begin, I'd like to direct all participants to our website at www.teekay.com, where you'll find a copy of the Q2 2020 earnings presentation. Kenneth and Vince will review this presentation during today's conference call. Please allow me to remind you that our discussion today contains forward looking statements. Actual results may differ materially from results projected by those forward looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward looking statements is contained in the Q2 2020 earnings release and earnings presentation available on our website.
I'll now turn the call over to Kenneth to begin.
Thank you, Ryan. Hello, everyone, and thank you very much for joining us today for Teekay Corporation's Q2 2020 earnings conference call. I hope that you and your family is all safe and healthy. On the call today, I'm joined by Vince Logue, Teekay's Group CFO. Before we get into our results, I'd again like to take a moment to thank all of our seafarers and shore based staff for their continued and extraordinary dedication to maintain business continuity.
The unprecedented impact of COVID-nineteen continues to be a major area of focus for us. But we have thus far successfully navigated the evolving logistical and regulatory challenges with minimal impact on our operations. We're truly proud and thankful of how our seafarers and onshore colleagues have responded to COVID-nineteen, implementing new standards to ensure the continued health and well-being of everyone involved in our organization, especially our colleagues at sea, while maintaining consistently safe and efficient operations for our customers. Moving to our recent highlights on Slide 3 of the presentation. In the Q2 of 2020, we reported our 3rd consecutive quarterly adjusted profit, recording consolidated adjusted net income of $40,000,000 or $0.39 per share compared to an adjusted net loss of $13,000,000 or $0.13 per share in the same period of the prior year.
We also generated total adjusted EBITDA of $316,000,000 an increase of $119,000,000 or 61% from the same period of last year. Our strong results in the Q2 can be attributed to solid earnings in each of our main businesses. Teekay LNG reported another quarterly record high in adjusted net income and total adjusted EBITDA. Teekay Tankers experienced another quarter of strong spot tanker rates and our directly owned FPSO operating results improved as a result of the new bareboat charter contract secured in late March on the Foinaven FPSO, which eliminated our exposure to the previous loss making contract. Looking ahead quarter, we expect Teekay LNG will continue earning stable cash flows as a result of its LNG fleet being fully fixed through the rest of 2020.
At Teekay Tankers, the spot tanker market has come under pressure since mid May following 3 quarters of strong spot tanker rates. The near term outlook for the tanker market is uncertain at this point and to some degree linked to the global oil production and demand, which presently is about 10% lower than the average demand in 2019. In our tanker business, we continue to follow the prudent path that we laid out at our Investor Day last November, and we're pleased to have significantly reduced our effective free cash flow breakevens and near term spot exposure by locking in 23% of the tanker fleet on fixed rate contracts at attractive rates and we are encouraged by fleet supply fundamentals which are favorable relative to prior market cycles. Finally, we have now commenced the wind down of the second of our 3 FPSOs, which are no longer core business. The Banff FPSO ceased production on its field in June 2020, and we have commenced the various decommissioning and subsea remediation procedures on the field, which I'll touch on in more detail on the next slide.
We continue to utilize these improved cash flows to further strengthen our financial foundation, which is one of our strategic priorities. Over the past year, we have reduced our consolidated net debt by $887,000,000 or 20%, which creates significant equity value throughout the group. We have also increased our total consolidated liquidity to approximately $940,000,000 as of June 30, which provides financial strength and flexibility. Lastly, we have also secured bank commitments for new equity margin revolver of up to $150,000,000 to refinance Teekay Corporation's existing revolver that is currently undrawn and matures in December 2020 at substantially similar terms. We continue to further simplify our structure with the refinancing of Teekay Tankers for Suezmax Tankers this month.
We have eliminated all our remaining guarantees of daughter company debt, which stood at over $225,000,000 just 2 years ago. And as announced in May, we eliminated the incentive distribution rights or IDRs we held in Teekay LNG in exchange for 10,750,000 TDP common units. Lastly, and most importantly, the health and safety of our crew and shore staff is paramount for the Teekay Group. We have implemented strict measures on all of our vessels to protect our seafarers, while the vast majority of our shore staff are working remotely from home. As a result of the pandemic, the overall maritime industry has experienced significant challenges related to crew changes, but I'm pleased to report that we have managed to at least do a partial refresh of our crews on effectively all of our vessels and our teams are focused on minimizing the number of crews that are overdue.
We'll continue to work hard with both the industry and intergovernmental organizations to tackle this challenge and bring our remaining overdue colleagues home safely as soon as possible. I'm truly proud of how our seafarers and on shore colleagues have responded to ensure safe and successful transitions with no reported COVID-nineteen cases while providing uninterrupted service to our customers. Turning to Slide 4, we continue with the wind down of our FPSO segment as we discussed at our Investor Day in November. In late March, we secured a new up to 10 year bareboat contract on the Foinaven that effectively covers the remaining life and the eventual green cycling of the unit. We received $67,000,000 of cash pursuant to this new contract in April.
In addition, we'll receive a nominal per day fee for the contract life that effectively covers any ancillary costs and a lump sum payment at the end of the contract term that is expected to cover any cleanup and green recycling costs of the unit. Importantly, this new contract eliminates our operational exposure to the previous loss making contract. The Banff ceased production on its field in June and is expected to come off the existing field during the Q3 of 2020 with green recycling of the unit expected to be completed by the end of the year. The bands has a unique contract structure where Teekay is also responsible for part of the remediation of the subsea infrastructure. We've been accruing for these costs on our balance sheet with a current net asset retirement obligation or ARO of $44,000,000 which is net of an $8,000,000 receivable balance that is to be funded by the customer.
Roughly half of this net ARO is expected to be incurred in 2020 with the remaining to be carried out in the summer of 2021 as part of a 2 phased subsea remediation process. In addition to the ARO costs, we are also expecting to continue to incur certain operating costs associated with the decommissioning of the FPSO and FSO units, most of which we expect will be incurred in the Q3 of 2020, coinciding with when we expect the unit to leave the Banff field. Lastly, the Hummingbird FPSO, which just completed a planned customer funded shutdown for maintenance, continues to operate on its fixed rate contract and is currently producing approximately 7,000 barrels per day. Over the next two slides, I'll briefly touch on the results and highlights of our daughter companies. I would encourage you to listen to their respective earnings conference calls for more details following this call.
On Slide 5, we have summarized Teekay LNG's recent results and highlights. Teekay LNG Partners reported another record high adjusted net income and total adjusted EBITDA during the quarter, generating total adjusted EBITDA of $192,000,000 and adjusted net income of $63,000,000 or $0.67 per unit, up significantly compared to the same period of prior year as a result of a complete quarter contribution in Q2 from its fully delivered growth program. Q2 also marked the 8th consecutive quarterly increase in total adjusted EBITDA. TDP's LNG fleet is 100% fixed for the remainder of 2020 94% fixed in 2021. TDP's average daily fixed charter rate in 2020 is expected to be above $80,500 per day, which compares very favorably compared to the weak current LNG spot market.
To be clear, this $80,500 per day figure is the rate earned on a 100% utilization basis because of the time charter nature of the employment. In addition, TDP has also reaffirmed its 2020 adjusted EBITDA and adjusted net income guidance. Lastly, TDP continues to further delever its balance sheet and make steady progress towards achieving its target leverage range of 4.5 times to 5.5 times on a net debt to total adjusted EBITDA basis. In May, TGP repaid its NOK bond maturity with existing cash. And on a second quarter annualized basis, TGP ended up at 5.9 times on a net debt to total adjusted EBITDA basis, which includes proportionate share of its underlying joint ventures, which is significantly improved from 7.2 times in 2019.
With a strengthening financial foundation and deleveraging that is expected to provide financial flexibility, market leading positions and a very compelling valuation at a 4.5 times PE ratio based on the midpoint of TDP's 2020 EPU guidance, we believe that TDP has significant long time value potential, which benefits Teekay as the largest common unit holder. For every 10% increase in TGP's unit price, Teekay's equity increase interest would increase by $0.45 per Teekay share or 16% based on yesterday's closing price of $2.74 per share. Please see the appendix to this presentation for more details. Turning to Slide 6, Teekay Tankers reported its 3rd consecutive quarter of strong earnings and cash flows. In Q2, T and K generated total adjusted EBITDA of $124,000,000 up from $36,000,000 in the same period of the prior year and adjusted net income of $81,000,000 or $2.39 per share in the 2nd quarter, a significant improvement from an adjusted net loss of $12,000,000 or $0.36 per share in the same period of the prior year.
TNK has transformed its balance sheet bringing its net debt down to $549,000,000 a decrease of over $180,000,000 or 25 percent in the 2nd quarter alone and increased its total liquidity to $468,000,000 as of June 30. Over the past three quarters, TNK has reduced its net debt by $448,000,000 or 45%. In addition, as mentioned in my opening remarks, TNK has secured a new $67,000,000 debt financing secured by 4 Suezmax tankers to refinance a debt facility maturing in 2021, which eliminated the last remaining daughter company debt guaranteed by Teekay Corp. TNK now has no debt maturities until 2023. Since reporting in May, TNK has delivered 9 vessels onto previously announced time charter contracts, bringing its total number of fixed vessels to 13 or a total of 23% of the fleet.
These fixed contracts log in rates at attractive levels and reduce its spot fleet's free cash flow breakeven to $12,700 per day through mid-twenty 21, which means the company is expected to earn positive free cash flow in almost any tanker market. With a low free cash flow breakeven as a result of recent well timed fixed rate charter contracts, a strong liquidity position, low balance sheet leverage and no debt maturities until 2023, we believe that Teekay Tankers is financially well positioned for any near term volatility in the tanker market. The near term prospects in the crude tanker market are currently unclear, but we take comfort from the fact that the order book has remained well below levels seen in earlier recoveries limiting vessel supply growth over the next 2 to 3 years. Lastly, for every 10% increase in TNK's unit price, Teekay's equity interest would increase by $0.15 per Teekay share or 5% based on yesterday's closing price of $2.74 per share. In summary, for every 10% increase in TDP and TNK's share prices, Teekay's equity interest would increase by $0.60 per Teekay share or 22% based on yesterday's closing price of $2.74
per share. Please see the appendix to this presentation for more details. I'll now turn the call over to Vince. Thanks, Kenneth. Turning to Slide 7.
Over the past year, we have significantly strengthened our financial foundation. This includes delevering our balance sheet, increasing our cash flows and improving our profitability. We have reduced our consolidated net debt to $3,500,000,000 at the end of June, a decrease of $887,000,000 or 20%. We reduced our consolidated net debt to cap from 62% to 57% and increased our total consolidated liquidity to approximately $940,000,000 compared to $644,000,000 a year ago. On the last 12 months or LTM basis, our total adjusted EBITDA was $1,180,000,000 an increase of $298,000,000 or 34% from the same period of the prior year.
This included consolidated G and A savings of $10,000,000 or 11%. We have also significantly improved our profitability as we recorded consolidated adjusted net income of $72,000,000 or $0.71 per share compared to an adjusted net loss of $40,000,000 or $0.39 per share in the period in the prior period. Our LTM Q222 twenty twenty adjusted earnings per share of $0.71 translates to a PE ratio of only 3.9x based on Teekay's closing share price of yesterday. Looking ahead, as usual, we have provided some guidance on next quarter's results in the appendix to this presentation. Compared to the strong results in the Q2, we expect the Q3's results to be lower as a result of seasonally lower spot tanker rates, but also due to some temporary factors such as the decommissioning costs on the Banff FPSO and a much heavier than normal level of scheduled dry dockings in Q3, the latter of which was strategically timed with the expected seasonally weaker Q3 spot tanker rates.
However, we would expect our earnings and cash flows to become more normalized in the 4th quarter with significantly lower decommissioning costs on the Banff FPSO, a much lighter drydocking schedule and the potential for some tanker rate spikes to occur in the winter months. With that, I will now turn the call back over to Kenneth for his closing comments.
Thanks, Vince. In closing, the full effects of the COVID pandemic on the global economy remain unknown. However, over the last year, Teekay Corp, Teekay LNG and Teekay Tankers have each strengthened their financial positions and made significant progress insulating each of the businesses from possible market volatility and positioning the Teekay Group to create long term shareholder value. With that, operator, we are now available to take questions.
Thank you. Our first question will come from Jay Nitzmayer with Value Investors Edge.
Hi, good morning gentlemen. Thanks for taking my calls and congrats on strong daughter company performance.
Good morning, Jake. Thanks, Jay.
Thanks. As Teekay Corp. Continues its transition, right, we've done the GPIDR buyout. It's basically just a holding company with daughter shares and 2 FPSOs on their way out, right? We saw some slides on that in the presentation.
Along those notes, we asked last quarter, but just to check up again, what is the G and A that's not reimbursed? Like what is the core parent G and A? And how can we consider that on an annual basis? I realize it fluctuates quarter to quarter, but what is sort of the only the parent company overhead that we still have to deal with?
Hi, Jay. This is Vince. Yes, the Q2 G and A at the parent was higher than normal because of some one time factors. We had some fees related to the IDR transaction that was completed in May. And we also had stock based grants that were issued in June.
So if you look at the first half G and A for the parent on a more normalized basis, excluding those items. We're looking at about probably around $5,000,000 But we also had other income that offset that total of about $5,500,000 for the first half. So looking at the So if So if I normalize that on a full year basis, I would expect our net G and A for the full year would be about $6,000,000 to $7,000,000 on a net basis. That's sort of the run rate.
Okay. Thanks, Samantha. That's very helpful. So $6,000,000 to $7,000,000 annualized. And is that reasonable to say that would be going forward for 2021 and beyond?
Or is that a little bit elevated because of the FPSOs?
No, the G and A related to the FPSOs is separate in the FPSO line item. So the $6,000,000 to $7,000,000 is good in terms of the corporate level.
Okay. Thanks, Vince. Turning to the FPSOs, you talked about the BAMF. It has a $44,000,000 asset retirement obligation that's been disclosed for a while. I realize kind of already accounted for that in the income statement.
The first part of that is how does that impact your cash balances? How much of that is already kind of reserved in separate accounts? And how much of that would pull directly from Teekay Parent's cash balance? And then the second part of that is, of course, you noted there might be some additional OpEx and recycling fees associated. What do you anticipate that net costs to be for the recycling?
I understand green recycling is a little more expensive in addition that $44,000,000 So how much above that $44,000,000 are we going to go?
Yes. First of all, we have a fairly strong liquidity position at the parent. It's about $170,000,000 as of June 30. And when we complete the refinancing of the existing revolver, that should go up to close to 200,000,000 dollars So we have a good strong liquidity position at the parent. As you mentioned, the net ARO or asset retirement obligation at June 30 was about $44,000,000 We expect roughly half of that to be incurred in this year and then the second and then the rest of it in the summer of 2021.
In terms of other operating expenses, we're estimating that to be roughly about $20,000,000 on top of that in the Q3. And that's mainly related to the decommissioning of the FPSO and the FSO unit. We might then looking at the Q4, in terms of recycling costs, we don't have a good number yet on that. We're still getting some estimates and scoping out what's required for that. That's likely to be incurred in the Q4.
I would expect it to be probably in the sort of a few $1,000,000 or so.
Okay. We'll have to check-in next quarter and see where that goes. Along those lines, you have a very sufficient liquidity balance as you mentioned, you got the revolver rolled. You have a very high cost of debt remaining on the company outside of that revolver, right? You have the 9.25% secured bonds and you also have a convertible bond that's only 5%, but it trades on the open market at about a 13% yield to maturity.
I mean, this is at a time where the majority of even your shipping peers, even the higher risk peers are borrowing from banks at 4% to 5% to 6%. So definitely some outliers here. Are there any sort of avenues you can take in 2020 to maybe refinance some of this debt or start to chip away at it? Or is that something we need to wait until next year to address?
Yes. As you know, in the past few years, we have been chipping away at that and reduced our expensive debt considerably over the past few years. And that continues to be our goal. We recognize that we need to reduce our cost of capital over the long term. And so that is our goal.
We have the maturity on these securities starting to mature in late 2022 early 2023. So we have some time to address that. And in the meantime, we are continuing to increase our free cash flows to build asset coverage with the daughter equities. And as part of that, we want to improve the cost of capital and credit profile of the parent along with the daughter companies.
All right. Thanks for taking my questions and we'll check-in next quarter with you.
Thanks.
Thank you. Our next question will come from Sandy Burns with Stifel.
Hi, good morning everyone. Maybe just to follow-up on the previous question about the debt obligations at the parent. If you could just talk big picture, is your goal for the parent to be a debt free type entity or by monetizing some of the asset value you have in the company? Or do you see yourself still having some debt obligations up there, which would more come about through a refinancing of the bonds and convert at some point down the road?
It's kind of it's obviously a stated target for us to reduce our debt upstairs. I don't think we have a stated target per se of reducing it to 0. I think what we are as we touched on the previous questions, what we're focused on right now is that with the significant and growing asset coverage that we have, how do we make sure that we bring down both the overall debt, but also very importantly the overall debt cost. So I think a company we're definitely looking forward to have that flexibility where we have more investment flexibility and that's what we've been very focused on over the past 3 years to recreate at Teekay. So that doesn't mean that we don't carry any debt at all, but it means that we basically have the flexibility to also allocate capital to create long term value and that of course from time to time would mean that we would carry some debt.
Okay. And just one last one for me. The revolver, good news that you were able to extend that for 2 years. When the time comes for the potential refinancing of debt at the parent, are you allowed to borrow under the revolver and use those proceeds to refinance the current debt obligations? Or is that only for general corporate purposes like the decommissioning costs and other expenses that arise?
We're allowed to use those funds so we can draw on the revolver for refinancing purposes as well. As you know right now that entire revolver is undrawn and we're sitting on about $70,000,000 of cash. So we don't really need to draw on the revolver in the near term, but it is available for other reasons.
Thank you. That concludes today's question and answer session. At this time, I will turn the conference back over to the company for any additional or closing remarks.
Well, thanks for joining us today. And again, please join us for our calls in Teekay Tankers and Teekay LNG. We look forward to reporting back to you next quarter. Thank you.