Altera Infrastructure Reports Second Quarter 2020 Results

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(Image Courtesy: Altera Infrastructure)

Highlights

  • Revenues of $304 million and a net loss of $16 million, or $0.06 per common unit, in the second quarter of 2020
  • Net loss of $16 million impacted by $15 million of realized and unrealized loss on derivatives and an impairment charge of $11 million relating mainly to the Dampier Spirit FSO
  • Adjusted EBITDA(1) of $143 million in the second quarter of 2020
  • Adjusted net loss attributable to the partners and preferred unitholders(1) of $18 million (excluding items listed in Appendix B to this release)
  • Signed a 5-year CoA contract for shuttle tanker operations on the Kraken field in the UK North Sea
  • Extended the Knarr FPSO financing to June 2023

Altera Infrastructure GP LLC (Altera GP), the general partner of Altera Infrastructure L.P. (Altera or the Partnership), on Thursday reported the Partnership’s results for the quarter ended June 30, 2020.

Second Quarter of 2020 Compared to Second Quarter of 2019

Revenues were $304 million in the second quarter of 2020, a decrease of $16 million compared to $320 million in the same quarter of the prior year. This was primarily due to a $13 million decrease related to the termination of the Varg FPSO contract during the second quarter of 2019, a $10 million decrease due to lower utilization in the towage fleet, a $7 million decrease primarily due to an expected earlier end of contract for the Dampier Spirit FSO, a $4 million decrease from one shuttle tanker deemed off-hire by the customer during the quarter and a $4 million decrease due to temporarily lower uptime on the Petrojarl I FPSO. These unfavorable impacts were partly offset by increased revenue for the Foinaven FPSO of $18 million reflecting the first full quarter of operations under the new BP contract.

Net loss in the second quarter of 2020 was $16 million, compared to a net loss of $28 million in the same quarter of the prior year. The decrease in loss of $12 million was mainly due to a $25 million decrease in losses on derivatives, a $12 million decrease in depreciation and a $4 million decrease in net interest expense. These favorable variances were partly offset by increased write-downs and lower gain on sales with an impact of $24 million and the $16 million decrease in Adjusted EBITDA described below.

Non-GAAP Adjusted EBITDA was $143 million in the second quarter of 2020, a decrease of $16 million compared to $159 million in the same quarter of the prior year. The decrease is primarily related to an expected earlier end of contract for the Dampier FSO with a negative impact of $11 million and a $4 million decrease due to temporarily lower uptime and lower oil price tariff revenues on the Petrojarl I FPSO.

Non-GAAP Adjusted Net Loss was $18 million in the second quarter of 2020, representing a decrease of $23 million compared to Non-GAAP Adjusted Net Gain of $5 million in the same quarter of the prior year. This was mainly due to a $22 million increase in realized losses on interest rate swaps and a decrease in Non-GAAP Adjusted EBITDA of $16 million as described above, partly offset by a $12 million decrease in depreciation.

Second Quarter of 2020 Compared to First Quarter of 2020

Revenues were $304 million in the second quarter of 2020, a decrease of $8 million compared to $312 million in first quarter of 2020. This was mainly due to a $12 million decrease in revenue from the shuttle tanker segment reflecting strong utilization in the first quarter and one shuttle tanker deemed off-hire by the customer in the second quarter, a $7 million decrease due to an expected earlier end of contract for the Dampier Spirit FSO, a $6 million decrease due to temporarily lower uptime for the Petrojarl I FPSO and a $4 million decrease due to lower utilization of the towage fleet. The unfavorable variances are partly offset by increased revenue for the Foinaven FPSO of $18 million reflecting a full quarter of operations under the BP contract.

Net loss was $16 million in the second quarter of 2020, a decrease of $237 million, compared to the prior quarter, mainly due to a net decrease of $144 million in write-down and gain on sale of vessels and a $96 million decrease in unrealized fair value losses relating to derivative instruments.

Non-GAAP Adjusted EBITDA was $143 million in the second quarter of 2020, a decrease of $11 million compared to the prior quarter, mainly due to the expected earlier end of contract for the Dampier Spirit FSO.

Non-GAAP Adjusted Net Loss was $18 million in the second quarter of 2020, a decrease of $27 million compared to the prior quarter, mainly due to $20 million of increased realized losses on interest rate swaps and the $11 million decrease in Non-GAAP Adjusted EBITDA described above, partly offset by $2 million in lower depreciation.

Summary of Recent Events

Contracts

Trion Pre-FEED

In June 2020, the Partnership entered into an agreement with BHP to undertake a paid competitive concept study for a newbuild FSO for the Trion field in the Mexican Gulf. The FEED is expected to be awarded around the first quarter of 2021. First oil for the Trion field is expected around 2025.

Randgrid FSO contract extension

In June 2020, Equinor ASA (or Equinor) exercised the first of twelve one-year options to extend the time-charter contract for the Randgrid FSO one year until at least October 2021.

Kraken Field CoA Contract

In June 2020, EnQuest PLC awarded the Partnership a 5-year contract of affreightment (CoA) for the Kraken field in the UK North Sea. The vessel requirement is equivalent to half a shuttle tanker.

Dorado Pre-FEED

In May 2020, the Partnership entered into a partly paid, competitive pre-FEED with Santos for an FPSO for the Dorado field.

Rosebank Pre-FEED

In April 2020, the Partnership entered into a partly paid agreement with Equinor to undertake a concept study for the potential redeployment of the Petrojarl Knarr FPSO on the Rosebank field, West of Shetlands, UK. The study is expected to be completed in August 2020.

Navion Stavanger contract extension

In April 2020, the Partnership entered into an amendment with Petróleo Brasileiro S.A. to extend the bareboat charter contract for the shuttle tanker Navion Stavanger by 18 months, until late-2021.

Navion Anglia contract

In April 2020, the Partnership entered into a new four-month time-charter contract with Suncor Energy Inc. for the Navion Anglia shuttle tanker, which charter commenced in May 2020, and pursuant to which the vessel is expected to primarily be used for storage.

Voyageur Spirit contract

The Voyageur Spirit FPSO completed its final commercial offloading with Premier Oil at the Huntington UK field at the end of June 2020 and is in the process of being decommissioned.

Sale of Vessel

In May 2020, the Partnership sold the HiLoad DP unit for green recycling and recorded a net loss of $1 million on the sale.

Financings

In August 2020, the Partnership agreed to amend the existing credit agreement for an unsecured revolving credit facility provided by Brookfield to increase the available amount by $75 million to $200 million and extend the maturity date from October 1, 2020 to October 31, 2024. The amendment, which was approved by the independent Conflicts Committee of our general partner’s Board of Directors, is subject to completion of customary documentation, expected to be completed in August 2020.

In June 2020, the Partnership extended the $40 million commercial tranche related to the financing of the Knarr FPSO until June 2023. This extension was a condition for the $390 million ECA tranche not to mature in June 2020. The related interest rate swap portfolio was also extended, until June 2022. In relation to the extensions, certain deposit arrangements and reductions in negative mark-to-market values of the interest rate swaps were agreed with the lenders.

Delivery of Shuttle Tanker Newbuilding

In July 2020, the Partnership took delivery of the third LNG-fueled Suezmax DP2 shuttle tanker newbuilding, the Tide Spirit. The vessel is constructed based on the Partnership’s E-shuttle design, which incorporates technologies intended to increase fuel efficiency and reduce emissions, using LNG fuel and recovered volatile organic compounds (VOCs) as a secondary fuel, as well as battery packs for flexible power distribution and blackout prevention. The Tide Spirit is expected to commence operations in October 2020.

The shuttle tanker newbuildings delivered in the first quarter, the Aurora Spirit and Rainbow Spirit successfully commenced operations under an existing master agreement with Equinor in the North Sea during April 2020 and May 2020, respectively.

The remaining three E-Shuttle newbuildings are expected to be delivered between August 2020 and January 2021, while the East Coast of Canada newbuilding is expected to deliver early-2022.

Changes to Board of Directors and Committees

Effective June 17, 2020, Kenneth Hvid, CEO of Teekay Corporation retired from his position as Director of the Altera GP’s Board of Directors and committees.

COVID-19

In the second quarter of 2020 the Partnership did not experience any material business interruptions or financial impact as a result of the COVID-19 pandemic. The Partnership continues to focus on the safety of its operations and has proactive measures in place to protect the health and safety of its crews on its vessels as well as at onshore locations. A majority of the Partnership’s revenues are secured under medium term contracts that should not be materially affected by the short-term volatility in oil prices. The operational environment continues to be challenging and the Partnership’s results of operation may be adversely affected under a prolonged pandemic. The Partnership is continuing to closely monitor counterparty risk associated with its vessels under contract and has measures in place to mitigate potential impacts on the business.

The extent to which COVID-19 may impact the Partnership’s results of operations and financial condition, including any possible impairments, will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the virus and the actions to contain or treat its impact, among others. Accordingly, an estimate of the future impact cannot be made at this time

Økokrim Investigation

In January 2020, Økokrim (the Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime) and the local Stavanger police raided Teekay Shipping Norway AS’ premises, based on a search warrant related to suspected violations of pollution and export laws in connection with the export of the Navion Britannia shuttle tanker from the Norwegian Continental Shelf in March 2018 and the sale of the vessel for recycling in Alang, India in June 2018. Having reviewed relevant materials together with its advisors, the Partnership continues to believe it acted in accordance with the relevant rules and regulations and denies the alleged violations. The Partnership is continuing to cooperate with authorities in respect of this matter. There are no updates on this case in the second quarter of 2020.

Disputes

In May 2020, the Partnership was informed that the customer is claiming the shuttle tanker Bossa Nova was off-hire from the end of March 2020 until the vessel was back on rate starting in early July, due to certain specification issues. Contractual discussions relating to the disputed off-hire period of 100 days are ongoing.

In June 2020, the Partnership was informed that the customer is disputing certain invoiced amounts related to the day rates applied for the decommissioning of the Voyageur FPSO. Contractual discussions for the relevant periods are ongoing.

In July 2020, an English court ruled in the Partnership’s favor in a contract dispute related to the Voyageur FPSO, and awarded to the Partnership its full claim of $12 million and contractual interest. The ruling may be appealed.

Liquidity Update

As of June 30, 2020, the Partnership had total liquidity of $241 million, a decrease of $38 million compared to March 31, 2020. The decrease in total liquidity was primarily due to a deposit made in connection with the refinancing of the Partnership’s term loan on the Knarr FPSO, and scheduled debt amortizations.

The Partnership continues to progress strategic plans to enhance the overall liquidity of the business. The Partnership is focused on managing discretionary spending as well as limiting planned capital expenditures to the committed shuttle tanker newbuilding program and mandatory vessel dry-dockings.

Sea News, August 7

Baibhav Mishra
Author: Baibhav Mishra