Altera Infrastructure GP LLC (Altera GP), the general partner of Altera Infrastructure L.P. (Altera or the Partnership), reported the Partnership’s results for the quarter ended March 31, 2020.
First Quarter of 2020 Compared to First Quarter of 2019
Revenues were $312 million in the first quarter of 2020, a decrease of $25 million compared to $337 million in the same quarter of the prior year, primarily due to a decrease of $15 million resulting from the amortization of non-cash deferred revenue relating to the Piranema FPSO unit during the first quarter of 2019, an $11 million decrease due to lower utilization in the towage fleet and a $7 million decrease due to the completion of the Ostras FPSO charter contract in March 2019, partially offset by a $13 million increase in revenues in the shuttle tanker fleet due to an increase in contract of affreightment (CoA) days and spot-tanker rates.
Net loss in the first quarter of 2020 was $254 million, compared to a net loss of $3 million in the same quarter of the prior year. In addition to the $25 million decrease in revenues described above, there was a $156 million write-down of vessels recorded during the first quarter of 2020, a $67 million increase in unrealized fair value losses relating to derivative instruments and an $11 million increase in operating and administrative expenses partially offset by an $11 million decrease in depreciation and amortization expense due to write-downs and the sale of certain vessels in previous quarters.
Non-GAAP Adjusted EBITDA was $154 million in the first quarter of 2020, a decrease of $34 million compared to $188 million in the same quarter of the prior year. The decrease is primarily due to lower revenues from the FPSO and towage fleets and the increase in operating and administrative expenses described above.
Non-GAAP Adjusted Net Income was $10 million in the first quarter of 2020, representing a decrease of $20 million compared to $30 million in the same quarter of the prior year. This was mainly due to the $34 million decrease in Non-GAAP Adjusted EBITDA, partially offset by an $11 million decrease in depreciation and amortization expense described above and a $4 million decrease in interest expense.
First Quarter of 2020 Compared to Fourth Quarter of 2019
Revenues of $312 million in the first quarter of 2020 was consistent with the fourth quarter of 2019.
Net loss decreased by $32 million, to $254 million, compared to the prior quarter, mainly due to a decrease in the write-down of vessels of $187 million and a $6 million decrease in depreciation and amortization expense, partially offset by a $128 million increase in unrealized fair value losses relating to derivative instruments, the $13 million maintenance bonus recognized during the fourth quarter of 2019 relating to the Pioneiro de Libra equity-accounted FPSO unit, a $12 million increase in foreign currency exchange losses and an $8 million increase in income tax expense.
Non-GAAP Adjusted EBITDA was $154 million in the first quarter of 2020, representing a decrease of $13 million compared to the prior quarter, mainly due to the $13 million maintenance bonus in the fourth quarter of 2019 described above and lower earnings in the towage fleet during the first quarter of 2020, partially offset by lower administrative expenses.
Non-GAAP Adjusted Net Income was $10 million in the first quarter of 2020, a decrease of $10 million compared to the prior quarter mainly due to the decrease in Non-GAAP Adjusted EBITDA described above and a $2 million increase in current income tax expense, partially offset by a $6 million decrease in depreciation and amortization expense mainly due to the write-down of certain vessels in the prior quarter.
Please refer to “Operating Results” for additional information on variances by segment and Appendices A and B for reconciliations between GAAP net loss and Non-GAAP Adjusted EBITDA and Adjusted Net Income, respectively.
Summary of Recent Events
Petrojarl Knarr contract extension
In March 2020, the Partnership entered into a contract amendment with AS Norske Shell, as operator for and on behalf of the Knarr field license partners (the “Operator”), that extends the contract for the lease and operation of the Petrojarl Knarr FPSO unit until at least March 2022.
The amendment reduces the day rate from March 2021 to March 2022 and eliminated the fee payable by the Operator if the contract was not extended, in return for the inclusion of an additional production volume and oil price related tariff. The amendment also terminated the Operator’s purchase option for the FPSO unit and provides for a mutual right to terminate the contract on six months’ notice without payment of a penalty, with such termination not to be effective before March 2022.
Petrojarl Foinaven operations contract
In March 2020, the Partnership entered into a seven-year agreement with Britoil Ltd., a subsidiary of BP p.l.c., to directly provide the operations for the Petrojarl Foinaven FPSO unit, that Britoil Ltd. has leased on a long term bareboat contract from Teekay Corporation, to whom the Partnership previously provided similar services. As part of the arrangement with Britoil Ltd, the Partnership also entered into two shuttle tanker contracts of affreightment replacing two existing shuttle tanker time-charter contracts.
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 is expected to commence in early-May 2020. The vessel is currently operating under a time-charter contract off the East Coast of Canada.
Voyageur Spirit contract
The Voyageur Spirit FPSO contract with Premier Oil on the Huntington field in the UK expired in April 2020. The unit is currently being decommissioned and is expected to be redelivered to the Partnership in June 2020.
Delivery of Shuttle Tanker Newbuildings
In January and February 2020, the Partnership took delivery of its first two LNG-fueled Aframax shuttle tanker newbuildings, the Aurora Spirit and the Rainbow Spirit. The vessels were 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 Aurora Spirit commenced operations under an existing master agreement with Equinor ASA (or Equinor) in the North Sea during April 2020. The Rainbow Spirit is expected to commence operations under the same master agreement in May 2020.
Effective March 24, 2020, Teekay Offshore Partners L.P. changed its name to Altera Infrastructure L.P. and the group of entities comprising the Partnership’s affiliates and subsidiaries was rebranded as Altera Infrastructure. The Partnership’s preferred equity units, which previously traded on the New York Stock Exchange (“NYSE”) under the ticker symbols “TOO PR A”, “TOO PR B” and “TOO PR E”, now trade on the NYSE under the new ticker symbols “ALIN PR A”, “ALIN PR B” and “ALIN PR E” respectively.
Completion of Brookfield Acquisition by Merger
On January 22, 2020, Brookfield Business Partners L.P., together with certain of its affiliates and institutional partners (collectively, Brookfield), completed its acquisition by merger of all of the outstanding publicly held and listed common units representing limited partner interests of the Partnership (common units) held by parties other than Brookfield pursuant to the agreement and plan of merger among the Partnership, Altera GP and certain members of Brookfield.
Changes to Board of Directors and Committees
During the first quarter of 2020, the Partnership announced the following changes to the Altera GP's Board of Directors and Committees:
- David L. Lemmon, Director and member of the Audit, Compensation and Conflicts Committees, retired from his positions effective January 23, 2020. Mr. Lemmon was replaced on the Audit Committee by Bill Utt;
- Kenneth Hvid, Director and CEO of Teekay Corporation, will retire from his position as Director, effective June 17, 2020;
- Nelson Silva joined the Altera GP Board in March 2020 and was appointed as a member of its Audit and Conflicts Committees;
- Existing directors Jim Reid and Gregory Morrison were appointed as members of the Altera GP Board’s Corporate Governance Committee; and
- The Altera GP Board eliminated its Compensation Committee
In the first 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 introduced a number of proactive measures 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 Partnership is continuing to closely monitor counterparty risk associated with its vessels under contract and will work to mitigate any potential impact on the business.
The Partnership is progressing strategic plans to enhance the overall liquidity of the business. The Partnership is focused on managing discretionary spending as well as limit planned capital expenditures to the committed shuttle tanker newbuilding program and mandatory vessel dry-dockings. The Partnership is also reviewing and adjusting its offshore and onshore workforce in order to optimize the cost structure.
In January 2020, Okokrim (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. The Partnership has not identified such violations but continues to evaluate any potential liabilities together with advisors.
As of March 31, 2020, the Partnership had total liquidity of $279 million, including $75 million undrawn on a revolving credit facility, a decrease of $25 million compared to December 31, 2019. The decrease in total liquidity was primarily due to payments made relating to the Partnership's delivery of its two newbuilding shuttle tankers during the first quarter of 2020. In addition to the cost reduction initiatives outlined above, the Partnership is actively taking steps to further preserve cash and its financial flexibility. This includes focus on completion of refinancing initiatives in progress and capturing opportunities from a strong oil tanker and oil storage market.
The commentary below compares certain results of the Partnership's operating segments (including the non-GAAP measure of Adjusted EBITDA) for the three months ended March 31, 2020 to the same period of the prior year, unless otherwise noted.