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Teekay Corporation. (NYSE:TK)

Q4 2011 Earnings Call

February 23, 2012 11:00 a.m. ET

Executives

David Drummond -- Investor Relations

Peter Evensen -- President and Chief Executive Officer

Vince Lok -- Chief Financial Officer and Executive Vice President

Analysts

Justin Yagerman -- Deutsche Bank

Michael Webber -- Wells Fargo

Gregory Lewis -- Credit Suisse

Justine Fisher -- Goldman Sachs

John Fusek – GCA

Operator

Welcome to the Teekay Corporation’s Fourth Quarter and Fiscal 2011 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. (Operator Instructions) As a reminder, this call is being recorded.

Now, for opening remarks and introductions, I would like to turn the call over to Mr. Peter Evensen, Teekay’s President and Chief Executive Officer. Please go ahead, sir.

David Drummond

Before Mr. Evensen begins, I would like to direct all participants to our website, at www.teekay.com, where you will find a copy of the fourth quarter and fiscal 2011 earnings presentation. Mr. Evensen and Mr. Lok 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 fourth quarter and fiscal 2011 earnings release and earnings presentation, available on our website.

I will now turn the call over to Mr. Evensen to begin.

Peter Evensen

Thank you, Dave. Good morning, everyone, and thank you for joining us for Teekay Corporation’s fourth quarter and fiscal 2011 earnings call. I’m joined this morning by our CFO, Vince Lok; and for the Q&A session, we also have our Group Controller, Brian Fortier, and our Chief Strategy Officer, Kenneth Hvid.

During our call today, I’ll be walking through our fourth quarter and fiscal year 2011 earnings presentation, which can be found on our newly redesigned website, at www.teekay.com. Beginning on slide three of the presentation, I will briefly review some recent highlights for Teekay Corporation and our publicly traded three daughter companies.

Our investments in fixed-rate businesses and efforts to improve profitability in our existing fleet are showing progress. For the fourth quarter of 2011, Teekay Corporation generated a consolidated $190 million of cash flow from vessel operations, or CFVO, an increase of approximately 21% from fourth quarter of 2010. I’m also pleased to report that after 10 consecutive quarters of reported adjusted net losses, for the fourth quarter of 2011, Teekay Corporation is reporting a profit, albeit a modest one. On a consolidated basis, we reported adjusted net income of $1.6 million or $0.02 per share compared to a consolidated net loss of $0.58 per share in the third quarter.

I caution everyone that our reported adjusted net income for the fourth quarter should not be considered a run rate as our positive contributions that we receive under fixed-rate contract in the fourth quarter that make it atypical compared to the other three quarters. A large contributor to our fourth quarter results was the $35 million of additional cash flow we received based on certain annual production and oil price revenue components of the Foinaven FPSO contract, which are recognized annually in the fourth quarter.

Although, Foinaven cash flows are expected to return to normal levels in the first quarter, we do expect our average quarterly cash flow to increase in 2012 as a result of the recent impending acquisitions that I’ll talk about. Our transaction with Sevan Marine was completed on November 30th and our fourth quarter results include one month of fixed-rate cash flows from the newly acquired Hummingbird and Piranema FPSOs. I’ll talk more about the Sevan transaction in a few moments.

In the current constrained global financial environment, Teekay’s daughter company structure is proven to be a source of competitive strength. During the fourth quarter and first quarter to-date, we’ve completed equity offerings at each of our daughter companies raising over $450 million of net equity proceeds to finance their growth.

Starting with Teekay LNG Partners, the partnerships acquisition of the Maersk LNG fleet through its joint venture with Marubeni is now fully financed by debt and equity and is expected to close on February 20. For the fourth quarter, Teekay LNG paid a distribution of $0.63 per unit, however, as we announced on the last earnings call, management is recommending a distribution increase of 7% commencing with the first-quarter distribution payable in May to reflect the increase in cash flows resulting from the Maersk LNG acquisition and the Angola and – new building that delivered during the course of 2011 and early 2012.

If approved by the Teekay LNG board, this increase will move the partnership’s quarterly distribution through the 50% incentive distribution right threshold or split making first future distribution increases even more accretive to the general partnership cash flows that Teekay Corporation receives.

In November, Teekay offshore partners completed the accretive acquisition of the Piranema FPSO from Sevan and raised 170 million through an equity private placement to finance the transaction. For the fourth quarter, Teekay offshore paid a distribution of $0.50 per unit. The partnerships distributable cash flow will realize the full benefit for the Piranema acquisition in the first quarter when this FPSO contributes a full quarter of cash flows.

In early February, Teekay tankers completed a public equity offered raising $66 million including the green shoe which was exercised in full which increased Teekay tankers total liquidity to approximately $360 million. Given that 20 to 30% decline in conventional tanker asset values over the past year, Teekay tankers is now well-positioned to make a significant investment in accretive fleet growth.

Teekay tankers continues to tactically manage its fleet in favor of fixed cover and with the recent timecard extension of an additional Aframax tanker, Teekay tanker’s fixed cover is estimated to be 58% for the first quarter and 47% for all of 2012. For the fourth quarter, Teekay tankers declared a dividend of $0.11 per share.

Turning to slide four of the presentation I will review some of our highlights for the fiscal year 2011 using the same three key strategic drivers format we introduced at our October 2010 Investor Day, which we said would guide our value creation in 2011 and beyond. These included a focus on activities that lead to growth and the value of our general partner interest in Teekay offshore and Teekay LNG, investment in higher return fixed rate businesses that can deliver the kind of stable returns necessary to provide accretion and support higher cash flows to the general partner as our MLPs move into the high split and returning capital to shareholders in the form of consistent dividend payments from all of the Teekay group entities and share repurchases at the Teekay parent level.

During 2011, we successfully grew the value of our GP interest through either drop down or direct acquisitions by our MLPs. These transactions all contributed to growth and distributable cash flows at Teekay LNG and Teekay Offshore and indirectly to our GP cash flows.

The dropdowns included Teekay offshore purchase of Teekay Parent’s remaining 49% (ph) and the last two Explorer class shuttle tankers and Teekay LNG purchase of interest in the four Angola LNG carriers and Scougan (ph) multi gas and LPG carriers.

With larger balance sheet, our MLP daughter companies are now able to undertake direct acquisitions and in 2011 we worked on transactions that will provide additional GP cash flow growth over the next few years, including the pending Teekay LNG Marubeni joint acquisition of the Maersk LNG fleet and Teekay Offshore recently completed direct acquisition with the Piranema FPSO and for new building shuttle tankers charted by BG on long-term contract.

We also made substantial investments in higher return opportunities in 2011 that we expect to result in either enhanced cash flows to Teekay Parent or completed projects that we can sell to our daughter companies to enhance our general partnership value. These included our investments for 40% equity interest in Sevan Marine which expands our offshore engineering and solutions offering and provides Teekay Offshore with a new source of potential FPSO growth opportunity.

And our recent and pending purchases of the Hummingbird and Voyageur FPSO’s which will be available for sale to Teekay Offshore at market value under our omnibus agreement once the units are operating under new longer-term contracts. We also continue to invest in organic growth with the notable project being the $1 billion FPSO project in the North Sea.

Finally, we continue to return capital to shareholders in 2011. Since November 2010, we repurchased $5.2 million Teekay Corporation shares at a total cost of $162 million. This represents over 7% of our outstanding share count at the start of November 2010. and although we put our recent share repurchase program on hold in October when we had to direct capital to the sublime transaction and our organic FPSO projects, we still consider share repurchase is to be an important tool in our value creating toolbox when we have excess capital.

We also continue to return capital to shareholders in the form of dividends. During 2011, each of the Teekay Group declared a regular quarterly dividends resulting in a combined payout of approximately $440 million. Each of our MLP subsidiary entities raise their distributions by approximately 5% reflecting the growth in their distributable cash flows as a result of acquisitions that I spoke about a moment ago.

Turning now to slide five, in addition to enhancing our cash flow growth through acquisitions and new projects, we’ve also made significant headway in our operational initiatives to improve the profitability of existing Teekay assets. Starting with our offshore business due to a combination of strong production performance measures and oil price targets, we were able to realize a significant increase in year-over-year revenue on the Foinaven FPSO contract. We also were successful in negotiating improved rates for the Petrojarl I FPSO contract commencing in 2012, which will result in approximately $8 million of additional annualized cash flows until the third quarter of 2014.

We’ve continued to renew contracts and improved rates in our shuttle tanker fleet and we’ve also made progress toward reducing operating expenses in this business. And our liquefied gas business, the robust current demand for spot LNG assets enabled us to employ the Arctic Spirit LNG carrier and recharter the Polar Spirit LNG carrier in 2011 at favorable rates, which will enhance our cash flows and profitability of these asset in 2012.

In our conventional tanker business, we’ve been able to achieve costs savings through slow steaming and other operational cost saving initiatives. We’ve also continued to reduce our time chartered in-tanker fleet, which resulted in savings of over $13 million or 20% to our quarterly time charter higher expense in the fourth quarter of 2011, compared to the same quarter of 2010 -- in 2012, excuse me, end time (ph) chartered in conventional tankers currently operating in our fleet are scheduled for redelivery which will result in further cost savings.

Turning now to slide six. I’m pleased to announce that over the past two months we’ve made significant progress in integrating the Sevan transaction that we first announced in October. Teekay Offshore acquired the Piranema FPSO directly from Sevan for 165 million on November 30th and the unit is continuing its operations in Brazil producing oil for Petrobras. I had the pleasure of going on board the unit a few weeks ago, and it’s definitely impressive and its innovative design has many potential applications apart from just being an FPSO. The Piranema is currently generating CFBO of approximately $23 million, and we hope to increase this to approximately $27 million once we complete certain upgrades to the gas compression unit in the coming months.

This FPSO is now been fully financed by Teekay Offshore as eventual detail. Teekay acquired the Hummingbird FPSO from Sevan for $179 million, and it’s currently operating in the North Sea on a relatively short-term contract that’s generating annual CFBO of $22 million. We’re already discussing subsequent employment possibilities with clients for this unit. The upgrade of the Voyager FPSO which we’re financing is now progressing and we as expected and we will purchase the FPSO once it begins producing oil which is currently expected for early in the fourth quarter of 2012. We expect this FPSO – excuse me – FPSO unit to generate approximately $75 million of CFBO annually upon the commencement of its time chartered contract in the North Sea.

And lastly, we invested $25 million in a recapitalized Sevan Marine which trades on the Oslo’s stock exchange with a new mission. We are confident that their energized staff will be successful in generating revenue through various applications of its proprietary technology. While many investors focus on the significant financial returns from the Sevan transaction, there are also a number of strategic benefits. Teekay is now able to offer both shipshape and cylindrical FPSOs broadening our oil production solutions that we provide to our customers. And the harsh weather FPSO market demands operational excellence with superior quality assets and as a result we see only a handful of competitors who are able to compete for new business in these markets.

Now due in part to the cooperation agreement that’s in place between Teekay and Sevan, we expect the number of competitors bidding on future projects in these harsh weather regions to reduce even further. Importantly, we anticipate that Sevan will serve as another source of accretive FPSO growth for Teekay offshore increasing the value of Teekay’s investments in Teekay Offshore.

And finally, Sevan Marine will continue to generate revenues through engineering and paid fleet studies and potential licensing agreements for its existing and new hauls which should translate into a higher value for our 40% investment in Sevan. On slide seven, we have provided illustrations of the many applications which we believe are possible using Sevan’s cylindrical design thanks in part to its high base load and storage capacity and stability in harsh weather. Sevan has had proven success with the FPSO and drilling unit, and it’s not hard to see how other applications on the slide could one day find similar success.

These applications will continue to be explored by Sevan marine and we are excited by the potential to develop new innovative projects with Teekay in the future.

Turning to slide eight, in the fourth quarter of 2011, we also expanded our fleet of LNG carriers with the acquisition of A.P. Moller-Maersk LNG fleet. Vince will discuss the financing of this transaction which is expected to close on February 28th, 2012. When we first presented this transaction, it was for eight ships including two 26% owned LNG carriers. The majority owners of these two ships had preemption rights that they have since exercised.

As a result, the transaction is now for six 100%-owned LNG carriers and the total purchase price has been reduced to 1.33 billion or 692 million per Teekay LNG’s proportionate share. And while the acquisition is slightly smaller than originally communicated, Teekay LNG’s management still intends to recommend a 7% distribution increased commencing with the first quarter of 2012 to be paid in May of this year which would move Teekay as a general partner into the 50% split. There have also been two positive contract amendments impacting two of the vessels included in this acquisition.

The extension option on the Maersk Meridian was exercised by the charterer Total, extending the fixed-rate contract on this vessel for an additional 18 years. And the Maersk Methane that was previously on charter that was going to expire has been renewed at – for three years at a day-rate of over $130,000. In summary, we anticipate the acquisition of the Maersk fleet will add approximately $40 million to Teekay LNG’s 2012 distributable cash flow upon closing of this transaction next week.

Turning to slide nine, the Sevan and Maersk LNG transactions highlight the significant contributions our offshore and LNG businesses have made toward Teekay’s recent fixed-rate cash flow growth, as shown in the chart on the top of the slide. During the current spot tanker market downturn, the impact of these businesses has been even more evident as a result of their stabilizing effect on Teekay’s cash flow. With the completion of Sevan and Maersk LNG transactions and the future delivery of our current offshore projects over the next few years, we expect our fixed rate cash flows to continue on a path of strong growth through 2014.

As shown in the chart at the bottom of slide nine, the Sevan and Maersk LNG transactions will also result in a meaningful boost to our large portfolio of fixed rate revenues, including the future revenues from the acquired Sevan and Maersk LNG assets Teekay’s total fixed rate revenues will increase to approximately $17 billion with a weighted average contract length before taking account of charter extension options of approximately nine years.

Moving to slide 10. We turn our attention to developments in the offshore market. The North Sea is seeing a resurgence in activity, which has the potential to benefit each of our offshore franchises in the coming years. Exploration activity in the North Sea is at a record level.

As shown in the chart at the top left of the slide, which shows that the number of exploration wells drilled off Norway over the past 30 years. High oil prices as well as an industry supportive tax regime are encouraging the development of new areas as well as the redevelopment of areas that were previously considered mature.

It was an amateur and previously well explored area that Statoil and Lundin made the world’s largest oil discovery of 2011, the 1.7 billion to 3.3 billion barrel Johan Sverdrup field. If this discovery proves to be at the higher end of the estimate, it would be the third largest oil field ever discovered in Norwegian waters.

Further north in the Barents Sea, the Screwguard and Harvest discoveries are expected to contain between 400 million and 600 million barrels of oil and will require high specification harsh weather production units and shuttle tankers to develop them. These new discoveries bode well for the long-term future of the North Sea oil industry and should create demand for our harsh weather FPSOs, FSOs, and shuttle tankers, which is our area of expertise.

Looking at the more immediate future, the chart at the bottom left of the slideshows demand for FPSOs and FSOs over the next five years. The total of 15 North Sea projects are currently looking at FPSOs as a potential development solution along with four projects that may require an FSO. Given the relatively fewer number of operators in a position to service these projects, we feel Teekay is well placed to take advantage of growth in the North Sea FPSO and FSO space in the coming years.

Turning to slide 11. I want to look at developments in the LNG market. LNG spot rates are currently at record highs of around $140,000 per day which is an amazing turnaround given that rates were just $25,000 to $30,000 per day in mid-2010.

Resurgence in rates is in large part due to the Fukushima nuclear crisis that was in early 2011 which led to a 12% increase Japanese LNG import last year of 78.5 tons. An increase in cost base and arbitrage movements from the Atlantic Pacific, strong growth in Chinese LNG import, and a lack of available vessels for short-term business has also contributed to strengthened rate.

Looking to the longer-term, demand for LNG shipping appears strong due to the rising demand in Asia coupled with significant growth in LNG liquidation capacity, especially in Australia.

The chart on the slide shows expected LNG supply growth through 2020 after taking into account project cancellations and delays. In the periods through 2015, LNG supply grows at a relatively modest rate of 4% per annum, with relatively few new projects coming online.

With 63 new LNG carriers due for delivery during this time, the strength is spot rates is going to largely depend on whether or not the Fukushima affect will persist into 2013 and 2014 or whether Japan will bring its nuclear plants online and therefore reduce its LNG imports.

Looking to the period post 2015, we believe that there’s going to be a requirement for far more LNG carriers that are currently on order given the wave of new projects coming online and growing demand for LNG in Asia and in particular China. LNG supply is expected to grow by 7.7% per annum in the period 2015 through 2020 and there is potential upside to this number as more U.S. LNG export projects get sanctioned. Teekay through its starter company Teekay LNG Partners is well-positioned to take advantage of the growth in LNG shipping demand in the coming years.

Turning to slide 12, we look at our view as a conventional tanker market. The chart on the slide outlines our case for tanker market recoveries starting for the end of 2012. On the chart, the green bars represent tanker demand growth and the orange bars represent fleet growth, while the vertical lines for the years 2012 and 2013 show the range of values which could arise depending on various up and down side factors.

On the demand side, we anticipate oil demand will increase by about 1 million barrels per day in 2012 with demand in the OECD companies being the key uncertainty. This is particularly true in Europe due to uncertainty over how the debt crisis will play out, but also in the United States oil demand is stagnated in recent months due to high prices.

One positive development we expect to emerge in 2012 is a lengthening and average wage distances due to a narrowing of the Dubai oil price spread which encourages Asian buyers to import more crude from the Atlantic Basin versus the Middle East. Given our oil demand growth outlook of 1 billion barrels per day and outlook for longer wage distances, we estimate tanker demand will grow by between 4% to 5% during 2012.

Turning to supply 2011 saw the lowest level of new tank orders since 1995 with just 7.5 million deadweight plays. As a result, the tanker order book has shrunk considerably in recent months and currently stands at 80 million deadweight or 17% of the fleet.

We anticipate tanker ordering will remain low during 2012 due to a lack of available financing which will help further reduce the size of the order book in the coming months and lead to lower levels of fleet growth in future years.

In addition to a declining order book, we believe that a tanker scrapping could be poised to increase in the coming months due to growing charter discrimination against older ships which is leading to vessels being scrapped at a younger age than in the past.

Given our outlook on order and scrapping, we estimate that tanker fleet growth will decline for nearly 6% in 2011 to around 4.5% in 2012 and 3.5% or lower in 2013.

In summary, we expect that the tanker fleet growth of 4.5% in 2012 will be balanced by tanker demand growth of around by 4% to 5%, meaning that there should be little change in overall tanker fleet utilization this year.

However, we anticipate the balance will start to tip her in the second half of the year as we’ve said before, as fleet growth begins to slow and this will lead to improved utilization rates by the end of 2012 strengthening further into 2013.

Looking ahead, we summarizes some slide 13 Teekay Corporation’s main priorities for fiscal 2012. First and foremost, we continue to meet and improve upon our market leading health safety and environment standards and operational key performance indicators in our pursuit of probable growth compromise in these areas is not an option.

Strategically, our biggest near-term priority will be to integrate the Sevan and Maersk LNG transactions even though we announced these mid-fourth-quarter. There’s a lot of work that goes on behind the scenes from an operational and financial perspective. And in the case of Maersk LNG, this includes closing the transaction next week.

Another key priority for 2012 is project execution. We currently have a healthy pipeline of FPSO new building and conversion projects as well as Teekay Offshore shuttle tanker new buildings under way. And we need to ensure that these projects are delivered on time and on budget in order to successfully meet our targeted return hurdle. While most of these projects listed in the box at the top right of the slide have been previously discussed, I will take a moment now to update you on the situation with the Petrojarl Banff FPSO.

On December 7th 2011, the Petrojarl Banff, which operates on the Banff field in the UK sector of the North Sea sustained damage to its (inaudible) church and subsea equipment in the severe storm, which caused shutdown of production of the unit. On December 8th, due to the damage incurred, we declared (inaudible) and commenced a period offer to undertake repairs which are expected to be completed by the second quarter of 2013.

Following repairs, the Banff FPSO unit is expected to resume production on the damp field where it is expected to remain under contract until the end of 2018. The impact on our fourth-quarter results was $3 million reduction in revenue. In addition, we expect to incur a loss of operating cash flow totaling approximately $35 million in 2012 and $15 million in 2013.

Importantly, we are insured against damage that Banff FPSO and associated equipment as a result of this incident subject to a $750,000 deductible, and we expect repair costs for the Banff FPSO and related equipment and costs associated with the emergency response during the storm event be reimbursed through our insurance covered.

Returning to our 2012 priority, we will continue to improve the profitability of our existing assets this year, which includes securing new long-term charters for some of our offshore and LNG assets, rechartering certain of our offshore assets under older contracts at improved rates, and continuing to charter out conventional tanker assets at fixed rates to avoid minimize the down side from the weak spot tanker market.

We will continue to focus on growing the value of our GP interest in 2012 through a combination of drop downs from Teekay parent and direct asset acquisitions from our two MLPs. And lastly, we will continue to drive the profitability of our existing operations through various efficiency initiatives and through the greater scaling economies as we grow our fleet.

With that, I’ll turn the call over to Vince to discuss the company’s financial results for the quarter.

Vince Lok

Thanks, Peter, and good morning, everyone. Starting with 14, I will review our consolidated results for the quarter. As we do each quarter, in order to present the results on a comparative basis, we have shown an adjusted Q4 income statement against an adjusted Q3 income statement. Later on, I will also provide our outlook for the first quarter.

Net revenues increased by 44 million, mainly due to a $35 million incremental cash flow relating to the Foinaven FPSO contract. As previously noted in our third quarter conference call, this amount is recognized typically in the fourth quarter of each year since it is based on various annual operational measures, oil production levels and the average oil price for the year.

In addition, the acquisition of the two Sevan FPSO units at the end of November increased revenues by approximately 13 million. These increases were partially offset by a reduction in revenues from our fixed rate conventional tanker upon the expiration of in-the-money time charters and 23 off hire days on the Banff FPSO unit.

Vessel operating expenses were consistent with the prior quarter as the increases associated with the acquisition of the two Sevan FPSO units were offset by net reduction is costs associated with the rest of our fleet. Time charter hire expense was consistent with Q3 as a redelivery of the in-chartered vessels in Q3 and Q4 were offset by an overall increase in spot in-chartering of shuttle tanker.

Depreciation and amortization increased by 3 million due to the acquisition of the Sevan FPSO units and the recent delivery of two LPG vessels partially offset by the impact of the vessel write-downs incurred in Q3. G&A expenses were 51 million, which was in line with our expectations for the quarter.

While not included in the adjusted income statement column, we recorded non-cash impairment charges of approximately 50 million in Q4, mainly related to certain of our older shuttle tankers and conventional tankers. The impairment charges largely reflect the continued weakness in spot tanker rates and the decline in asset values in the spot conventional tanker segment as well as our decision to sell and/or change the intended usage of these older vessels during the next year.

It’s important to note that these non-cash charges do not affect our operations, cash flow, liquidity, or any of our loan covenants, but they do reflect the fact that tanker asset values have fallen, which I will discuss when we review our some of the parts slide.

We also recognized a bargain purchase gain of approximately 58 million in Q4 related to our acquisition of the Sevan FPSO units and our 40% equity interest in Sevan Marine. The bargain purchase gain essentially represents the amount we take below the estimated share market value of these assets that we purchased from Sevan which for accounting purposes is recognized into income upfront. This is based on our preliminary purchase price allocation which we will be finalizing over the next two quarters.

Continuing down the income statement, net interest expense increased mainly due to the delivery of new buildings in Q3 and the acquisition of the two Sevan FPSO units. Equity income increased due to a full quarter impact of two Angola LNG carriers, which delivered in Q3 and the improved results from our Skaugen and PetroTrans joint venture.

Income tax expense decreased by approximately $1 million from Q3 due to tax recoveries recognized relating to timing differences. Non-controlling interest expense decreased to $31 million as a result of lower adjusted earnings in our daughter entities, Teekay Offshore and Teekay Tankers, partially offset by the impact of the Q4 equity offering in Teekay LNG and Teekay Offshore.

Looking at the bottom line, adjusted net income per share was $0.02 for the fourth quarter compared to an adjusted net loss of $0.58 in the third quarter.

Turning to Slide 15. We have provided some guidance on our consolidated financial results for the first quarter of 2012 due mainly to the annual revenue throughout recognizing the fourth quarter, net revenues from our fixed rate fleet in Q1 are expected to decrease compared to Q4. As well, Q1 revenues are expected to decline by approximately $10 million as a result of the off hire of the Sevan FPSO unit.

These decreases are expected to be partially offset by a full quarter contribution from the two Sevan FPSO units acquired at the end of November and the completion of the Polar Spirit dry docking in Q4. Net revenues from our spot fleet are expected to increase in Q1. So far in Q1 we have fixed approximately two thirds of our spot Aframax and Suezmax revenue days at average TCE rates of $10,000 a day and $21,000 per day respectively, which are both higher than our Q4 average TCE rates.

As a rough rule of thumb, for each $1,000 per day change in spot TCE rates, it results in a $2.5 million change in consolidated revenues per quarter. The vessel operating expenses in Q1 are estimated to increase by $8 million to $10 million compared to Q4 as a result of the full quarter impact of the two Sevan FPSO units partially offset by expected OpEx savings on the balance FPSO unit during its shutdown.

Time charter higher expense is expected to decrease in Q1 by approximately $7 million to $9 million reflecting the redelivery of in charter vessels during Q4 and Q1 and lower expected spot in chartering activity in our shuttle tanker fleet.

Depreciation and amortization is expected to increase by $2 million due to a full quarter impact from the Sevan FPSO units partially offset by the impact of the vessel write-downs incurred in Q4 as previously mentioned. We expect G&A to be in the range of $52 million to $54 million, which includes incremental overhead relating to the Sevan FPSOs.

Net interest expense is expected to increase by $2 million to $3 million due to the recent Norwegian bond offering in TK offshore and the full quarter impact of the Sevan FPSO units. Equity income is expected to increase by $3 million to $4 million as a result of the Maersk LNG transaction, which we expect to close next week and the full quarter impact of the Angola LNG Carriers. In Q2, we expect the equity income will increase by further $5 million from Q1 as a result of a full quarter contribution for the Maersk LNG compared to only one month in Q1.

Income taxes run rate is expected to be approximately 2 million. Not controlling interest is expense is expected to be approximately 37 to 39 million in Q1 reflecting higher adjusted earnings for all of our daughter companies as well as the Q1 equity offering completed in Teekay tankers and the full quarter impact in Q1 of the November equity offerings in Teekay LNG and Teekay Offshore.

So in summary, although we anticipate reporting a net loss in Q1, we are making progress towards achieving profitability on a run rate basis by the end of the year. Turning to slide 16, Teekay parent and all of the Teekay daughter entities continue to be well-positioned financially.

Due to the timing of the Sevan transaction and shipyard payments for the Sevan FPSO conversion and the Knarr FPSO new building projects, Teekay parents net debt increased by approximately 450 million during the quarter to 1.3 billion at the end of December.

However, $462 million of this balance relates to construction installments associated with the Sevan and Knarr FPSO projects which are being warehouse for Teekay Offshore and is therefore temporary in nature.

Secondly, 220 million of the net debt amount is associated with the Voyager FPSO, which is treated as a variable interest entity or VIE for accounting purposes and therefore is consolidated into our financial statements now even though the Teekay will not be acquiring the Voyager until it begins operating under its time charter contract in the fourth quarter of 2012.

Thirdly, 180 million of the increased net debt was associated with the purchase of the Hummingbird FPSO in November, which again will eventually be offered for sale to Teekay Offshore.

Focusing now on liquidity. On a consolidated basis Teekay’s total liquidity balance as of the end of the year was approximately 1.5 billion, down from 1.8 billion at the end of the third quarter. As we use some of our existing undrawn revolvers to temporarily finance acquisition in shipyard payments during Q4.

Subsequent to December 31st, we have completed several debt financing, which I will walk through in a minute that have increased our total consolidated liquidity to approximately 1.9 billion including 620 million as a Teekay parent level, which is more or less where or liquidity totals were at the end of the third quarter.

Similarly, recent debt and equity financing have allowed us to maintain comfortable liquidity levels at each of our daughter entities. Our daughter company structure continues to provide us with the access to equity capital to finance growth. Since November 2011, we have raised third-party equity at each of our daughter companies for a total combined proceeds of 415 million.

In addition, we further diversify our sources of capital for our offshore businesses through Teekay Offshore NOK600 million unsecured bond issuance in January. At each of our daughter entities, we continue to target and maintain a level of leverage that is appropriate for the length and stability of the contract portfolio in each business.

Turning to slide 17, we highlight the significant amount of debt financing we’ve completed since our last earnings call. As shown in this slide, since November 2011, we’ve completed a total of 1.6 billion of debt financings relating to our various projects and acquisitions.

As of today, we have prearranged financing in place for 1.2 billion or just over half of our remaining 2.3 billion of capital expenditure commitments. We are now turning our focus on completing the remaining financing amount, which is related to our two projects. Piranema FPSO new building and Teekay Offshore for shuttle tanker new buildings. These projects have tailed heavy shipyard payments and are scheduled to deliver in mid July 2013.

On slide 18, we’ve provided an update to our some of our parts calculation which indicates Teekay’s underlying value at approximately $44 per share an increase from $39 per share when we last reported in November. The increase is primarily due to the overall increase in the value of our daughter company equity insurance, partially offset by a further decline in the value of our conventional tanker assets. As a result, Teekay’s share price is currently trading at 37% discount due some of the parts value.

A few additional points to note on the slide. First, we’ve added back the 220 million of Voyageur VIE bid since we have not yet concluded the value of the Voyageur FPSO asset in this calculation as it will be required later this year.

Second, for some of the parts value presented here, it does not reflect the expected future increase in Teekay Parent’s GP cash flows which will result from the Piranema FPSO and the Maersk LNG transaction in TLO and TGP. We believe Teekay’s share price continues to be dragged down by the Parent company’s spot tanker exposure which continues to generate negative cash flow in the fourth quarter.

With a significant amount of our time-charter in conventional fleet redeliver to their owners in 2012 and Teekay Parent’s cash flow from its GP interest and Teekay Offshore and Teekay LNG expected to grow, we believe that Teekay shares represent compelling long-term value.

With that, I will turn the call back to Peter to conclude.

Peter Evensen

Thank you, Vince. Your finance and accounting teams have certainly been busy. To conclude, while we are pleased to report a modest net profit for the fourth quarter, we still have more work ahead to achieve our objective of returning to profitability on a run rate basis without being helped by the tanker market.

In 2011 we made good progress toward this goal toward our, with our substantial investments in our fixed rate businesses which enhanced the profitability of our existing asset base. However, we are not out of the woods yet with respect to weak conventional tanker rates which we expect to continue to be a drag on our profitability through much of 2012 and possibly into 2013 and our focus on the current fiscal year would be to integrate our recent Sevan and Maersk transactions and successfully execute on our existing offshore projects and profitability initiatives and rebuild our balance sheet and liquidity for future growth.

Operator, we are now ready to take questions.

Operator

(Operator Instructions) Your first question comes from Justin Yagerman of Deutsche Bank. Please go ahead.

Justin Yagerman -- Deutsche Bank

Thanks, guys. My first question is on dividends and how you are thinking about cash flow distribution here. And obviously, a decent amount of project cash start flowing through both of the Parent and at the daughter level. And I wanted to see how we should think about that progression as we move through the year with potential expected something on the dividend this quarter and want to understand the thought processes as all of this comes on?

David Drummond

Well, up at Teekay Corporation, we’ve had a stable dividend. But as I said, we’ve been reporting net losses over the last 10 quarters. So we’ve elected as we’d done during the past downturns to just maintain our stable dividend. It’s up to the board to look at it at each quarter, but I don’t anticipate we would adjust that up word until we return to a run rate profitability. We don’t have excess capital right now.

In terms of the daughter companies, we are very transparent in how we look at it. As we make acquisitions, we always look what’s its effect is on the dividends. In offshore and the gas side, we continue as we make more acquisitions, we pass -- we always want to increase the distribution or dividends at the MLP, and we expect to continue to raise them this year as we’ve talked about, because we have a lot of growth coming into the MLP in 2013. And certainly, there’s a lot more visible growth on offshore side than there is on the LNG site.

On the tanker side, I think it’s wonderful that Teekay tankers have been able to pay a dividend throughout this whole downturns, which is pretty amazing when you see in other tanker competitors having to cut or have negative cash flow. But again, it’s a transparent dividend policy. We have to earn our dividend. And what is great is that Teekay tankers has been earning its dividend, i.e. with its tactical strategy it’s been able to maintain positive cash flow. So now it has capital to grow.

Justin Yagerman -- Deutsche Bank

That is all fair. I guess maybe my thought process was more along the lines of the daughters -- at least the MLP daughters see long contracted cash flow and that comes up to the parent level that some of that would have more of an impact on distribution of the parent level.

David Drummond

Well I think, ultimately that it will, but we have to get through that. Our incharter fleet at Teekay Corporation has been generating negative cash flow, so we have had that as a headwind compared to the tailwind which has been a positive that may increase in distributions that we get from our daughter companies.

Justin Yagerman -- Deutsche Bank

That is....

David Drummond

To balance that out, we haven’t had enough surplus cash flow which we have in appendix D of our earnings statement. So I haven’t seen enough positive cash flow in order to change the dividend.

Justin Yagerman -- Deutsche Bank

Okay. That’s fair. Curious on the LNG projects. Obviously, that’s become a hotter sector over the last several quarters. Are the return characteristics changing at all as you look there? And maybe you could remind us where they have been as you’ve been doing projects and how you think about that on the LNG side.

David Drummond

Well, the whole question has been what we call the curve of LNG rates when you compare it out spot to time charter. It’s good huge backwardation. In other words, we have 130, 140,000 at three years. Some people have been able to do short-term charters about 150,000. But then when it moves into the 15-year level, it hasn’t really changed that much. And that’s because people are looking at long-term outsourcing deals, so then you move yourself back down into an $80,000 per day in environment, so the question is, are you going to take more risks by chartering your ships short term and then incurring that rollover risk or not? The good news, and this is true for our offshore units as well as our LNG units, is we are able to re-charter the ships much higher today than what we were able to do in the past, so we are actually looking for opportunities to roll over our unit.

So for example, the Arctic and polar and the Maersk Methane we were able to get much higher rates. But the market is staying with the backwardation curve that that won’t last forever.

Justin Yagerman -- Deutsche Bank

And some of that pie and some of that is question over demand I would assume.

Peter Evensen

There was just -- because of distance -- because all of the gas suddenly had to go to a much longer distance, it was coming into the U.S. or into Europe, but when the arbitrage opened up with Asia being much higher than any spare gas went on a longer distances, we suddenly need to double the amount of vessels that you would need if you are going to move gas to Asia, so that quickly resulted in rate.

So, people were willing to pay 150,000 because they were getting as much as a $10 change in the price of the cargo, so -- on cubic foot basis. They were willing to pay whatever it took in order to get gas. The market seems to have softened in the last few weeks. Some vessels that were put on subjects, the charters didn’t ultimately take those ships. So, it’s an evolving area.

We’re comfortable with our more stable, I would call it low volatility, low beta (ph) business that we have on the LNG side. It ticks along, we’re able to make acquisitions, and we expect we will get more organic projects as this whole liquefaction moves up. The problem right now is there isn’t enough gas, and so the arbitrage opens up -- I mean, so the arbitrage remains there. And we have to remember that the oil market is a global market where as the gas market is very regionalized.

Justin Yagerman -- Deutsche Bank

That’s fair. That’s good color. Thanks. Last question and I will turn it over to someone else. Obviously, the reconstruction or the repairs that are being done, you said you expected to go back on contract I think in 2013. Is there any way, shape, or form that the charter would be able to get nag on that contract and get out of it in the meantime, or is that kind of a rock solid contract where because this is majority, you expect it to resume. And I guess not even expected, is there a way for them to get out of the contract, we’ve seen in the past with other assets?

Peter Evensen

Well, we have spoken about -- well, the good news is that contract was our least profitable contracts. So, if we were -- if it was not too returned to the field, which I don’t see happening, then we could reemploy it and it would be more profitable to us. But the charterer has said that they want to resume production on the damp oilfields, so we have to put in place repairs to the subsea. And so basically, what happens because it’s the North Sea, you lose a season. So, that’s why we have to wait until the weather window opens in the beginning of ‘13 before we reattach.

Justin Yagerman -- Deutsche Bank

That’s fair. Thanks so much for the color. Appreciate the time, as always.

Operator

Thank you. The next question comes from Michael Webber of Wells Fargo. Please go ahead.

Michael Webber -- Wells Fargo

Hey, good morning, guys. How are you?

Peter Evensen

Fine. However, you?

Michael Webber -- Wells Fargo

Good, good. A number of questions for you. First, I wanted to start with your tanker fleet and the potential for a drop-down there at TNK. Obviously, a lot of liquidity at TNK that just did equity raise. And I know there are multiple parties involved here, but if you could maybe give a little color about how you think about that. I think Vince mentioned the headwind of those, cause, put on your some of the port’s valuations. If you could talk about the timing and the scale of potential drop-down, that would be helpful.

Peter Evensen

Teekay has been very transparent over the fact that we’ve been dropping down all of our assets on an upstairs at Teekay parent, because we think that is detracting from the – or adding to the discount we have between some of the parts value in our stock price.

So as we move assets down, we think that we will reduce that discount. So the good news is TNK has now raised money and is in a position to make acquisition. Teekay has to make it decision on whether it wants to sell right now in the trough of the market or not. So we need – we have a willing buyer, and we have a willing seller. We’ll have to see if there is a price that works. But I want to emphasize that there is a very independent system going on here. In other words, Teekay Tankers has to decide where it wants to invest, and Teekay’s Corporation has to sell and maximize all of the values that it has.

Michael Webber -- Wells Fargo

Sure, sure. That takes a lot of sense. I guess, moving to the offshore site. And you just talked a little bit about the dam (ph). Can you quantify what those repair costs would be? I know they are covered by insurance. And maybe there is a historical presence in terms of I guess lag, in terms of recognition there?

David Drummond

We’re still doing the survey work and the amount of repairs is going to depend upon how would the field gets put back online, so we’re not in a position to tell you exactly what the total bill is going to be.

Michael Webber -- Wells Fargo

Fair enough. If memory serves, I think that advance, I think, you talk about potentially renegotiating that at the low market rate I believe in 2014 and in your release, we see I think 2018 termination period for that contract . Is this – it was always toward the backend of your dropdown schedule, but did this change the way that that they kind of fix in, and would you guys still look at resign there and negotiate their rate in 2012. Maybe just a little bit of color about how that – maybe how that contract is structured and how that changes?

David Drummond

Well, it’s actually an existing contract, so it isn’t a renegotiation. It’s actually the fact that it’s – we get a pickup in rate after the end of 2014.

Michael Webber -- Wells Fargo

Okay.

David Drummond

So I guess the right question, which you were going to ask next is, has losing one year, does the whole end of 2014 move? And the answer is no. We’ll, guess it pick up at the end of 2014. So in a way you, I guess, you could say, we’ll get the extra cash flow from Steve. The year we lose in 2012 will get at 2018 at a higher rate.

Michael Webber -- Wells Fargo

Okay. All right. So you’re going to make a little money on that. That’s helpful.

David Drummond

Change the fact that – it doesn’t change the fact that it doesn’t change the fact that we’re going to lose some cash flow this year.

Michael Webber -- Wells Fargo

Right, right. Fair enough. And you mentioned in your deck that you guys had renegotiated the rate with for Petrojarl that was kind of entertain – is there some kind of time slot as advance in terms have drop down, does that change where that falls in the drop-down schedule? Maybe you could give a little bit color in terms of how those renegotiations went and where that ate is?

David Drummond

Yeah. Well, we had – this was on an evergreen contract, so we were actually – as I said a few minutes ago, it’s actually worthwhile for us to get our existing FPSO units back, because we can re-contract them at higher rate.

Michael Webber -- Wells Fargo

Sure.

David Drummond

So although we got – so what – so we got two things out of the renegotiation. We got higher rate, which is the $80 million we talked about. We also got a definite time limit that the units going to be on station, which would be about 2014. Therefore, we are now in the position we can go, get new employment for it at a higher rate. So we’re actually more excited about the fact that we have the chance to reapply it at higher rate. This is a Norwegian offshore compliant unit and its one of the few that is existing. So your alternative, as I talked about the FPSO contracts is to employ a new building. So it compares very favorably in the 2014 window in order to get new employment.

Michael Webber -- Wells Fargo

Okay. That’s very helpful. On the Voyager, and I know you guys gave a lot of information on this in your deck on your entire fleet. But can you give an update or touch on, I guess, how those upgrades are going and whether or not they’re on schedule. It actually looks like they’re still been moving actually ahead of schedule. And whether or not in terms of how we should think of that and terms of drop downs. Whether or not that’s a Q4 or whether that could kind of lead into early Q1 obviously it’s a little bit early but any color there would be helpful.

Kenneth Hvid

Yes, its Kenneth here, essentially what we’ve done after we stepped in sort of other areas that we put an oversight team for the execution project teams of Sevan. And we have already started some of the commissioning work. And it’s on schedule basically to sail away sometime in July. So we’re probably on schedule and we’re very comparable with the budget we put out. So that means that the sale only in July will bring us into Q3, it could be early Q4 when we have oil and potential dropdown.

Michael Webber -- Wells Fargo

Okay. All right. That’s very helpful. The last question, is kind of tied to, you mentioned this earlier on the dividends. But you guys have always tied in some ways kind of tie your dividends to the fact that you are generating losses and apparently you want to see the business turned around before you would start hiking the dividend. With the potential for a large scale tanker drop down at least some time over the near to intermediate term. How should we think about that going forward, I guess, kind of in a post-tanker environment where as some of those headwinds have been wiped away and it’s clearly tied to your other cash flows.

David Drummond

Well, when we have excess capital, there’s two ways to deal with it. One, is to do share repurchases and that’s something we look at and have used when we’re at a discount – a meaningful discount to our some of the parts. And that in a way is what we see as a real value creation. And the dividend is something we see based on a consistency. We’re the type of company that when we increase our dividend we don’t intend to reduce it. And so we have to be sure that we have enough stable cash flows, which I think we will going forward. But we still have to get through this deleveraging that Vince talked about. And we have to realize on all of these projects before we’re going to reconsider that. And that involves getting Teekay back to run rate profitability and then the cash flow and the dividends will take care of themselves.

Michael Webber -- Wells Fargo

Fair enough. Actually just one more question for me. Obviously, its a big project for you guys, it’s a little bit down the road. And I know you guys have talked in the past about securing a JV partner for that project. Any update on timing there or should we expect something comes on later on.

David Drummond

You should expect something later on.

Michael Webber -- Wells Fargo

Okay. Great. All right. That’s all I’ve got. Thanks for the time, guys.

David Drummond

Thank you.

Operator

Thank you. The next question comes from Gregory Lewis of Credit Suisse. Please go ahead.

Gregory Lewis -- Credit Suisse

Yes. Thank you and good morning.

David Drummond

Hey, Greg.

Gregory Lewis -- Credit Suisse

Hi. I guess, my first question is, it looks like net revenues in the offshore segment, it looks like they ticked down in the fourth quarter. And I was just trying to sort of back into why that was happening. I mean, my understanding was that typically the shuttle business tends to get a little bit better in the fourth quarter versus the third quarter was that decline slowly from the loss of the demand in December?

David Drummond

I think if you are looking at the shuttle revenues, you might recall that in the third quarter we had a very strong shuttle third quarter. We had a lot of special projects. So it was unusually strong for the shuttle tanker fleet in the third quarter, so I guess when you’re comparing Q3 to Q4, you do see a slight reduction in the shuttle tanker revenues, but of course we’ve had higher revenues in the FPSO sector mainly due to foreign hit in revenue.

Gregory Lewis -- Credit Suisse

Okay. And then another operational question, when I look at time-charter expense, I mean, you guys have been pretty adamant that you expect – I mean, and you can see in the fleet that the number of vessels on chart are actually going down, but I guess I want to know why in the fourth quarter versus the third quarter charter higher expense went up, is that just more of a timing and accounting issue?

David Drummond

Yeah, if you look at our adjusted income statement, it’s actually flat.

Gregory Lewis -- Credit Suisse

I mean, shouldn’t it be going down there?

David Drummond

Yeah, we had a $2.7 million early termination fee that we paid in the fourth quarter and that was to terminate one of the in-charters to the third party early so that there was a present value savings there. And we also had to in-charter some additional shuttle tankers in the fourth quarter just due to the high utilization of the shuttle fleet and the few dried dockings as well. So that’s sort of a temporary thing for the shuttle fleet. And in the first quarter as I mentioned we’re expecting that in-charter expense to come down about 7 to 9 million as we continue to redeliver the conventional fleet. And we are not expecting to need to spot in-charter any shuttle tankers in the first quarter.

Gregory Lewis -- Credit Suisse

Okay, perfect. And then just one last question and you guys commented on – briefly touched on what’s going on in the LNG market I mean just when we think about Teekay’s position, I mean you guys are project manager you won long-term contracts, are you getting inquiries now from customers that are actually -- I mean, they are looking at the high LNG market rate, are you sort of starting to see projects for seven, 10, 12, 15-year LNG long-term contracts, is that something that Teekay is sort of actively pursuing at this point?

David Drummond

Yes, we are seeing more activity. But as I said the -- we think that right now there is a lot of people ordering spot LNG’s with the prospect of getting them. We are in more of the build to suite camp but we’re competing on FSO new projects and we are competing on some conventional tenders that are out there. And but we think that long-term the market probably is moving toward shorter duration contracts. So I would say our contracts that we had 20, 25 years, the market is probably moving down into a 5 to 15-year window as you are looking at it. And the market has to digest what the effect is of some of these spot ships. The last time this happened, the spot ships were basically either in lay up or they were making $20,000 a day. So I think our -- if you will, our (inaudible) just pick along build project by project. We are very comfortable with that low beta strategy, but we did elect on the methane to charter it out at 130,000 a day rather than charter it out longer-term at 80,000 to 90,000, because the rates were just so good. And it was a good quality charter, and so we are very happy with that. But I think that we’ll have to see. There’s a lot of different moving parts right now. And it really has to come down to this Fukushima affect going forward. I was in Norway about two weeks ago, and they are really excited about what’s going on there. The equity analysts had put up numbers to what I think are pretty extraordinary. They are assuming the market is going to be 180,000 for the next three years. We are definitely not in that camp.

Gregory Lewis -- Credit Suisse

And just to that point, Peter, I mean, you mentioned that you were looking at a contractor of about 80,000. Is the duration on that, is that what seven, eight, nine, 10 years?

Peter Evensen

Yes for 10 to 15 years.

Gregory Lewis -- Credit Suisse

Okay, perfect.

Peter Evensen

So the market is -- actually is heavily backward dated. And so you have to look and see demand/supplies. But as I said, the charters are making so much money on their arbitrage now that they will pay basically whatever money it takes in order to charter a ship. But if that closes a little and/or more ships come, then you will quickly see that backwardation change.

Gregory Lewis -- Credit Suisse

Okay. Sounds good. Thank you very much.

David Drummond

Thank you.

Operator

Thank you. The next question comes from Justine Fisher of Goldman Sachs. Please go ahead.

Justine Fisher -- Goldman Sachs

Good morning.

Vince Lok

Hey, Justine.

Justine Fisher -- Goldman Sachs

So just a question on the drop-down of remaining assets to the daughter companies. Is the argument that the value for unsecured bonds in that case is just the value of the combined DP interest and equity interest in the daughter’s?

Vince Lok

That’s right, but we anticipate we can replace the assets that we have upstairs with new asset that we are looking at that are not LNG or offshore or tankers.

Justine Fisher -- Goldman Sachs

What would be not -- what kind of assets would be not LNG or offshore or tankers?

Vince Lok

For example, we have been public about the fact that we are looking at some wind farm installation vessels that would generate longer-term higher IRR than some of these existing.

Justine Fisher -- Goldman Sachs

So the bondholders at Teekay Corp. should be aware that I guess maybe the assets that they are the closest to would be sort of not necessarily the traditional shipping assets that they are used to, there are probably some waterborne assets because that Teekay’s specialty, but maybe not the traditional shipping assets.

Vince Lok

That’s true, although -- yes, that is true, but we also have FPSOs like (inaudible). And so I anticipate that we will continue to own some fixed asset of the Teekay. However, they won’t be as much exposed to market cycles and they will also be higher return than some of our other existing asset. As Teekay moves, we showed a slide about different things that Sevan can move to. So we get a lot of requests for other types of projects. I see a lot of scope for Teekay to move into some of these higher margin, higher growth areas. So those don’t fall specifically when the FPSO shuttle tanker, LNG, and banker realm. I won’t be drawn on exactly what those are, Justine, but I think that the bondholders will be pleased with how we are moving to higher margin assets.

Justine Fisher -- Goldman Sachs

Okay. And then the last question on that front is that I suspect that the parent company would issue in order to pursue those transactions probably on a secure basis, not on an unsecured basis.

Vince Lok

That all depends, that all depends.

Justine Fisher -- Goldman Sachs

Okay. And I also have a question on the impairment charge that you guys took and I think that that from my perspective, not enough companies have taken those sorts of charges just given the decline in asset values that we’ve seen and if anything the decline in asset lives that should affect depreciation rates.

So Vince, can you talk a bit more about the motivations behind that impairment charge? Was it that your accountant saying, look, we know that spot asset values are down and we think that people will scratch their vessels earlier, so you got to reduce the useful life, or what were some of the conversations behind that because I think its, actually I applaud it and I think that it should be taken by more companies?

Vince Lok

Yes, the write-downs in the fourth quarter are all very much related to our older vessels and that’s in our shuttle fleet and our conventional fleet. And so a few of those write-downs relate to our decision recently to sell a couple of those vessels.

So therefore, you have to then mark to market those vessels and sell for sale. In the shuttle cases, there is an intended change in use as, for example, we are holding onto some of the older shuttle tankers for FSO projects.

Even though there’s going to be long-term value created as part of using those assets in FSO projects, whenever you have a changing in use from a shuttle tanker to an FSO as an example, you still need to mark the market that asset because it is change in use.

So it’s some particular circumstances that gave rise to those impairments. It’s really related to the older ships and intended use. When you look at the modern fleets, under U.S. GAAP it’s in on discounted cash flow test. So if you look at, for example, a five-year-old ship obviously has 20 years of remaining life. And usually that passes the test under U.S. GAAP for impairment purposes. So you haven’t enough remaining in life. And you don’t have that on an older ship, especially if you intend to sell that over the next year.

Justine Fisher -- Goldman Sachs

Okay. So it was more the use of the vessels and not necessarily the argument that high supplies leading industry participants to scrap vessels at 18, 19 years as opposed to 24, 25 years. So that’s kind of changing what one would expect the license fund going to be?

Peter Evensen

No, but obviously the impairments are impacted by the drop in asset values.

Justine Fisher -- Goldman Sachs

Okay. Great. Thank you guys, so much for the color.

Peter Evensen

Thank you.

Operator

Thank you. The next question comes from Michael Webber of Wells Fargo. Please go ahead.

Michael Webber -- Wells Fargo

Hey, guys. Sorry it’s been a long call, so I’m going to jump on I wanted to follow-up on the tanker drop downs, actually. Peter, you mentioned in your answer that you’ve got a willing buyer that you guys just need to determine whether or not you guys are willing seller in this market on your own tanker fleet. As a company, when do you guys anticipate coming to that decision? Tanker assets have been moving over for quite a while. How do you guys think about it internally? When do you guys think you will come to some sort of decisions?

Peter Evensen

I don’t think I will be drawing on a timetable for that, but as I said earlier, Teekay will maximize its values in terms of selling it. And Teekay doesn’t have to sell.

It is an aspiration, but if Teekay believes that the market is going to improve, and as we said, we think it’s a softer market in 2012 and then we will start to get a tick up. So Teekay will do, what we always do, whether we are buying or selling, we run our cash flows and figure out whether we want to sell.

And then, of course, you have to say, what are you going to do with the money? So that is – so we always look at what the opportunity cost is of that. But if you tune in 45 minutes, you will hear Bruce Chan talk about what Teekay tankers plans to do with the money.

Michael Webber -- Wells Fargo

I think Bruce will probably get some similar questions. I appreciate it. Thank you.

Peter Evensen

I do too.

Michael Webber -- Wells Fargo

Thank you.

Peter Evensen

Thank you.

Operator

Thank you. (Operator Instructions)

The next question comes from John Fusek of GCA. Please go ahead.

John Fusek – GCA

Just a question on upcoming financing on business slide, just on the pack, just 300 million, 350 million. How much more than that if any, do you have to do this year?

Vince Lok

Those are the remaining unfinanced projects. And again, these are till heavy shipyard payments, so we have time to get these in process. As I said, we’ve completed pretty much all of the financings we need for our commitments, and that shown in the $1.6 billion of financing we completed.

John Fusek – GCA

Yeah.

Vince Lok

And so really -- it’s really the remaining ones kind of FPSO and BG shuttle tankers which are in Teekay Offshore. So that’s the remaining amount for our committed CapEx at this point in time.

John Fusek – GCA

Just the BG shuttle tankers in Teekay Offshore and not in Teekay Corp.

Vince Lok

That’s right.

John Fusek – GCA

And those would be secured financings presumably?

Vince Lok

That’s right.

John Fusek – GCA

Okay. Thank you.

Vince Lok

They all have long-term contracts, so we’re confident we will be able to finance.

John Fusek – GCA

Sure. Okay.

Operator

Thank you. (Operator Instructions)

There are no further questions at this time.

Peter Evensen

Okay. Well, I apologize for the length of the call, but I think that’s reflective of the high amount of activity that we have. Both -- I thought it was good that we could talk about 2011, what we’ve invested in, but also how we have financed it. And we look forward to reporting to you next quarter. Thank you very much.

Operator

Ladies and gentlemen, this does conclude the conference call for today. You may now disconnect your line, and have a great day.

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