Teekay Corporation
Annual Report 2003

Plain-text annual report

Teekay the marine midstream company Teekay Shipping Corporation 2003 Annual Report financial highlights Earnings Per Share(1) $ US Cash Flow from Vessel Operations(3) $ millions Stockholders’ Equity $ millions Teekay is more than a conventional tanker company. 10 8 6 4 2 0 -0.5 600 500 400 300 200 100 0 1,800 1,500 1,200 900 600 300 0 Our unparalleled network of people, technology, and ships make us an essential link between upstream oil production and downstream 99(2) 00 01 02 03 99(2) 00 01 02 03 99 00 01 02 03 Fiscal Year Ended December 31 Fiscal Year Ended December 31 As at December 31 refining. With the breadth of our services, the quality of our operations and the strength of our balance sheet, we are an integral part of our customers’ logistics chain. We are the marine midstream company. (1) Fully diluted (2) Nine months ended December 31, 1999 (3) Cash Flow from Vessel Operations represents income from vessel operations before depreciation and amortization expense. See reconciliation on page 23. (in thousands of U.S. dollars, except per share and per day data, or as otherwise indicated) Income Statement Data Net voyage revenues Net income Balance Sheet Data Total assets Total stockholders’ equity Per Share Data Fully diluted earnings per share Weighted average shares outstanding – diluted (thousands) Other Financial Data Cash flow from vessel operations* Net debt to capitalization (%) Vessel purchases, gross** Year Ended December 31, 2003 Year Ended December 31, 2002 $ 1,181,439 $ 543,872 177,364 53,391 $ 3,588,044 1,651,827 $ 2,723,506 1,421,898 $ $ 4.35 $ 1.33 40,733 40,252 580,973 39.8 372,433 $ 268,642 36.4 135,650 * Cash Flow from Vessel Operations represents income from vessel operations before depreciation and amortization expense. See reconciliation on page 23. ** Excludes vessels from the acquisition of Navion AS. Teekay: the marine midstream company p8/9 our marine midstream capabilities p10/11 Chairman’s message p12 CEO’s report p13/15 tanker market review p16/19 Teekay’s fleet p20/21 board of directors p22 reconciliations and forward-looking statements p23 corporate information inside back cover Teekay Shipping Corporation 2003 Annual Report p1 upstream T he upstream is where oil and natural gas are found, extracted and channeled to the earth’s surface – both on land and offshore. The upstream can be a harsh, unforgiving environment. At sea, twenty-meter waves slam into offshore platforms and ninety-knot winds whip across their decks. And through it all, oil and gas resources produced in this environment commence their journey to the world’s energy markets. p2 Teekay Shipping Corporation 2003 Annual Report Teekay Shipping Corporation 2003 Annual Report p3 downs tream I n every corner of the globe, people need energy to work and live. Oil and gas heat homes, power industry and fuel vehicles. Growing energy needs are an integral part of our lives. The world consumes about 80 million barrels of oil and 250 billion cubic feet of natural gas every day. The downstream is where oil is refined and processed, and where natural gas and finished petroleum products are distributed to end-users. It is where raw materials turn into the products that drive industry, enterprise and everyday life. p4 Teekay Shipping Corporation 2003 Annual Report Teekay Shipping Corporation 2003 Annual Report p5 midstream T he midstream is the complex network of highly specialized services that link upstream oil and gas production with downstream refining and distribution. Both at sea and on land, the midstream encompasses a wide range of elements, including pipelines, storage, terminals and transportation. The majority of the world’s oil and gas – and practically all of today’s incremental oil and gas – is produced far from end-user markets. This creates the need for what is perhaps the most challenging aspect of the midstream: marine services and seaborne transportation. p6 Teekay Shipping Corporation 2003 Annual Report Teekay Shipping Corporation 2003 Annual Report p7 Teekay: the marine midstream company O ver the past five years, Teekay has steadily handling services, from floating storage and expanded the scope of its business to meet loading systems, through complex regional shuttle the growing needs of its customers. We have leveraged our core competencies – trades and high-volume, long-haul contracts, to ship-to-ship transfer logistics. by entering new areas of activity and adding to What sets us apart is our ability to customize the the services we offer. We have extended our delivery of these services to suit each customer. reach – from being a regional operator to providing Whether they need a standard two-day voyage a global service. We have expanded our service or a specialized 20-year solution, we meet our offering – from operating mainly medium-sized customers’ marine midstream needs. That is the crude oil carriers to offering a full range of cargo Teekay difference. p8 Teekay Shipping Corporation 2003 Annual Report Teekay Shipping Corporation 2003 Annual Report p9 our marine midstream capabilities Teekay’s matrix of loading and storage solutions, specialized and conventional tankers, experienced professionals and sophisticated management systems enable us to meet our customers’ marine midstream requirements. capabilities Customized Storage Services: The FSO Pattani Spirit The Platong oil fields beneath the Gulf of Thailand contain valuable oil and gas reserves. When considering the development of these resources, U.S. oil company Unocal sought a marine partner, with the expertise in offshore projects and operations necessary to deliver safe and reliable storage services. Unocal chose Teekay for its offshore project management experience and cost effective solution of converting a single-hull tanker into a Floating Storage and Offtake (FSO) unit, to be in service for up to 15 years. We adopted an innovative approach, increasing the vessel’s storage capacity without significant cost, by converting its ballast tanks into additional storage space. Also included in this contract was the construction and integration of a single point turret mooring system on the vessel. In addition, we will be responsible for operating and crewing the FSO throughout the contract. Scheduled to commence operations in April 2004, the FSO Pattani Spirit will be capable of storing up to 850,000 barrels of crude oil. The integration of the single point turret mooring system on the FSO Pattini Spirit during vessel conversion. World Leadership: North Sea Offshore Loading Logistics North Sea offshore oil activities are unlike any other. Faced with some of the toughest logistical challenges in the world, oil production in this region is supported by a series of highly specialized services. A critical component of this logistics chain is the operation of dynamically positioned shuttle tankers, which are capable of loading oil in extreme weather conditions. However, the offshore loading business is not only about shuttle tankers. It is also about sophisticated scheduling systems, dedicated professionals and close partnerships with customers. As the world leader in offshore loading, Teekay has the size and infrastructure to manage the complex logistics of this business. We have contracts with more than 20 companies that produce oil from a large number of fields in the North Sea, many of which do not require fully dedicated ships. With our fleet of more than 40 shuttle tankers performing over 1,000 liftings annually from these oil fields, we tailor our service to the differing production volumes and loading schedules of each customer. Our customers rely on us to ensure that oil is lifted on time from their fields, which have limited storage capacity to absorb delays. It is one thing to operate a shuttle tanker, it is quite another to provide the trusted “floating pipeline” to customers. A depiction of Teekay’s network of shuttle tanker movements in the North Sea. Innovative Solutions: The Ardmore Field The Argyll oil field, which produced Britain’s first North Sea oil in 1975, was shut down in 1992 because it was no longer economically viable. In 2002, the U.K.’s Tuscan Energy developed an ambitious project to breathe new life into the once productive field, since renamed Ardmore. However, Tuscan expected the revived field would have a relatively short lifespan and a fairly low daily production rate, so the success of the project would depend on developing an innovative, fast track, low cost solution capable of withstanding the harsh conditions in the North Sea. As it looked to assemble its team of service providers that would help meet these challenges, Tuscan turned to Teekay to provide the complete export and transportation system. We successfully delivered an integrated solution to bring oil from the sub-sea flange of the production facility and transport it to shore. This included the design, procurement and installation of two Single Anchor Loading systems; two 1,500-meter eight-inch flow lines; two 120-meter rigid risers; and the provision of two dynamically positioned shuttle tankers. Thanks in part to the export system provided by Teekay, Tuscan received its first oil from the Ardmore field on schedule in September 2003. An illustration of a Teekay shuttle tanker receiving oil from the Ardmore single anchor loading system. Teekay tanker approaching a loading terminal. Global Coverage: Teekay’s Flexible Transportation Network Teekay offers its customers an unparalleled, flexible service through its global network of tankers, ranging from Very Large Crude Carriers (VLCCs) to small petroleum product tankers. In doing so, we have established our position as the leader in large-scale contracts in the conventional tanker market. We are capable of providing regular service anywhere in the world. In some locations only Teekay has the scale and presence to provide such a service on an economical basis. We recently shipped our 100th cargo for a customer, from a loading port located far from shipping lanes, representing the movement of approximately 70 million barrels of crude oil over the past 10 years. We are capable of helping customers optimize their complex cargo lifting programs and the movements of their ships, globally or within specific regions. We routinely coordinate our fleet scheduling with key customers, providing them with access to our fleet as a virtual extension of their own fleets. In return, these customers offer Teekay preferred access to moving additional cargoes for them, thereby increasing our fleet utilization. We are capable of carrying customers’ cargoes from distant oil platforms in the North Sea all the way to refineries on the Mississippi River through the coordinated use of Teekay’s shuttle tankers, VLCCs and Aframax lightering ships. We rely on our scheduling flexibility, our marine expertise and our technology to ensure a seamless process. Customers can depend on Teekay to deliver high quality, global transportation services. p10 Teekay Shipping Corporation 2003 Annual Report Teekay Shipping Corporation 2003 Annual Report p11 Chairman’s message CEO’s report to shareholders to shareholders C. Sean Day, Chairman of the Board Bjorn Moller, President and CEO T eekay had another outstanding We have a dual strategy in pursuing acquire Naviera F. Tapias S.A., whose year in 2003. Our gain in net these goals – to maintain and grow our fleet includes four liquefied natural worth was $230 million, an large fleet of conventional spot market gas carriers. increase of 16 percent. It was a year vessels, leveraging off our size and in which we extended our leading market concentration in both the crude position in our industry on many fronts. oil and petroleum products sectors, We achieved an excellent return on while simultaneously building up our our capital, we completed a large portfolio of more specialized fixed-rate, acquisition, we entered into important long-term business. Most of our new new partnerships, we embarked on an product offerings in recent years have aggressive program of fleet renewal been in the more technically and we expanded our spot fleet. challenging end of the marine Our goals at Teekay are straightforward: • to consistently deliver higher quality customer service than any other company in our industry, safely and efficiently, using our unmatched global capabilities and systems; midstream sector – shuttle tankers, floating storage and offtake vessels, and lightering services. Significant milestones in 2003 included the completion of our acquisition of Navion AS; our new partnership with Skaugen PetroTrans, which marked our entrance into the strategically important • to invest in our people and systems lightering business; our fleet renewal to differentiate ourselves from our program, which reduced the average We have assiduously pursued our goals over the past five years and I believe that today we have size, scale and sustainable profitability unparalleled in the bulk shipping industry. In a highly fragmented industry, Teekay now carries more than 10 percent of the world’s seaborne oil. This is the platform from which we expect to continue our ambitious growth and innovation as the world’s leading marine midstream company. I believe that our best years lie ahead! I want to take this opportunity to thank Morris Feder, who retired from the Board of Directors in late 2003, for his 10 years of exemplary service to Teekay, and welcome his successor, Tore Sandvold. I am pleased to report that 2003 Teekay’s business is divided into two We expect the tanker market to was a very successful year for main segments: our Spot Tanker remain finely balanced for several Teekay Shipping. The company Segment, in which our premier fleet more years, so we are investing in produced excellent financial results as of approximately 85 tankers trade at new ships for our spot fleet and have our growth strategy of recent years market-related rates within our large 12 newbuilding Aframaxes due to continued to pay off during one of the network of repeat contracts and deliver over the next three years. strongest tanker markets on record. business relationships with major These ships were ordered at prices We strengthened our company’s customers; and our Fixed-Rate substantially below today’s levels, financial future through profitable Segment, which consists of a large providing us with a relative cost investments in existing business portfolio of long-term contracts that advantage. During 2003, we acquired areas, as well as through expansion provide stable cash flows through the a 50-percent stake in Skaugen into a number of new areas. And we shipping cycle. PetroTrans, the world’s leading ship- continued to differentiate our company through the broad range of integrated services we offer our customers as part of our marine midstream concept. In 2003 our Spot Tanker Segment produced strong results with cash flow from vessel operations increasing to $391.1 million, up from $172.8 million to-ship transfer company. This acquisition allows us to further extend our reach into our customers’ logistics chain. in 2002. Through the acquisition of Our Fixed-Rate Segment continued its Our 2003 net income was $177.4 Navion AS, which closed at the end of growth in 2003 with cash flow from million, or $4.35 per share, compared the first quarter of 2003, and a number vessel operations increasing to $189.9 with $53.4 million, or $1.33 per share, of well-timed vessel in-charters during million, compared to $95.8 million in in 2002. The 2003 results were net of the first half of 2003, the number of 2002. The largest single factor in this $118.3 million, or $2.91 per share, of tankers in our spot trading fleet increase was the addition of Navion’s competitors, and to assure enduring age of our spot fleet to only seven I commend our employees around the vessel write-downs and other charges. increased from an average of 70 large shuttle tanker operations during performance; years; and our continued growth in all world, at sea and ashore, for an 2003 produced record cash flow from vessels in 2002 to an average fleet size the second quarter of the year. In conventional tanker sectors through an outstanding job in 2003, and thank our vessel operations of $581.0 million, of 85 vessels in 2003. The timing of addition, a number of previously active in-chartering program of shorter- customers, partners and shareholders compared to $268.6 million in 2002. this increase could hardly have been concluded projects came on-stream • to use our balance sheet strength to take advantage of investment opportunities and achieve the lowest cost of capital in our industry; and term operating leases to supplement for their continuing support. our owned fleet. We also announced our intention to enter the gas shipping • to achieve favorable short-term business as part of our strategy to cater returns on capital while pursuing to all aspects of our customers’ logistics sustainable long-term growth. chain and we followed up on this plan in March of 2004 with our agreement to C. Sean Day Chairman of the Board better as spot tanker rates increased to during the year: the delivery of four near-record levels in 2003, with Suezmax tankers destined for our Teekay’s Aframax fleet averaging North Sea and Brazilian shuttle $24,900 per calendar ship day. continued on page 14 p12 Teekay Shipping Corporation 2003 Annual Report Teekay Shipping Corporation 2003 Annual Report p13 “A critical factor in the success of our business is the continued trust of our customers in the quality of our fleet, our operations and our service. We devote great efforts to ensuring that we continue to earn this trust. ” continued from page 13 activities; the delivery of five new A critical factor in the success of our the ISM code. We also maintained our quarter of 2004. With its fleet of two We believe that Teekay‘s future is this talented team and their capacity to tankers on 12-year charters to business is the continued trust of our focus on operational performance and recently delivered LNG carriers, plus bright. Today, we are positioned as successfully manage change that lies ConocoPhillips; and the completion of customers in the quality of our fleet, on our trend of steadily improving two due for delivery later this year, the preferred provider of marine at the heart of what makes Teekay an export solution for the Ardmore oil our operations and our service. We safety statistics, consistently earning Tapias will provide us with a growth services to the oil industry. Our large truly different. field, involving two shuttle tankers and devote great efforts to ensuring that top ratings from customers and platform in LNG, the fastest growing fixed-rate contract portfolio will related mooring systems. And new we continue to earn this trust. In 2003, regulatory bodies alike. sector of seaborne energy provide us with a solid base of stable projects signed during the course of these efforts included fleet renewal, the year will further enhance our new quality systems and a streamlining Fixed-Rate Segment upon their of our organizational structure. To maintain our focus on customer service as our business continues to grow, we reorganized our company in delivery in 2004. These include two additional 13-year Suezmax shuttle tanker contracts in Brazil and a 10-year contract with Unocal for a converted Teekay tanker to provide floating storage on a new oil field in Thailand. From modest beginnings in 1998, our Through the addition of new ships and 2003 into four business units: Teekay the sale of 16 older single-hulled ships, Tanker Services, focusing on our we reduced the average age of our conventional tanker business; Teekay fleet from 10 years at the end of 2002 Navion Shuttle Tankers, focusing on to seven years at the end of 2003 our shuttle tanker business in the (including newbuildings). We continued to make large investments in future North Sea and elsewhere; Teekay Gas and Offshore, focusing on liquefied Fixed-Rate Segment, based on organic fleet growth, with new ships natural gas (LNG) transportation and contracts secured through 2003, is worth more than $1 billion expected to floating storage solutions; and Teekay expected to reach annualized cash join our fleet over the next four years. Marine Services, focusing on the flow from vessel operations of approximately $285 million by the fourth quarter of 2004. With an average remaining contract length of over seven years, we expect these stable cash flows to extend through the shipping cycles. In 2003, the growth in this stable revenue stream led to Teekay increasing its quarterly dividend payments for the first time since becoming a public company in 1995. During the year, we further consolidated our position as a marine and technical operations of our fleet. quality leader with some of the most In March 2004, we commenced an advanced management systems in our exciting new chapter in our business. industry. We became the first shipping We agreed to acquire Naviera F. company to achieve certification for Tapias S.A., Spain’s largest provider of a fully integrated management seaborne energy transportation, for system, covering quality (ISO 9001), $810 million in cash and assumed environment (ISO 14001), occupational debt plus $540 million in newbuilding health and safety (OSHAS 18000) and commitments. The transaction is scheduled to close during the second transportation. In addition, Tapias’ cash flows, while the considerable fleet of nine modern conventional operating leverage of our spot fleet Suezmax tankers, including three will allow us to capitalize on the newbuildings on order, will extend our continued strength of the tanker leading position in the oil shipping market. And our strong balance sheet market. With the majority of Tapias’ will allow us to pursue our disciplined ships on long-term, fixed-rate growth strategy whenever attractive charters, we anticipate the acquisition opportunities arise. will further increase our annualized cash flow from vessel operations in our Fixed-Rate Segment from $285 million to approximately $400 million by the end of 2004. Because these long-term, stable cash flows are more than sufficient to cover the debt financing in Tapias, the acquisition is expected to have only limited impact on Teekay’s liquidity. Furthermore, we are entering into a new joint venture with the shareholders of Tapias, which is expected to provide us with further opportunities in the fast growing Spanish energy import market. Looking back, 2003 was an exciting year for Teekay. We grew our business by almost 50 percent and delivered strong operational results. We successfully integrated new businesses, developed innovative services and restructured our organization, all while maintaining the highest standards of fleet operation in the industry. These achievements were the result of the outstanding effort and dedication of our staff, on board our ships and in our offices around the world. It is the entrepreneurial spirit of I thank our customers for trusting us with their business and I thank our shareholders for their continued support of Teekay. Bjorn Moller President and CEO p14 Teekay Shipping Corporation 2003 Annual Report Teekay Shipping Corporation 2003 Annual Report p15 tanker market review Tanker Freight Market Crude Tanker TCEs* y a D r e P $ S U 100,000 80,000 60,000 40,000 20,000 0 0 0 q 1 0 0 q 2 0 0 q 3 0 0 q 4 1 0 q 1 1 0 q 2 1 0 q 3 1 0 q 4 2 0 q 1 2 0 q 2 2 0 q 3 2 0 q 4 3 0 q 1 3 0 q 2 3 0 q 3 3 0 q 4 Crude Tanker Freight Market • The spot tanker market strengthened significantly in 2003 rising to the highest level since 2000. • The strength in the tanker market during 2003 was attributable to strong tanker demand and restrained fleet growth. • During the first half of 2003, short-term factors such as the Prestige incident, cautionary stockbuilding ahead of the war in Iraq, and production disruptions in Venezuela provided a boost to tanker freight rates. • Strong global economic growth drove up world oil demand in the second half of the year, leading to a Tanker Demand Annual Change in World Oil Demand and Supply 4.0 3.0 2.0 1.0 0 -1.0 -2.0 -3.0 e g a t n e c r e P 4 9 9 1 5 9 9 1 6 9 9 1 7 9 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 Aframax Suezmax VLCC significant increase in tanker demand. Oil Demand Oil Supply Source: CRS Source: IEA, analysts’ average Product Tanker TCEs* y a D r e P $ S U 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 0 0 q 1 0 0 q 2 0 0 q 3 0 0 q 4 1 0 q 1 1 0 q 2 1 0 q 3 1 0 q 4 2 0 q 1 2 0 q 2 2 0 q 3 2 0 q 4 3 0 q 1 3 0 q 2 3 0 q 3 3 0 q 4 Product Tanker Freight Market • Product tanker freight rates rose above 2002 levels but were not as high as the last peak experienced during 2001. • Product tanker demand rose by 3.5 percent while the world fleet size remained relatively unchanged. • A decline in product imports into Japan and South Korea had a negative effect on Large Range (LR) tanker rates in the Far East. Demand for petrochemical feedstock in both countries remained stagnant. • Medium Range (MR) tanker Time-Charter Equivalent rates rose to within $1,000 per day of the 2001 peak. Demand within this sector was boosted by rising product Medium Range Average LR I AG-Japan LR II AG-Japan imports into China and the United States. * TCE – Time-Charter Equivalent Source: CRS Annual Oil Demand Growth in China 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 -2.0 e g a t n e c r e P 4 9 9 1 5 9 9 1 6 9 9 1 7 9 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 World Oil Demand and Supply • According to the International Energy Agency (IEA), global oil demand grew by 2.1 percent in 2003, the fastest growth rate in the past six years. China and the United States accounted for most of the growth in global oil demand. • Global oil production rose by 3.7 percent over the previous year to 79.3 million barrels per day (mb/d). Tonne-mile intensive OPEC production rose by 1.9 mb/d while non-OPEC production gains accounted for the remaining 0.9 mb/d. • According to industry analysts, overall tanker demand grew at an annual rate of over 7.0 percent during 2003. Oil Demand Growth in China • China’s oil demand grew by 0.6 mb/d (or 12.2 percent) in 2003 over 2002. China accounted for almost 40 percent of global oil demand growth in 2003 and is expected again to be a major factor in 2004. • The rise in oil consumption was attributable to growth in automobile sales coupled with rising demand from the industrial, construction and agricultural sectors. • During 2003, China’s crude oil and product imports rose by 0.4 mb/d and 0.2 mb/d, respectively, over 2002 as domestic production remained stagnant. Constraints in refining infrastructure led to an increase in petroleum product imports. Source: IEA • The IEA forecasts that China’s oil demand will rise by 10.9 percent to 6.1 mb/d during 2004, making China the second largest oil consumer in the world, after the United States. continued on page 18 p16 Teekay Shipping Corporation 2003 Annual Report Teekay Shipping Corporation 2003 Annual Report p17 tanker market review (continued) continued from page 17 Tanker Supply Tanker Fleet Net Changes 40 30 20 10 0 -10 -20 -30 t h g i e w d a e D n o i l l i M 4 9 9 1 5 9 9 1 6 9 9 1 7 9 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 + 7 0 0 2 Tanker Fleet Net Changes • The world tanker fleet rose to 317.0 million deadweight tonnes (mdwt) in 2003, up by 3.1 percent from end of 2002. The increase was partially offset by Oil/Bulk/Ore carriers (OBOs) switching from oil trade to more lucrative dry bulk trades. • New deliveries rose to 30.5 mdwt from 23.6 mdwt in 2002. Despite strong freight market conditions, deletions in 2003 (at 22.0 mdwt) rose to the highest level since the early 1980s. • Strong freight markets led to renewed interest in new orders for tankers as the tanker orderbook rose to 77.7 mdwt at the end of 2003, from 59.4 mdwt at the end of 2002. There is minimal near-term impact of new ordering as the lead-time at shipyards is now over three years. Deliveries Deletions On Order Net Change • The 27.8 mdwt in new deliveries scheduled for 2004 and the 7.6 mdwt Source: CRS in first quarter of 2005 are expected to be largely offset by the recent International Maritime Organization regulations, which are expected to phase out 10 percent of the existing world tanker fleet, or 32 mdwt, by April 2005. Market Outlook World Tanker Fleet Utilization vs. Aframax Average TCE 100 98 96 94 92 90 88 86 84 82 80 e g a t n e c r e P 50 45 40 35 30 25 20 15 10 5 0 y a d r e p $ S U s ’ 0 0 0 4 9 q 1 4 9 q 3 5 9 q 1 5 9 q 3 6 9 q 1 6 9 q 3 7 9 q 1 7 9 q 3 8 9 q 1 8 9 q 3 9 9 q 1 9 9 q 3 0 0 q 1 0 0 q 3 1 0 q 1 1 0 q 3 2 0 q 1 2 0 q 3 3 0 q 1 3 0 q 3 Utilization TCE Source: Platou/CRS Conclusion and Outlook • Considering inefficiencies, such as partial loading and technical maintenance periods, 90 percent utilization is considered full use of the world’s tanker fleet. This correlates closely to the spikes observed in earnings when utilization reaches 90 percent or higher. • Strong global economic growth led by China and the United States is expected to result in above average growth in global oil consumption during 2004. The 2.1 percent increase in oil demand forecast by the IEA should typically lead to a 3.5 - 4.0 percent increase in tanker demand. Other potential short-term factors could provide a further positive effect. • The inflow of new tonnage into the world tanker fleet looks likely to be largely offset by mandated tanker scrapping and further switching over of OBOs to dry bulk trades. • Considering the high tanker utilization observed in 2003, the expected demand growth and the restricted net inflow of tonnage, the equation between tanker demand and supply for the next couple of years is likely to be finely balanced, thus setting the stage for continued strong tanker freight markets. Newly Adopted IMO Regulations On December 9, 2003 the International Maritime Organization (IMO), the global maritime regulatory body, announced regulations accelerating the phase-out of single-hull tankers. These regulations have been adopted in response to the Prestige incident at the end of 2002, which led to an increase in focus on older, single-hull tankers. The new regulations are scheduled to come into effect on April 5, 2005 imposing a more rigorous inspection regime for older tankers and banning the carriage of heavy oils on single-hull tankers. A majority of the non double-hull tanker fleet will be phased-out by 2010 as a result of the regulations. The immediate effect is that approximately 32 million deadweight tonnes (mdwt), or 10 percent, of the existing world tanker fleet is expected to be banned from worldwide trading when the regulations come into force on April 5, 2005. This could lead to an increase in scrapping activity in 2004 if affected tonnage is sold for demolition ahead of the mandated phase-out date. A further 87 mdwt, or 27 percent, of the world tanker fleet is expected to be excluded from the majority of oil tanker trades by 2010. The accelerated phase-out schedule could lead to increased commercial discrimination against older non double-hull tonnage, thus maintaining the tight balance between supply and demand. p18 p18 Teekay Shipping Corporation 2003 Annual Report Teekay Shipping Corporation 2003 Annual Report Teekay Shipping Corporation 2003 Annual Report Teekay Shipping Corporation 2003 Annual Report p19 p19 Teekay’s fleet As at March 1, 2004 Number of Vessels Spot Tanker Segment Very Large Crude Carriers Suezmax Tankers Aframax Tankers Large Product Tankers Small Product Tankers Total Spot Tanker Segment Fleet Fixed-Rate Segment Shuttle Tankers Conventional Tankers Floating Storage & Offtake Units LPG/Methanol Carriers Total Fixed-Rate Segment Fleet TOTAL FLEET Owned Chartered-in Vessels Newbuildings on Order Total 1 1 43 – – 45 29 8 3 1 41 86 2 5 15 5 10 37 13 – – 1 14 51 – _ 12 – – 12 1 2 – – 3 15 3 6 70 5 10 94 43 10 3 2 58 152 Visit the Investor Centre at www.teekay.com for updates to Teekay’s fleet. p20 Teekay Shipping Corporation 2003 Annual Report Teekay Shipping Corporation 2003 Annual Report p21 board of directors reconciliations Back row (left to right) Axel Karlshoej Chairman Emeritus Bruce C. Bell Eileen A. Mercier Tore I. Sandvold Bjorn Moller President and CEO Front row (left to right) Dr. Ian D. Blackburne C. Sean Day Chairman of the Board Thomas Kuo-Yuen Hsu Leif O. Höegh board committees Audit Committee Compensation Committee Eileen A. Mercier (Chair) Leif O. Höegh Tore I. Sandvold Axel Karlshoej (Chair) Dr. Ian D. Blackburne Thomas Kuo-Yuen Hsu Nominating and Governance Committee C. Sean Day (Chair) Bruce C. Bell Eileen A. Mercier Cash flow from vessel operations represents income from vessel operations before depreciation and amortization expense. Cash flow from vessel operations is included because such data is used by certain investors to measure a company’s financial performance. Cash flow from vessel operations is not required by accounting principles generally accepted in the United States and should not be considered as an alternative to net income or any other indicator of the Company’s performance required by accounting principles generally accepted in the United States. The following tables reconcile the Company's income from vessel operations with cash flow from vessel operations: Actual Income from vessel operations Depreciation and amortization Cash flow from vessel operations Projection Income from vessel operations Depreciation and amortization Cash flow from vessel operations *Projected annualized results at the end of 2004. Nine Months Ended December 31, 1999 Year Ended December 31, 2000 Year Ended December 31, 2001 Year Ended December 31, 2002 Year Ended December 31, 2003 23,572 68,299 91,871 327,675 100,153 427,828 383,463 136,283 519,746 119,346 149,296 268,642 389,736 191,237 580,973 Year Ended December 31, 2004* (incl. Tapias) Year Ended December 31, 2004* (excl. Tapias) 280,000 120,000 400,000 195,000 90,000 285,000 Year Ended December 31, 2002 Spot Tanker Segment Fixed-Rate Segment Actual Income from vessel operations Depreciation and amortization Cash flow from vessel operations 51,938 43,889 95,827 67,408 105,407 172,815 Year Ended December 31, 2003 Fixed-Rate Segment Spot Tanker Segment 105,007 84,863 189,870 284,729 106,374 391,103 Total 389,736 191,237 580,973 Total 119,346 149,296 268,642 forward-looking statements This Annual Report contains forward-looking statements (as defined in Section 21E of the Securities Exchange Act of 1934, as amended) which reflect management’s current views with respect to certain future events and performance, including statements regarding the Company’s growth prospects and strategy; tanker market fundamentals, including the balance of supply and demand in the tanker market, and spot tanker charter rates; non- OPEC and OPEC production; anticipated annualized cash flow from vessel operations from the Company’s fixed-rate segment by the end of 2004; the impact of the Tapias acquisition on Teekay’s liquidity and future cash flow from vessel operations and strategic position; the financing requirements for the Tapias acquisition; the closing of the Tapias acquisition; the growth prospects of the LNG shipping sector and the joint venture with Tapias’ shareholders; growth of Teekay’s fleet; newbuilding delivery dates and the commencement of service under long-term contracts; and applicable industry regulations and their effect on the size of the world tanker fleet. The following factors are among those that could cause actual results to differ materially from the forward-looking statements, which involve risks and uncertainties, and that should be considered in evaluating any such statement: changes in production of or demand for oil, petroleum products and LNG, either generally or in particular regions; greater or less than anticipated levels of tanker newbuilding orders or greater or less than anticipated rates of tanker scrapping; changes in trading patterns significantly impacting overall tanker tonnage requirements; changes in applicable industry laws and regulations and the timing of implementation of new laws and regulations; changes in the typical seasonal variations in tanker charter rates; changes in the offshore production of oil; the potential failure to close the Tapias transaction; potential inability of Teekay to integrate Tapias successfully; the potential for early termination of long-term contracts and inability of the Company to renew or replace long-term contracts; potential breach of the newbuilding contracts by any of the parties, or potential delays or non-delivery of the newbuildings; the Company’s future capital expenditure requirements; and other factors discussed in Teekay’s filings from time to time with the SEC, including its Report on Form 20-F for the fiscal year ended December 31, 2003. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company’s expectations with respect thereto or any change in events, conditions or circumstances on which any such statement is based. p22 Teekay Shipping Corporation 2003 Annual Report Teekay Shipping Corporation 2003 Annual Report p23 corporate information TK House Share Price Information Bayside Executive Park The following table sets forth on a per share basis the high and low West Bay Street & Blake Road sales prices for consolidated trading in the Company’s common P.O. Box AP-59212 Nassau, The Bahamas shares on the New York Stock Exchange for each quarter during the 12 months ended December 31, 2003: Stock Transfer Agent and Registrar The Bank of New York 101 Barclay Street, 11 West P.O. Box 11258 Church Street Station New York, New York 10286 Tel: 1-800-524-4458 Quarter Ended High Low Mar. 31, 2003 Jun. 30, 2003 Sept. 30, 2003 Dec. 31, 2003 $43.16 $43.67 $47.25 $57.35 $35.71 $36.25 $41.95 $41.91 Dividends Declared (Per Share) $0.215 $0.215 $0.215 $0.25 Stock Exchange Listing New York Stock Exchange Symbol: TK There were 40,611,975 million shares outstanding at December 31, 2003. Investor Relations Additional copies of the Company's Annual Report are available by writing or calling to: Teekay Shipping (Canada) Ltd., Investor Relations Suite 2000 Bentall 5 550 Burrard Street Vancouver, BC Canada V6C 2K2 Tel: +1 (604) 844 6654 Fax: +1 (604) 681 3011 E-mail: investor.relations@teekay.com Web site: www.teekay.com p24 Teekay Shipping Corporation 2003 Annual Report Teekay Shipping Corporation www.teekay.com Teekay Shipping Corporation 

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