Teekay Corporation Annual Report 2003

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FY2003 Annual Report · Teekay Corporation

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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.

-0.5

600

500

400

300

200

100

1,800

1,500

1,200

900

600

300

Our unparalleled network of people, technology, and ships

make us an essential link between upstream oil production and downstream

99(2)

99(2) 00

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

upstream

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.

Teekay Shipping Corporation 2003 Annual Report

downs tream

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.

Teekay Shipping Corporation 2003 Annual Report

midstream

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.

Teekay Shipping Corporation 2003 Annual Report

Teekay: the marine

midstream

company

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.

Teekay Shipping Corporation 2003 Annual Report

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

p11

Chairman’s message

CEO’s report

to shareholders

C. Sean Day, Chairman of the Board

Bjorn Moller, President and CEO

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.

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

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

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
q
1

0
0
q
2

0
0
q
3

0
0
q
4

1
0
q
1

1
0
q
2

1
0
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3

1
0
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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

-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
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

p17

tanker market review (continued)

continued from page 17

Tanker Supply

Tanker Fleet Net Changes

-10

-20

-30

t
h
g
i
e
w
d
a
e
D
n
o
i
l
l
i

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

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e
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S
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0
0
0

4
9
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1

4
9
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3

5
9
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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
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1

0
0
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3

1
0
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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

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

–

152

Visit the Investor Centre at www.teekay.com for updates to Teekay’s fleet.

p20

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

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

$0.25

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