Author Topic: TOO - Teekay Offshore Partners L.P.  (Read 28892 times)

bjakes00

  • Newbie
  • *
  • Posts: 35
Re: TOO - Teekay Offshore Partners L.P.
« Reply #20 on: September 07, 2018, 02:07:17 AM »
I do not see any positive FCF at all. What i am missing ?

Can you elaborate on which numbers you are looking at and provide how you are getting to FCF? Then let's discuss further.


petec

  • Hero Member
  • *****
  • Posts: 1724
Re: TOO - Teekay Offshore Partners L.P.
« Reply #21 on: September 07, 2018, 02:51:20 AM »
I do not see any positive FCF at all. What i am missing ?

Probably all the adjustments management are making to make themselves look better ;)

Note: this is a joke, before all the bulls get snarky.

Snorky

  • Newbie
  • *
  • Posts: 45
Re: TOO - Teekay Offshore Partners L.P.
« Reply #22 on: September 07, 2018, 05:15:33 AM »
Im just looking at morningstar and deduct capex from  operating cash flow.

peterHK

  • Full Member
  • ***
  • Posts: 114
Re: TOO - Teekay Offshore Partners L.P.
« Reply #23 on: September 07, 2018, 06:52:10 AM »
Im just looking at morningstar and deduct capex from  operating cash flow.

Last 12 months I believe they had significant new build obligations that were being completed.

Last quarter they generated $47.8mn cash from ops and spent $14.4 in capex, with $10.4mn in asset sales, so really only about $4.4mn in net capex (data from CapIQ).

My question is really what's the normalized level of FCF from the business. I know capex was elevated recently, but I don't have a great sense of the earnings power or margins or capex requirements yet as I haven't really looking into this in dept. 

petec

  • Hero Member
  • *****
  • Posts: 1724
Re: TOO - Teekay Offshore Partners L.P.
« Reply #24 on: September 07, 2018, 07:19:22 AM »

Last quarter they generated $47.8mn cash from ops and spent $14.4 in capex.


That's a very different number from the $53m in maintenance capex cited in the presentation linked above.

bjakes00

  • Newbie
  • *
  • Posts: 35
Re: TOO - Teekay Offshore Partners L.P.
« Reply #25 on: September 07, 2018, 08:48:12 AM »
Yes their average quarterly maintenance capex over the last 6 quarters has been $42m (min: $32m, max: $53m).

That being said, their average quarterly cash flow (pre. maintenance capex) is $70m and average EBITDA is $130m over the same six quarters, which provides the roughly $28m average distributable cash flow that I see.

My source for this are the Net Income to DCF bridges they provide at the end of their results presentations each quarter.

Two things to note in from the recent two quarters that you can clearly see from the same bridges:
1) The distributions on preferred units have come down 30% or so since the BAM refi (which is good)
2) The partnerships share of equity accounted JV's DCF has almost doubled (which is also good, but given the partnership does not control these DCFs it is difficult to count on the timing of the distributions).

Additionally, their Net Debt / EBITDA averaged 6.8x prior to the BAM recap, whereas it is now 5.8x currently.

Annualised DCF based on the current 6c DCF is 24c providing a c. 11% yield on the current price.

The key metrics I'll be watching are the leverage ratios, and the (EBITDA - capex) to DCF conversion.

Let me know if you have any other views as I really need to hear all sides to this story.

The other point I am not fully comfortable with is that there is "no oil price risk" - whats clear to me is that they did take some strain in 2014 when the price collapsed but that was also obviously because they were over levered (which is not to say they have a pristine balance sheet at the moment...)

EDIT: I have a lot more work to do on figuring out how the cash flow statement and the DCF bridge hangs together!
« Last Edit: September 07, 2018, 09:15:24 AM by bjakes00 »

Packer16

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 3095
  • Go Riders Go! Go Pack Go!
Re: TOO - Teekay Offshore Partners L.P.
« Reply #26 on: September 07, 2018, 09:30:53 AM »
Remember you have a good business (shuttle tankers) & an OK to bad business (everything else).  In the OK bad business, you have unused vessels & contracts with counterparties at reduced rates (on the order of $50 m per year through 2019).  Looking at this in the aggregate is difficult especially given the Brookfield will invest in the good business but not in the bad business.  Looking at as 2 business with an option to run-off as much of the OK to bad business IMO is the best way to look at this.

Packer

Schwab711

  • Hero Member
  • *****
  • Posts: 1455
Re: TOO - Teekay Offshore Partners L.P.
« Reply #27 on: September 07, 2018, 09:44:51 AM »
Yes their average quarterly maintenance capex over the last 6 quarters has been $42m (min: $32m, max: $53m).

That being said, their average quarterly cash flow (pre. maintenance capex) is $70m and average EBITDA is $130m over the same six quarters, which provides the roughly $28m average distributable cash flow that I see.

My source for this are the Net Income to DCF bridges they provide at the end of their results presentations each quarter.

Two things to note in from the recent two quarters that you can clearly see from the same bridges:
1) The distributions on preferred units have come down 30% or so since the BAM refi (which is good)
2) The partnerships share of equity accounted JV's DCF has almost doubled (which is also good, but given the partnership does not control these DCFs it is difficult to count on the timing of the distributions).

Additionally, their Net Debt / EBITDA averaged 6.8x prior to the BAM recap, whereas it is now 5.8x currently.

Annualised DCF based on the current 6c DCF is 24c providing a c. 11% yield on the current price.

The key metrics I'll be watching are the leverage ratios, and the (EBITDA - capex) to DCF conversion.

Let me know if you have any other views as I really need to hear all sides to this story.

The other point I am not fully comfortable with is that there is "no oil price risk" - whats clear to me is that they did take some strain in 2014 when the price collapsed but that was also obviously because they were over levered (which is not to say they have a pristine balance sheet at the moment...)

EDIT: I have a lot more work to do on figuring out how the cash flow statement and the DCF bridge hangs together!

Then you get credit for the growth depreciation in cash flow without ever considering the cost of growth. If there's no growth, we can't use a valuation multiple since the company would be finite-lived. I think maintenance capex is a good starting point but it's a minimum bound of whatever 'true' LT capex is.

I agree with Packer in that I think it's easier to look at the shuttle tankers biz separate from the other biz lines. The shuttle tankers portion should probably be valued at 10x EBITDA like KNOP. What's the value of RemainCo is the question.

bjakes00

  • Newbie
  • *
  • Posts: 35
Re: TOO - Teekay Offshore Partners L.P.
« Reply #28 on: September 07, 2018, 10:34:40 AM »
Looking at as 2 business with an option to run-off as much of the OK to bad business IMO is the best way to look at this.

Thanks this is super helpful and will put some work into understanding what the good business is worth first. Cheers

petec

  • Hero Member
  • *****
  • Posts: 1724
Re: TOO - Teekay Offshore Partners L.P.
« Reply #29 on: September 09, 2018, 12:05:13 AM »
Preliminary thoughts on this. FYI I'm a shareholder in SSW so it's a natural compare. I want to like this because I like buying cheap cash flows run by very smart people - but so far I'm not quite there. My major concerns are below:

- These vessels are clearly more specialised than Seaspan's but to my surprise they're also (on average) older vessels on shorter contracts. That reduces the visibility of cash flows and also reduces the value of the termination payments should any arise.
- There is no commentary in the 20F or quarterly releases on the pricing cycle. Perhaps that means there isn't one but that would surprise me, and the fact that the company has taken major writedowns as they have adjusted DCF assumptions for each asset suggests prices have been falling. I find it very hard to tell whether contracts will roll on to higher or lower prices, which matters given the short contract durations.
- The writedowns suggest this isn't all that insulated from oil prices (indeed several of the contracts have explicit links to prices).
- One of the things I like about SSW is that the combination of consolidation and low orderbook might lead to better price discipline, and I'm not sure I can make the same argument here.
- P:BV (once you adjust for prefs) isn't much below 1.
- Free cash flows will be enormous compared to market cap if capex drops. Another thing I really like about SSW is that newbuild capex is pretty much over and maintenance capex is low. TOO is still ordering vessels so investing capex will continue (but fall). What confuses me badly is the maintenance capex figure in their quarterly releases. If that's a real, sustained maintenance capex figure then the FCF isn't all that exciting. Understanding capex is my major project.

The other thing I am wary of is assuming shuttles is a "good" business and assigning a 10x multiple to it. Certainly there's some specialised kit on these vessels but none of it is rocket science in this technological age. There's no moat there. And it's a small market - less than 100 vessels worldwide - so it doesn't take a lot of newbuilds or many field shutdowns to create overcapacity. Fundamentally this is, like containers, a business where the major barrier to entry is access to capital and ROCE's won't be high. The way to make money is to capture a high (>>20%) FCF yield to equity and ride the deleverage as debt paydown causes equity value to grow within the EV.

More work to do and all thoughts welcome.

P