Teekay firms up deal with Sevan

Teekay Corporation (NYSE: TK)  has now entered into an agreement with Sevan Marine ASA and holders of more than two-thirds of each of Sevan’s bond loans, that will see it go ahead with its plans to acquire three cylindrical FPSO units from Sevan Marine ASA  and to take an equity interest in a recapitalized Sevan.

Under the terms of the agreement, which has also been approved by the Board of Directors of Teekay and Sevan, Teekay will:

• Acquire from Sevan three FPSO units, the Sevan Piranema (Piranema), the Sevan Hummingbird (Hummingbird), and Sevan Voyageur (Voyageur), along with their existing charter contracts, for an aggregate purchase price of $668 million plus the remaining cost required to complete the upgrade of the Voyageur, which is estimated to be $110 – $130 million;
• Invest $25 million in a new issue of Sevan equity, which is expected to provide Teekay with a 40 percent ownership interest in a recapitalized Sevan; and
• Enter into a cooperation agreement giving Teekay the right to acquire future FPSO projects developed by Sevan.

Acquisition of Three FPSO Units

The Piranema and Hummingbird will be acquired by Teekay immediately upon closing of the transaction, which is expected to occur during the fourth quarter of 2011. The Voyageur will be acquired when the unit is deployed and has commenced its new charter contract on the Huntington field, which is expected to occur during the third quarter of 2012.

The 2007-built Piranema FPSO is currently operating under a long-term charter to Petrobras S.A. on the Piranema field located offshore Brazil. The charter includes a firm contract period ending in March 2018 followed by up to 11 one-year extension options.

The 2008-built Hummingbird FPSO is currently operating under a charter to Centrica Energy Upstream (Centrica) on the Chestnut field in the UK sector of the North Sea. The Hummingbird FPSO contract was recently extended to September 2012 and thereafter, includes one six-month extension option, one three-year extension option, and two one-year extension options.

The 2009-built Voyageur FPSO operated successfully on the Shelley field in the U.K. sector of the North Sea from August 2009 to August 2010. It is undergoing an upgrade prior to commencing a charter contract with E.ON Ruhrgas UK E&P (E.ON) on the Huntington field in the U.K. sector of the North Sea. This charter is expected to commence in the third quarter of 2012 for a firm period of five years, with extension options. In addition to agreeing to acquire this FPSO unit from Sevan upon commencement of the E.ON contract, Teekay will finance the remaining upgrade cost which is expected to be $110 – $130 million.

Under Teekay’s existing omnibus agreement and as further agreed between Teekay and Teekay Offshore Partners L.P. (Teekay Offshore), following the closing of the transaction, the Piranema will be eligible for sale to Teekay Offshore and the Voyageur will be eligible for sale to Teekay Offshore upon commencement of its contract with E.ON, both at fair market value. The Hummingbird will be eligible for sale at fair market value upon commencement of a new charter contract with a firm period of greater than three years in duration.

Teekay intends to finance the purchase of the three FPSO units through a combination of assuming Sevan’s existing $230 million bank debt facility secured by the Voyageur, arranging new debt facilities, and utilizing its existing liquidity. Teekay expects that Teekay Offshore would finance its purchase of any FPSO units from Teekay through a combination of common unit issuance, assumption of debt or the arrangement of new debt facilities, and utilization of existing liquidity.

Investment in New Sevan Equity

As part of the agreement, Sevan intends to raise the Norwegian Kroner equivalent of $50 million in new equity of which Teekay will invest $25 million in equity of a recapitalized Sevan. Existing Sevan shareholders and unsecured bondholders will be given the opportunity to acquire the remaining $25 million of the equity placement. Assuming the completion of the placement, Teekay will own 40 percent, Sevan’s existing shareholders will own 40 percent, and the unsecured bondholders will own 20 percent in the recapitalized Sevan on a pro forma, fully-diluted basis. Following its equity investment in Sevan, Teekay will be entitled to appoint two directors to Sevan’s Board of Directors.

Sevan will use the proceeds from the sale of the three Sevan FPSOs to Teekay to repay all indebtedness secured by these assets. Following the FPSO transactions and the proposed Equity Placement, Sevan will be a substantially net debt free company with:

• Two partially-completed hulls available for upgrade to FPSOs or other offshore projects;
• A licensing agreement with ENI;
• Engineering and offshore project development businesses (including 100 percent ownership of engineering subsidiary, Kanfa AS);
• Intellectual property rights, including offshore unit design patents; and
• Approximately $50 million in cash from the equity placement.

In addition, Sevan will retain the $83 million debt facility (of which $37.9 million principal amount is currently outstanding), which is serviced in full by revenue earned under an existing licensing arrangement.

Going forward, Teekay expects that Sevan’s business will mainly focus on applying its engineering, project development, and marketing capabilities to develop new offshore projects (which Teekay shall have the right to purchase, as described below), and developing opportunities to earn fees from licensing its intellectual property rights. Following its recapitalization, it is anticipated that Sevan will continue to be a publicly-listed company with shares traded on the Oslo Stock Exchange.

Cooperation Agreement Between Teekay and New Sevan

On closing, Teekay and Sevan will enter into a cooperation agreement relating to joint marketing of offshore projects, the development of future projects, and the financing of such projects. As part of the cooperation agreement, Sevan will be obligated to offer to sell any FPSO or other offshore projects, and associated charter contracts, to Teekay at fair market value.

Teekay and Sevan will also enter into reciprocal service agreements for access to each other’s resources related to engineering, project and technology development, assistance with redeployment and other FPSO-related work, subject to availability and further terms and conditions to be agreed by the two parties.

October 18, 2011