2005 Annual Report

TEEKAY SHIPPING CORPORATION 2005 ANNUAL REPORT TEEKAY – THE MARINE MIDSTREAM COMPANY© FINANCIAL HIGHLIGHTS Earnings per share(1) $ US $10 $9 $8 $7 $6 $5 $4 $3 $2 $1 $0 2001 2002 2003 2004 2005 YEAR ENDED YEAR ENDED DECEMBER 31, 2005 DECEMBER 31, 2004 Fiscal Year ended December 31 (in thousands of U.S. dollars, except per share data, or as otherwise indicated) Income Statement Data Cash flow from vessel operations(2) $ millions Voyage revenues $ 1,954,618 $ 2,219,238 $1,200 Income from vessel operations 631,776 821,186 Net income 570,900 757,440 $1,000 Balance Sheet Data $800 Total assets $ 5,294,100 $ 5,503,740 Total stockholders’ equity 2,236,542 2,237,358 $600 Per Share Data Earnings per share (1) $ 6.83 $ 8.63 $400 Weighted average shares outstanding – diluted (thousands) 83,548 87,729 $200 Other Financial Data $0 Cash flow from vessel operations(2) $ 698,121 $ 979,430 2001 2002 2003 2004 2005 Net debt to capitalization (%) (at end of period)(3) 39.5 41.9 Fiscal Year ended December 31 Vessel purchases, gross(4) 555,142 548,587 Total stockholders' equity $ millions $2,500 $2,000 $1,500 $1,000 $500 $0 2001 2002 2003 2004 2005 As at December 31 (1) Fully diluted, adjusted for 2:1 stock split on May 17, 2004. (2) Cash flow from vessel operations represents income from vessel operations before depreciation and amortization expense and vessel write-downs/(gain) loss on sale of vessels. Please see reconciliation on page 8. (3) PEPS units treated as equity. (4) Excludes vessels from the 2004 acquisition of Naviera F. Tapias SA. TABLE OF CONTENTS Letter to Shareholders 2 - 4 Board of Directors 5 Tanker Market Report 6 - 7 Reconciliation & Forward-Looking Statements 8 Corporate Information inside back cover LETTER TO SHAREHOLDERS We achieved an excellent return on shareholders’ equity of 25 percent, earned net income of $571 million, or $6.83 per share, and generated cash flow from vessel operations of just under $700 million.* A FUTURE BEYOND COMMODITY SHIPPING Our mission is to be the premier provider of marine services to our customers in the oil and gas industry. Today, through our dedicated pursuit of this mission, we offer the broadest range of products and services in the industry, transporting more than 10 percent of the world’s seaborne oil. Our services include: floating storage and shuttling of crude oil in the offshore sector; global transportation of crude oil, refined petroleum products and liquefied natural gas (LNG); ship-to-ship cargo transfer logistics; and marine project consulting. We are The Marine Midstream Bjorn Moller – President and CEO (L); C. Sean Day – Chairman of the Board (R) Company, linking our customers’ upstream oil and gas production with their downstream refining and distribution networks. A YEAR OF MAJOR STRIDES TOWARDS Our industry-leading marine franchise serves INDUSTRY LEADERSHIP our customers around the clock from our 17 office locations and with our fleet of more than 140 ships deployed worldwide. And, we have built an unrivalled capability to develop and execute complex projects, capitalizing on WE ARE PLEASED TO REPORT TO YOU ON ANOTHER – and further building – our Marine Midstream platform. Our capabilities continue to expand OUTSTANDING YEAR FOR TEEKAY SHIPPING. IN 2005, our role beyond cyclical commodity shipping, moving us further towards providing integrated STRONG PERFORMANCES IN EVERY AREA OF OUR logistics solutions that we believe will create higher long-term shareholder value. BUSINESS COMBINED TO PRODUCE THE SECOND-BEST GOOD STEWARDS OF CAPITAL FINANCIAL RESULT IN OUR COMPANY’S HISTORY. We remain focused on the good stewardship of our shareholders’ capital. In 2005, we WE ALSO TOOK IMPORTANT STEPS TO STRENGTHEN limited our new investment in high-priced cyclical assets. Instead, we used our significant TEEKAY’S COMPETITIVE POSITION FOR THE FUTURE. cash flow to grow our profitable, long-term contract business, increase our regular dividend payments for the third consecutive year, and conduct an aggressive share buyback program * Please see page 8 for a reconciliation of this non-GAAP measure to the most directly comparable GAAP financial measure. that saw us repurchase approximately 15 While the North Sea remained the corner- FAST-GROWING LNG BUSINESS percent of our stock last year. stone in our shuttle business, 2005 saw 2005 was Teekay’s second year in the LNG continued expansion of our shuttle activities We were aggressive with our stock shipping business and we continued our rapid globally. We secured long-term contracts for repurchases because in our view, Teekay’s expansion in this fastest-growing sector of additional ships in the fast-growing Brazilian share price does not fully reflect the value energy shipping. offshore market; we provided the first shuttle we have created through our unique business tanker to serve in Australia; and we supplied In May 2005, we took an important step in platform. We are taking steps to achieve the first-ever shuttle tanker in the Gulf of our LNG growth strategy through the public a higher sum-of-the-parts valuation of our Mexico, demonstrating the flexibility provided listing of Teekay LNG Partners, the first master shares through a combination of: value by shuttle solutions at a time when sub-sea limited partnership (MLP) engaged primarily creation through our disciplined growth pipelines were not in service in the aftermath in LNG shipping. The positive performance of strategy; value illumination such as our carve- of Hurricane Katrina. Teekay LNG Partners has provided us with a out of Teekay LNG Partners L.P. (NYSE: TGP); competitive cost of capital with which to fund and value distribution in the form of our Teekay is also a leader in the high-end market our growth in this capital-intensive business. dividend increases and share repurchases. for floating storage and offtake (FSO) vessels. As a majority shareholder in and the general Our FSO units currently serve in Australia, Our considerable operating leverage partner of Teekay LNG Partners, Teekay Asia and the North Sea, with further projects translates into strong earnings for Teekay benefits from the growing cash distributions scheduled to come on-stream. during the high cycle we are experiencing. it receives from the MLP. When we eventually enter a cyclical We are taking steps to further expand our During the year, we used our successful downturn, we believe that our strong balance role in the offshore sector. In early 2006, growth formula and built-to-suit vessel sheet and the large, stable cash flow from we announced an agreement with PGS strategy to secure two major long-term LNG our fixed-rate businesses will position us to Production AS, a leader in the floating contracts in Qatar and Indonesia. This brings pursue counter-cyclical investments in our production, storage and offtake (FPSO) sector our LNG orderbook to nine ships, making spot tanker segment. in the North Sea, to jointly pursue FPSO Teekay the fastest-growing independent projects on an international basis. The joint company in the sector. UNIQUE PLATFORM IN venture, Teekay Petrojarl Offshore, aims to GROWING OFFSHORE MARINE become a global leader in FPSO solutions, With shipments of LNG forecasted to SECTOR drawing on the engineering expertise of PGS continue to expand rapidly in the years ahead Teekay is a leading provider of marine services and the marine expertise and global customer – it is anticipated that over $15 billion worth to the rapidly growing offshore oil sector network of Teekay. of additional LNG carriers will be needed by through our shuttle tanker and floating 2010 – Teekay is well positioned to continue High oil prices are making it attractive to storage activities. its profitable growth in the LNG shipping explore marginal oil fields and to search sector. Our offshore loading franchise, Teekay Navion for new oil deposits in increasingly deeper Shuttle Tankers, comprises 40 sophisticated, waters, neither of which lend themselves STRONG ABSOLUTE AND dynamically positioned shuttle tankers, to sub-sea pipeline transportation solutions. RELATIVE PERFORMANCE operating in harsh weather areas to provide Consequently, we believe the demand for FROM SPOT TANKER FLEET just-in-time production offtake from our FPSOs, FSOs and shuttle tankers will grow as Teekay’s large spot tanker fleet enjoyed customers’ offshore oil fields. We have the current high level of activity in offshore another year of strong earnings, the result of significant know-how in this specialized niche oil drilling transitions to the oil production high charter rates and good fleet utilization. and have built a track record of reliability. phase over the next several years. Our ability Our chartering teams delivered a strong As the operator of these “floating pipelines,” to provide customers with complete offshore performance relative to our peers, benefiting we form an integral part of our customers’ marine solutions for these offshore field from close customer relationships and our logistics chain, partnering with them to developments represents a unique platform p 03 large market share on key trade routes. | maintain the movement of oil to world in the industry. markets under challenging conditions. Teekay Shipping Corporation Teekay LETTER TO SHAREHOLDERS con’t. While open market spot tanker rates did FOCUS ON OPERATIONAL not reach the record levels experienced in EXCELLENCE 2004, the continued near-full utilization of At the core of the Teekay brand is our the world tanker fleet led to another year of reputation for quality, safety and service, historically high rates. and the proactive approach we take Our counter-cyclical investment discipline towards risk management. 2005 saw us during this period of very high asset values build on this reputation with another very led to a reduction in the total number of strong operational performance.

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