Teekay Tankers Ltd. Q1 FY2025 earnings call

Teekay Tankers Financials - GAAP net income of $76M ($2.20 per share) and adjusted net income of $42M ($1.21 per share) in Q1; ~$65M free cash flow from operations. - Sold 6 vessels for ~$183M gross proceeds, expected accounting gain ~$53M; agreed to acquire modern LR2 vessel. ### Market Drivers - Mid-size tanker spot rates increased post sluggish start; rising oil production, US sanctions on Russian/Iranian shipping, fleet supply tightening benefit market. - Trade dynamics like Kazakh crude export via CPC terminal to Asia, and Aframax loadings from Vancouver to Asia boost ton-mile demand. - Near-term oil market fundamentals: low global oil prices support tanker market via reduced bunker costs and potential higher oil demand; OECD oil inventories at five-year low may lead to inventory rebuilding driving tanker demand. ### Uncertainties - Medium-term tanker market outlook clouded by US trade tariffs, retaliatory tariffs, potential global recession, and geopolitical factors like Ukraine war, US-Iran tension, Red Sea safety. ### Fleet Supply - Pace of tanker new build orders slowed; global shipyard capacity full through 2027; tanker fleet aging (average age 13.9 years in April 2025), lack of scrapping may rebalance fleet in worsened market conditions. ### Cash Flow - Teekay Tankers' free cash flow breakeven declined to $13,200 per day from $21,300 per day in 2022; can generate cash flow in almost any market conditions; priority to retain cash flows for fleet renewal.

Teekay Tankers reported GAAP net income of $76 million, or $2.20 per share, and adjusted net income of $42 million, or $1.21 per share, in the first quarter. It also generated approximately $65 million in free cash flow from operations during the quarter. Since the beginning of the year, Teekay Tankers has sold six vessels for total gross proceeds of approximately $183 million, with a total expected accounting gain on sale of approximately $53 million. Additionally, it has agreed to acquire a modern LR2 vessel, expected to be delivered at the end of the month. Teekay Tankers' fleet renewal plan involves selling older vessels and acquiring modern ones. In the second quarter-to-date, the spot tanker market has strengthened with higher booking rates, securing spot rates of $40,400 per day for Suezmax and $36,800 per day for Aframax LR2 fleets, with approximately 45% of spot days booked.

Fleet Renewal - Expect trend of selling older vessels to shift to acquiring modern tonnage as opportunities emerge. ### Second Quarter Market - Spot tanker market strengthened in Q2-to-date with higher booking rates; expect market to continue with positive outlook but noting potential corrections. ### Oil Market and Inventories - Low oil prices and low inventories provide support for tanker market in short term; rebuilding of oil inventories could drive additional tanker demand; counter-seasonal strength possible in summer months.

Economic and Geopolitical - Uncertainties from US trade tariffs, retaliatory tariffs, potential global recession, and geopolitical events like Ukraine war, US-Iran tension, Red Sea safety issues impacting tanker market. ### Fleet Supply - Lack of scrapping of older tankers could lead to oversupply and pressure on rates if market conditions worsen.

Q: On the view of market outlook and shifting from seller to buyer mentality, can you talk about why asset values may become more attractive and what it takes to shift?

A: It's about balancing fleet generating cash flows; need to reload with new ship years as markets will turn; history shows markets come down suddenly; when that happens, opportunities to reload open up; shipyard prices expected to come down towards end of year.

Q: Regarding the footprint and critical mass, is there a threshold where dipping below affects commercial presence?

A: There is a level without giving exact number; currently performance good, close to current level; excited about opportunity to renew fleet when right opportunities arise.

Q: Talk about strength of rates into 2Q and continuation, and impact of Red Sea or Ukraine peace on rates?

A: Rates driven by factors mentioned; difficult to predict exactly; low oil price and low inventories give positive outlook but corrections will happen; larger ships have positive outlook currently.

Q: Thoughts on order book not putting pressure on rates despite building?

A: Oldest average fleet age in 20 years; incentive to scrap older ships different from past; scrapping of older tonnage could help rebalance; mindful of potential rate corrections but valves exist to handle older tonnage.

Q: Quantify restocking of oil inventories and impact on rates?

A: Inventories at five-year low; OPEC production and non-OPEC supply changes; on-land storage filled first, possible floating storage; counter-seasonal strength in summer, but longer-term picture unclear due to global events.