Teekay Tankers Ltd. Q4 FY2025 earnings call

• Teekay Tankers' recent highlights: Fourth quarter and full-year financial results, strong spot tanker rates, free cash flow generation, cash position, fleet renewal strategy including vessel acquisitions and sales, and first quarter spot rate secured.
• Spot market developments: Strengthening in fourth quarter 2025 due to various factors like global seaborne oil trade volumes, geopolitical events, and seasonal factors; further strengthening at start of 2026 with midsized rates trending above 5-year high.
• Impact of sanctions on tanker trade patterns: Geopolitical events pushing more trade to compliant fleet, e.g., changes in Russian, Iranian, Venezuelan oil exports and imports.
• Medium-term tanker market outlook: Positive underlying demand fundamentals, projected oil demand and non-OPEC+ supply growth, but concerns about tanker order book size and fleet aging.
• TNK's key achievements in 2025: Generated free cash flows, returned capital to shareholders, commenced fleet renewal process, outchartered and extended vessels, sold investment with good return, and had strong operational performance with 0 lost time injuries and 99.8% fleet availability.
• Teekay Tankers' value proposition: Strong operating leverage, low free cash flow breakeven, strong balance sheet with no debt and large cash position, and integrated platform with in-house management as competitive advantage.

Teekay Tankers reported GAAP net income of $120 million or $3.47 per share and adjusted net income of $97 million or $2.80 per share in the fourth quarter. For the full year, Teekay Tankers reported GAAP net income of $351 million or $10.15 per share and adjusted net income of $241 million or $6.96 per share and realized gains on vessel sales for the year totaling $100 million. Spot tanker rates during the quarter were the second highest for a fourth quarter in the last 15 years. The company generated approximately $112 million in free cash flow from operations and at the end of the quarter, had a cash position of $853 million with no debt. In the first quarter to date, the tanker market has continued to strengthen, with secured spot rates of $79,800, $56,900 and $51,400 per day for VLCC, Suezmax and Aframax LR2 fleets respectively, and approximately 78% spot days booked for VLCC and around 65% for midsized fleet.

• Expect to recognize total gains from vessel sales of approximately $45 million in the first and second quarter of 2026.
• Have a large cash position with no debt and plan to continue to do a couple of vessel purchases throughout the year, likely in a drip feed manner.
• Typically announce special dividends in connection with the May earnings release regarding first quarter dividend.

• Geopolitical events can shape global oil trade flows and impact tanker rates and demand.
• Uncertainty in tanker order book deliveries and older vessel exits from the fleet.
• Volatility in the tanker market influenced by various dynamic factors including sanctions and weather conditions.
• Uncertainty in Venezuela's oil production and export recovery and its impact on tanker demand.

Q: Brody, a couple of questions for you today on modeling. So the bareboat charters for the Aframaxes that you acquired and will take full commercial ownership in the second and third quarters. Between January and taking that full ownership, the P&L impact, is that you're just getting the bareboat rate that you chartered back to the previous owner. There's no OpEx, there's no D&A. There's no other impact except a revenue.

A: Yes, that's right. We're just getting the bareboat back. And those ships will actually dry dock in the first half of the year during that period, too, but we'll continue to get the bareboat rate during the dry docking.

Q: The other thing I wanted to ask you was the G&A run rate. So you did the whole management reorg, et cetera. So as we look at kind of the last 3 quarters, is that the right run rate to think about going forward, maybe with some inflationary impact on there? Or is there anything that would either make that go up or down significantly from, let's call it, the last 3 quarter run rate?

A: Yes, I think that's right. I think if you look at even our annual G&A for the year, around $46 million. Going forward, I think we should be about that or maybe a little bit lower. So it approximates the run rate from the last few quarters.

Q: Final thing, sorry, just to harp on this stuff. It's the strategic stuff to market. I think we've covered that pretty well already. The D&A. So you've done a lot of fleet renewal, taken out the V, a couple more Suezmaxes. And then obviously, you're not going to add the 3 acquired Afras until, call it, the middle of the year. What do we think about for a first quarter starting point on D&A? Is it similar to 4Q? Or would it be a step down from there?

A: Yes. Yes, it should be pretty close to what we had in Q4 there at about $21.5 million or $22 million in the first quarter.

Q: Obviously, things are progressing quite nicely. You were mentioning the $850 million of cash you've got that gives you plenty of flexibility in this market to act quickly when an opportunity arises and you're getting close to that $1 billion number here, seemingly, I would say, in the next -- presumably the next few weeks or months. But -- and you have no debt. So just wanted to get a sense from you in terms of how you're feeling about this cash position you have on the balance sheet. Do you feel compelled to put that to work? And is there like a sense of urgency that you have either at your -- at the management level or at the Board level that you want to put that to work? And I guess maybe kind of related, obviously, to that is, how are you thinking about putting that to work when it's time? Is it more kind of drip fee dynamic in acquiring assets in the sale and purchase market? Or are you thinking more big picture M&A?

A: Thanks, Omar. Welcome back. Good question. Obviously, it's a bit of a high-class problem we're sitting on here. But it's not something that's a big surprise to us. I mean we could obviously project this out. I think what has surprised us maybe in this quarter, last quarter and this quarter we are in here is how strongly the market has performed. That's obviously positive. We have still a lot of operating leverage and generating a lot of cash flow in this market. Had the market been low, we probably would have been a bit more active on the buying side. We still found a couple of ships, and we're happy about that. The way we look at it in a strong market, which very clearly, and we've seen the big uplift in tanker values here is that we're still an operator. We still want to renew our fleet. We still believe that there are deals that we can find in this market. So -- but at the same time, we also recognize that asset values have had another step up here, and that's natural as we are seeing spot rates as we have. I expect that we will continue to do a couple of purchases throughout the year here. I think it's a very tough environment to see that we do a major acquisition just because of the relative asset values. So I think the short answer to your question in terms of big acquisition versus drip feeding, I think, was your words. It will probably be more drip feeding with a couple of ships here and there. And the way we think about it is that we can still do it on a basis where we are selling maybe 1 old ship and buying 2 new ones and using a bit of the arbitrage that we have as we have seen a nice uplift also on the values of the older tankers that we have.

Q: Yes. Makes sense. And then I guess, perhaps a follow-up and clearly related. We're coming up on the 1Q dividend potential. I know you've declared $0.25. The past 3 years, you've conditioned us to anticipate a special with 1Q. Is the plan still to stick to that? And I know it's a Board decision, you can't just speak openly like that. But can we presume that the payout for the first quarter will be higher than what was done last time around?

A: Yes. I'm just looking for my note to your question from exactly a year ago, Omar. And I think my answer at that time was that it's something we discussed with the Board at our March Board meeting and as we've done in the last couple of years, we typically announce any specials in connection with the May earnings release.

Q: Okay. I will try to remember that for next year.

Q: Brody, I love going back to the May script to repeat it. So thoughts on -- you mentioned the 500,000 barrels increase in Venezuela can provide the increased demand for a number of vessels. Your thoughts on timing of Venezuela getting back up and running? Or is there an immediate amount that they've talked about kind of revamping and being able to scale up with speed before long-term capital investments have to be made. Is there a potential of that increase of 500,000 barrels?

A: Yes. I think the -- it's Kenneth here. I'll pass it on to Christian. The oil is obviously being transported already now, as we said in our prepared remarks, but I'll let Christian comment on kind of our outlook for Venezuela.

Q: Christian Waldegrave: Yes. So last year, Venezuelan crude exports averaged about 800,000 barrels a day. We obviously saw in December and January after the U.S. naval blockade that those volumes fell to about 500,000 barrels a day, and it was all the long-haul flows to China that disappeared. Just looking at where it's tracking in February, we're already back up to about 700,000 barrels a day of exports. So the oil is starting to move again, and it's all going on non-sanctioned ships, primarily to the U.S. Gulf Caribbean region, but we've also seen 2 or 3 cargoes to Europe. And we know that India is starting to buy some barrels as well. So it looks like we're going to get back up to the normal run rate of 800,000 barrels a day of exports fairly soon. And then I think there's an expectation as well that with the Venezuelan oil industry opening up and foreign companies coming in and doing more investment that production and exports could be boosted within the year by another 200,000 to 300,000 barrels a day, but that's obviously dependent on how quickly they can get things moving there. So I think it's a good story for the tanker market in terms of the exports are shifting from the dark fleet to the compliant fleet. And then if we can get some extra production and volumes moving as well, then it's just going to benefit the midsized tankers, especially even more.

Q: Great. How about the same thing, Christian, on an update on the Canada shipments?

A: Yes. So it's an interesting one because, obviously, a lot of that Venezuelan crude, which is heavy sour was going to China. And so some of the Chinese state-owned refiners that were getting that heavy sour crude will probably be looking for replacement. And there are two areas they could replace it from. One is Middle East heavy crude and the other is Canadian. We have seen an increasing trend of the TMX exports going directly on Aframax to Asia. And I think it's a natural replacement for some of that Venezuelan crude. And we're also seeing a trend of the U.S. West Coast requirements are coming down because there's been some refinery closures there and the Benicia Refinery, I think, is in the process of closing down as well. So again, that just frees up more Canadian crude to flow to China. So I think we will see some volumes picking up there directly on Aframaxes, which again is going to benefit the Aframax market.

Q: Yes. So it's staying on Aframaxes. It's not transloading the load.

A: So now it doesn't seem to be transloading. It's going more directly on Afras rather than transloading a pile on to Vs.

Q: Ken, how about a little history lesson, right? I mean it seems like something -- I don't know, maybe it's getting a little more antagonistic with Iran the last couple of days. If there is action, maybe a little history lesson on what's happened with rates and volumes with military action in the region?

A: Yes. I think it's a good question. Right now, it's more in anticipation of something happening. And as you're probably alluding to, it's -- we go back to last time that we had action in the region where there was military action, and we looked at it back then, we saw a run-up in rates. We saw some security fears. I think we -- at the time, we pointed out that -- historically, we've never seen a closure of the Strait of Hormuz. But of course, that's what everybody is speculating about in the event that we see an escalation there, how is that going to drive up rates. And I would say the one difference we have this time around is that we've seen also consolidation in the VLCC segment. So it's a slightly different dynamic this time around in the event that charterers will be looking to secure tonnage quickly. But I think at this point, I mean, we see rates which are as high as we saw last time, but for slightly different reasons. And I think it's just a situation我们 need to watch. Christian, do you want to add anything?

A: No, I think like Kenneth said, when we had the last time, obviously, it was last June during that 12-day conflict. And as Kenneth said, I think the big thing was during that time, there was no actual disruption to flows and to movements. It was more of a security sort of premium that caused the rates to spike and they came down pretty quickly. So it will depend if there is military action. Obviously, we don't know that. That's kind of speculative. But if there is military action, it depends on whether actual shipping and oil infrastructure is impacted or not. If the oil keeps flowing, then presumably, it will be a bit like last time, the effects might be short-lived, but it really depends on how it unfolds.

Q: So if no attack on shipping or infrastructure, then rates -- you're saying they've already run up in anticipation and we see it cooling off. Okay. Got it. And then last one for me is the tanker order book. Now you mentioned 18% of the fleet, the highest since 2016, but you said optically, it's different as I think you said some of the vessels needed to replace an aging fleet. So maybe thoughts on -- your thoughts on supply/demand, Christian. How do you think we see the balance in the year ahead?

A: Yes. It's going to be a timing issue, I guess, because as we laid out in the prepared remarks, the order book, while on the surface, it looks quite big. If you look at the fleet age profile, there was a lot of ships that were built in the late 2000s, especially 2008, 2009, 2010. So we're approaching a big hump in the fleet age profile that needs to be replaced. So the ships that are on order right now are needed to replace the older ships, but it's a matter of timing, right? We know when the ships are coming into the fleet, we don't know when ships are going to be exiting either through scrapping or other means. So in the meantime, like I said, the deliveries will ramp up this year and further into next year. So there's quite a bit of tonnage that needs to be absorbed. But for now, as we're seeing in the rate environment, the fact that the underlying demand is still positive. We're seeing more and more trade getting pushed to the non-sanctioned fleet. There are factors there that in the near term, at least suggest that the market should stay firm. But beyond that, it's going to depend on the timing of the order book coming in versus some of these changes that are going on, on the geopolitical side. So that's why we take a more balanced outlook on the medium term. But certainly, in the near term, I think things still look pretty positive.