Teekay Tankers Ltd. Q1 FY2026 earnings call

Financial Results

• Q1 2026 GAAP net income of $154 million ($4.42 per share) and adjusted net income of $128 million ($3.69 per share), outperforming both the prior quarter and prior year period
• Generated $143 million in operating free cash flow, ending the quarter with nearly $1 billion in cash and zero debt
• Declared a regular fixed quarterly dividend of $0.25 per share, plus a special dividend of $1 per share tied to 2025 full-year results

Fleet Renewal Activity

• Year-to-date 2026, the firm has acquired or agreed to acquire 5 modern vessels for a total commitment of $332 million, and sold or agreed to sell 4 vessels for total proceeds of $211 million
• Agreed to acquire two Korean resale Suezmax new buildings for $190 million total, expected delivery in 2027
• Sold one 2009-built Suezmax for $53.5 million, with an expected $32.5 million gain on sale to be recorded in Q2 2026; completed sales of two additional Suezmax tankers for $73 million proceeds, recording $22.7 million in gains in Q1 2026
• Opportunistically out-chartered one Suezmax at $80,000 per day for a 10-12 month term

Tanker Market Fundamentals

• Q1 2026 spot rates were near first-quarter record highs, supported by rising seaborne oil trade volumes, tightened sanctions on Russia, Iran and Venezuela, and VLCC sector fleet consolidation; the lifting of Venezuelan sanctions boosted mid-size tanker demand specifically
• Geopolitical conflict between the U.S.-Israel coalition and Iran has disrupted trade through the Strait of Hormuz, cutting total Middle East crude exports by ~10 million barrels per day from pre-conflict levels
• Reduced Middle East exports have been partially offset by a 4.5 million barrel per day increase in Atlantic Basin and U.S. West Coast exports, with U.S. Gulf crude exports hitting a record 5 million barrels per day in April 2026, driven by SPR releases
• Trade inefficiencies from the conflict have further supported rates: ~100 tankers (Aframax size or larger, 59 of which are VLCCs) are trapped west of Hormuz, removing ~8% of the non-sanctioned fleet from active service; an additional 86 empty tankers (over 50 VLCCs) are idling outside the region waiting for the strait to reopen; increased long-haul ballasting and longer voyage distances from Atlantic supply sources to Asian refiners have boosted ton-mile demand, with Afromax voyage distances from the U.S. Gulf up 30% year-over-year

Long-Term Positioning

• The firm maintains a low free cash flow breakeven of ~$8,200 per day for the next 12 months; every $5,000 per day increase in spot rates is expected to generate ~$53 million ($1.53 per share) in annual free cash flow
• Fleet renewal strategy continues to sell older vessels at current high asset prices to reinvest in modern, lower-cost vessels, reducing average fleet age while retaining significant operating leverage to the strong spot market
• The firm holds substantial investment capacity to pursue future opportunities at attractive entry points, supported by its strong cash position and zero debt balance

TK Group operates a single core product segment: TK Tango (tanker shipping). In Q1 2026, TK Tango reported GAAP net income of $154 million ($4.42 per share) and adjusted net income of $128 million ($3.69 per share). This result was over $30 million higher than the prior quarter, and 2 to 3 times higher than the same quarter in the prior year. The segment generated $143 million in free cash flow from operations in the quarter, bringing total cash to just under $1 billion as of quarter end, with zero outstanding debt. Average spot rates across the mid-sized tanker fleet reached approximately $61,000 per day, near record highs for a first quarter. There are no other reported product segments.

• Management expects Q2 2026 results to be even stronger than Q1 2026, with spot tanker rates reaching new record levels
• As of the call, ~71% of VLCC spot days, and ~57% of Suezmax and Afromax LR2 spot days, have been booked for Q2 at secured rates of $141,800 per day (VLCC), $121,800 per day (Suezmax), and $98,000 per day (Afromax LR2)
• The VLCC scheduled for sale in June 2026 is expected to generate 75 operating days in Q2 2026, with ~82% of those operating days already fixed at the stated Q2 VLCC rate
• Medium-term, management expects continued structural support for tanker demand from inventory rebuilding after conflict resolution, new strategic reserve build for energy security, and longer voyage distances from crude import source diversification, even after the Strait of Hormuz reopens
• On the supply side, while the new tanker order book has grown recently, most new vessels are needed to replace the aging global fleet (average age is the highest in 30 years) and the large, aging

• Geopolitical conflict in the Middle East creates high uncertainty around the timing and terms of reopening the Strait of Hormuz, making future tanker demand projections highly unpredictable
• Volatility in spot tanker rates creates large regional and daily variation in realized rates, even during periods of high market strength
• Elevated secondhand and newbuilding asset prices in the current strong market make it challenging to acquire reasonably priced vessels for long-term operations
• The timing of older non-compliant and dark fleet vessel retirements is uncertain, which could impact future tanker supply balances
• Future tanker demand after the Strait of Hormuz reopens depends on multiple unpredictable factors, including the pace of Middle East export resumption, oil price levels, and the speed of inventory rebuilding

Q: Given elevated asset prices and high geopolitical uncertainty after the recent jump in spot rates, should TK slow deployment of its significant investment capacity for large fleet renewal transactions? / A: Management confirms they are proceeding more slowly on large purchases than initially planned. They are balancing capturing high secondhand values for older vessels, which they have already done to lock in large gains, with redeploying capital into high-quality long-term assets. They remain committed to progressing fleet renewal, but are taking a disciplined, incremental approach amid current high prices.

Q: Will TK continue to pair vessel acquisitions with sales, or shift to being a net seller given current market valuations and uncertainty? / A: TK has no plan to become a net seller, as it aims to preserve its current scale, spot market exposure (over 80% of the fleet is in the spot market), and earnings capacity. It will continue its longstanding strategy of opportunistically pairing acquisitions of modern vessels with sales of older assets, balancing near-term earnings capture with long-term shareholder value positioning.

Q: How do you expect inventory drawdowns and energy security trends to impact future tanker demand after the Strait of Hormuz reopens? Will demand support be a short or long-term tailwind? / A: Inventory rebuilding will be gradual, tied to falling oil prices after Middle East exports normalize, rather than an immediate sudden surge. Beyond refilling drawn-down inventories, many countries will build new strategic reserves to improve energy security, and Asian importers will diversify crude sources away from the Middle East, leading to structurally longer voyage distances and sustained medium-term ton-mile demand growth.

Q: With large cash balances and limited near-term acquisition opportunities, will TK increase dividends or return more capital to shareholders going forward? / A: Management remains consistent with its prior capital allocation framework. The tanker industry is capital-intensive and opportunities arise suddenly, so holding large cash balances provides flexibility to act quickly when opportunities emerge. Management will revisit capital return decisions next year after cash balances grow further in coming quarters, and are comfortable with the company's current strong balance sheet position.