TNK

Financial Position and Cash Generation

• The company ended the second quarter with over $1.2 billion in cash and zero debt, driven by operating free cash flow and proceeds from vessel sales.
• TK Tankers maintains a low free cash flow breakeven of approximately $9,700 per day over the next 12 months, creating significant operating leverage in high rate environments.
• Annualizing first half 2026 free cash flow would result in full-year 2026 free cash flow of $684 million, or nearly $20 per share.
• A regular fixed quarterly dividend of $0.25 per share has been declared, consistent with past policy.

Fleet Strategy and Operational Updates

• The company is executing a disciplined fleet renewal strategy: selling older, higher-cost vessels in the current high asset price environment and acquiring modern new vessels to lower average fleet age.
• In the second quarter of 2026, TK completed the acquisition of two Korean Suezmax newbuildings for $190 million (expected delivery in 2027), and sold one 2009-built Suezmax for $53.5 million, recognizing a $32.3 million gain on the sale.
• At the beginning of Q3 2026, the company completed a previously announced VLCC sale for $84.5 million, and expects to recognize a ~$23 million gain on the sale in Q3.
• All three Afromaxes acquired at the start of 2026 have been re-delivered from bare boat charters and are now fully operated by TK, trading in the strong spot market.
• As of the call, approximately 44% of Q3 2026 spot days are already booked at average rates of $104,800 per day for Suezmax and $59,900 per day for Afromax LR2.

Spot Market Performance

• Q2 2026 spot tanker rates hit an all-time record high, 50% above the prior record set in Q1 2023. Suezmax rates have remained near record levels through early Q3.
• Afromax rates saw temporary mid-Q2 softening due to tonnage buildup in the Atlantic and limited arbitrage opportunities, but rebounded to over $100,000 per day in the Atlantic by July 2026.

• The company expects 260 days of off-hire in Q3 2026 related to scheduled dry dockings, which were previously pushed from Q2 to Q3 and cannot be further delayed. The priority is to complete dry dockings quickly to have vessels ready for Q4 demand.
• Operating expenditure and general & administrative expenditure are projected to decrease by approximately $3 million in Q3 2026 compared to Q2 2026, with lower tax expense also expected.
• The medium-term supply outlook expects that removal of aging vessels (particularly older vessels in the dark fleet facing increased regulatory scrutiny) will offset the impact of new vessel deliveries scheduled through 2030. The average age of the global mid-sized tanker fleet is now the oldest it has been in over 30 years, supporting future removal of older tonnage.
• Once geopolitical disruptions in the Middle East are resolved, OECD strategic and commercial oil inventories (currently at a 20-year low) will need to be replenished, which is expected to provide a significant boost to global tanker demand.
• Management notes that the near-term tanker market is highly unpredictable and heavily influenced by ongoing geopolitical events, but TK's financial position positions it well to create shareholder value.

TK Group operates a single core product segment: TK Tankers, which focuses on mid-sized and large tanker shipping. In the second quarter of 2026, TK Tankers reported GAAP net income of $226 million ($6.49 per share) and adjusted net income of $194 million ($5.56 per share). This adjusted net income result was a new all-time quarterly record for the company, and was 50% higher than the prior quarter's result. Average spot rates for the quarter hit all-time records of $109,200 per day for the Suezmax fleet and $74,100 per day for the Afromax LR2 fleet, with an overall company average midsize tanker rate of approximately $91,000 per day. The segment generated approximately $200 million in free cash flow from operations during the quarter. No separate revenue contribution percentages are provided for sub-segments in the call transcript.

• Ongoing geopolitical conflicts and attacks on commercial vessels in three critical global oil trade regions (Strait of Hormuz, Red Sea/ Bab-el-Mandeb, and Black Sea) create direct safety risks for vessels and crews, as well as widespread disruption to global oil trade flows. Trade flow disruptions create inefficiencies that drive extreme spot rate volatility.
• Renewed hostilities between the U.S. and Iran have collapsed a previous framework peace agreement and caused a sharp new slowdown in oil transit through the Strait of Hormuz, one of the world's most critical chokepoints for global oil exports.
• Continued Houthi attacks in the Red Sea and attacks on Russian oil infrastructure and CPC terminal operations in the Black Sea add further uncertainty to global oil supply and trade routes.
• Persistent supply deficits from Middle East export disruptions have driven global oil inventory drawdowns, and it is unclear how long the oil market can continue to absorb lost supply without significant price disruption.
• High new vessel ordering in 2026 has expanded the global tanker order book, which stretches to 2030, creating potential future supply glut if older vessel scrapping does not accelerate as expected.

Q: Given the new unprecedented trade patterns emerging from Middle East disruptions, specifically Saudi oil shifting to Mediterranean routes, how do Suezmax and Afromax segments fit into this new long-term market? / A: All three major tanker sectors (VLCC, Suezmax, Afromax) are currently performing extremely well. Suezmax are highly flexible vessels that serve many ports VLCC cannot enter fully loaded, and partial VLCC transits through the Suez Canal often require STS transfers or the use of Suezmax for shorter legs, so they have kept up with strong VLCC rates. Afromax traditionally fill smaller parcel and port slots that cannot accommodate Suezmax, and while Afromax rates diverged from Suezmax temporarily this quarter, rates have recently rebounded and now Afromax is sometimes fixed at higher rates than Suezmax. The market is extremely dynamic, and all vessel sizes are being fully utilized depending on trade needs.

Q: Given the much stronger earnings and balance sheet today versus when the $0.25 base quarterly dividend was set, will TK consider raising the base regular dividend? / A: Management agrees the 2026 market has far outperformed expectations from earlier in the year. The current cadence of a fixed base dividend plus an annual special dividend discussed after the first quarter each year has worked well for the company, and there is no plan to change this annual review process. However, given unprecedented current cash generation, management is intensifying capital allocation discussions with the board, and will review the dividend level as part of this process. The company is focused on creating shareholder value, and will consider changes to return excess cash.

Q: What actions has TK taken in response to increased safety risks in key trade regions, and are you still seeing inventory drawdowns in Q3 2026? / A: Safety and security of crew and vessels is TK's top priority. TK has already stopped transiting the Red Sea southbound and the Strait of Hormuz, and access to Black Sea terminals is evaluated dynamically as the security situation changes. More ports are considered unsafe today than at any point in memory, and this constant change in access creates additional market inefficiencies. For inventories, drawdowns continue in Q3 because the Strait of Hormuz disruption has kept the market in supply deficit. Restocking will not begin until the Middle East situation is resolved, but the need is large (OECD inventories are at a 20-year low, US SPR is at a 43-year low) and restocking will provide a major tailwind for tanker demand when it occurs.