Q3 2016 Teekay Tankers Ltd Earnings Call

Nov 03, 2016 AM EDT
TNK - Teekay Tankers Ltd
Q3 2016 Teekay Tankers Ltd Earnings Call
Nov 03, 2016 / 05:00PM GMT 

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Corporate Participants
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   *  Ryan Hamilton
      Teekay Tankers Ltd. - IR
   *  Kevin Mackay
      Teekay Tankers Ltd. - President & CEO
   *  Vincent Lok
      Teekay Tankers Ltd. - CFO
   *  Christian Waldegrave
      Teekay Tankers Ltd. - Head of Strategy & Research

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Conference Call Participants
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   *  Jon Chappell
      Evercore ISI - Analyst
   *  Noah Parquette
      JP Morgan - Analyst
   *  Mike Webber
      Wells Fargo - Analyst
   *  Gregory Lewis
      Credit Suisse - Analyst
   *  Spiro Dounis
      UBS Securities - Analyst
   *  Magnus Fyhr
      Seaport Global - Analyst
   *  John Humphreys
      Bank of America/Merrill Lynch - Analyst
   *  John Reardon
      Western International Securities - Analyst

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Presentation
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Operator   [1]
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 Good day, everyone, and welcome to the Teekay Tankers Ltd.'s Third Quarter 2016 Earnings Results Conference Call. During the call, all participants will be in a listen-only mode. Afterwards, you'll be invited to participate in a question-and-answer session. (Operator Instructions) As a reminder, this call is being recorded.

 And now for opening remarks and introductions, I would like to turn the call over to Mr. Kevin Mackay, Teekay Tankers Ltd.'s, Chief Executive Officer. Please go ahead, sir.



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 Ryan Hamilton,  Teekay Tankers Ltd. - IR   [2]
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 Before Mr. Mackay begins, I'd like to direct all participants to our website at www.teekay.com, where you'll find a copy of the third quarter 2016 earnings presentation. Mr. Mackay will review this presentation during today's conference call.

 Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from results projected by those forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the third quarter 2016 earnings release and earnings presentation available on our website.

 I'll now turn the call over to Mr. Mackay to begin.



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 Kevin Mackay,  Teekay Tankers Ltd. - President & CEO   [3]
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 Thank you, Ryan. Hello everyone, and thank you very much for joining us today. With me here in Vancouver are Vince Lok, Teekay Tankers' Chief Financial Officer and Christian Waldegrave, Head of Strategy & Research at Teekay Corporation. During today's call, I will be taking you through Teekay Tankers' third quarter 2016 earnings results presentation, which can be found on our website.

 Beginning with our recent highlights on Slide 3 of the presentation, Teekay Tankers reported an adjusted net loss of $1.5 million or $0.01 per share in the third quarter of 2016 compared to adjusted net income of $40.3 million or $0.30 per share in the same period of the prior year. We generated free cash flow of $26.6 million during the quarter compared with $59.4 million in the same period of the prior year.

 Our results during the quarter were impacted by the lowest quarterly crude tanker rates in three years. Various factors affected rates including normal seasonality, reduced oil supply due to temporary outages in key export regions, and lower refinery throughput. Many of these seasonal factors and temporary outages have now diminished or passed resulting in higher tanker rates so far in the fourth quarter compared with this past August. I will touch on this in more detail starting on the next slide.

 In accordance with our variable dividend policy, Teekay Tankers declared a dividend of $0.03 per share for the third quarter of 2016 representing the minimum quarterly dividend. The dividend will be paid on November 18, 2016 to all shareholders of record as of November 14, 2016.

 In October, Teekay Tankers agreed to sell its last remaining MR product tanker and two 2002-built Suezmax tankers for total combined proceeds of $47 million, which along with the cash flow generated during the quarter is expected to further delever our balance sheet to below 49% on a net debt-to-book capitalization basis.

 Since reporting earnings in August, we have continued to grow our ship-to-ship lightering business, having secured two new significant lightering contracts with major oil companies for periods of up to 24 months. These contracts help strengthen our position in the lightering business by providing us with cargo volume to employ up to three Aframax vessel-equivalents per year.

 These contracts are expected to commence in the fourth quarter of 2016 and will bring Teekay Tankers' total ship-to-ship lightering cargo volumes up to five Aframax vessel-equivalents per year. Our lightering business supports our growing US Gulf presence and enhances our ability to earn above market returns for our fleet in that region.

 Turning to Slide 4, we look at developments in the crude tanker spot market. Crude tanker rates fell to three year lows in the third quarter of 2016 as normal seasonal conditions were compounded by a number of other factors. Firstly, a series of Atlantic basin oil supply outages led to a reduction in cargo volumes, most significantly of which was a reduction in Nigerian crude oil supply.

 Nigeria suffered a series of militant attacks on oil infrastructure during the first half of the year. And by the third quarter, this had resulted in 800,000 barrels per day of production being offline. This reduction in Atlantic crude exports had a negative impact on mid-sized tanker demand and also impacted average voyage distances, as Asian buyers turned to shorter haul Middle East volumes to fill the gap left by the lower Atlantic supply.

 Additionally, global refinery throughput was significantly lower during the third quarter as high crude and product inventories coupled with seasonal maintenance, led to reduced demand for crude from refiners in both the Atlantic and Pacific basins. Since August, rates have however rebounded in tandem with more positive oil market fundamentals and as we move into the seasonably stronger winter months, we feel confident that rates will increase further.

 Rates in the winter are typically the strongest of the year as refiner's ramp up imports and bad weather leads to increases in vessel delays and voyage turnaround times. The return of Atlantic basin supply volumes is also helping to boost mid-sized tanker demand as I will detail in the next slide.

 Turning to Slide 5, we look at the oil supply situation in the Atlantic basin. As described in the previous slide, Nigeria experienced just over 800,000 barrels per day of outages during the third quarter, which had a negative impact on mid-size tanker demand in the Atlantic. However, in recent weeks, we have seen the gradual return of some of this production with output reaching approximately 1.9 million barrels per day at the end of October, due to the restart of various export grades.

 The return of other crude streams by the end of the year should further boost exports. Though we know that the political situation in Nigeria remains uncertain and we cannot rule out the possibility of further disruptions to oil infrastructure, should the situation deteriorate once again. In the Mediterranean, mid-size tankers are finding support from an increase in Libyan exports and the long awaited first cargos from the Kashagan field in the Caspian Sea.

 Production in Libya, which was averaging just 300,000 barrels per day during the summer months, has recently rebounded to almost 600,000 barrels per day due to the restart of certain oil fields and the reopening of key export terminals. The Libyan government is aiming to reach exports of 950,000 barrels per day by the end of the year, which would be positive for Aframax trade in the Mediterranean region.

 Similarly, the ramp up of exports from Kashagan via Black Sea and Baltic Sea ports should also provide support to mid-size tanker demand. Initial volumes from Kashagan are relatively small, but the operators have indicated their intent to reach full production of approximately 400,000 barrels per day by the end of 2017.

 In sum, we're encouraged by the return of Atlantic basin supply as we approach the seasonally stronger winter months and we believe that these additions will give further support to mid-size tanker demand as we move into 2017.

 Turning to Slide 6, we look at our outlook for tanker market fundamentals in 2017 and beyond. The tanker market faces some challenges in 2017 the most prominent of which is elevated fleet growth as the order book delivers. As shown by the chart on the top left, the mid-size sectors are set to undergo above average fleet growth in 2017, particularly in Suezmax sector where we estimate growth of around 8% during the course of the year.

 However, this period of fleet growth should be relatively short lived, as a lack of ordering over the past year due to constrain financing should result in significantly below average fleet growth, once again, in 2018. While scrapping has been low over the last two years, we anticipate that this will accelerate in the coming years as more ships approach the 20 year mark and as new environmental regulations impact the economics of trading older vessels beyond their third and fourth special survey dates.

 Turning to oil market fundamentals, we are encouraged that global oil demand growth is forecast to remain at 1.2 million barrels per day in 2017, which is similar to the growth seen this year and in line with long term averages. With regards to oil supply, we will be watching the outcome of the OPEC meeting in Vienna later this month as the group tries to solidify previously announced plans to reduce oil output to a range of 32.5 million to 33 million barrels per day.

 Whether OPEC members can agree to, and more importantly, implement such a cut remains to be seen however, as many countries are seeking exemptions for a variety of reasons. Should they agree a cut, it appears that the Middle East Gulf nations led by Saudi Arabia would have to shoulder most of the burden. While this would result in a reduction in crude volumes available for transportation, it is not necessarily negative for crude tanker demand as it could lead to more crude volumes being transported long haul from the Atlantic to Pacific basins, as Asian buyers source replacement barrels from further afield; a development which would be positive for mid-size tanker demand.

 In sum, we acknowledge that the tanker market faces some headwinds during 2017. However, we believe that these headwinds will be relatively short lived and the medium-term fundamentals for crude-tankers remains positive.

 Turning to Slide 7, I'll wrap up with an update on spot tanker rates for the fourth quarter of 2016 to-date. Based on approximately 47% and 32% spot revenue days booked, Teekay Tankers' fourth quarter to-date Suezmax and Aframax bookings have so far averaged approximately $19,800 and $16,200 per day respectively. For our LR2 segment with approximately 35% spot revenue days booked, fourth quarter to-date bookings have averaged approximately $8,600 per day.

 In closing, we expect the tanker market to continue to improve as we move through the winter due to normal seasonal demand increases, typical weather disruptions and port delays, coupled with the return of Atlantic basin oil production. This should translate into an increase in our earnings and cash flow, allowing us to further strengthen our balance sheet as we move forward.

 With that operator, we're now available to take questions.

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Questions and Answers
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Operator   [1]
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 (Operator Instructions) Jon Chappell, Evercore ISI.



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 Jon Chappell,  Evercore ISI - Analyst   [2]
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 Thank you. Good morning guys. Kevin, first question for you, just a little bit of clarity on the new ship-to-ship lightering business, the two contracts and you said providing cargos up to three vessel equivalents. So how does that work, as far as your fleet is concerned? You take three of your own Aframaxes that you would consider to be the core fleet and then you use those to service that business and we think of that as kind of a charter out contract or a contract with [Freightmen] or do you go out to get other tonnage then to meet the requirements in that contract?



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 Kevin Mackay,  Teekay Tankers Ltd. - President & CEO   [3]
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 It's pretty much how you've described it. We've got five dedicated ships that we have assigned to the lightering trade that will be focused on that part of our business. But given the vagaries of the scheduling, we obviously need to depend on others and that's where we draw from our Aframax RSA pool that trade isn't around that region, and we have the ability to in-charter ships on a spot basis for individual lightering or for short periods of 30 to 60 days to help us cover some of that increased demand that we see.



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 Jon Chappell,  Evercore ISI - Analyst   [4]
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 And as we think about what those contracts would earn, is it something in the fixed rate realm or you just look at TD9 as a proxy for Caribbean movements or is it something completely different?



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 Kevin Mackay,  Teekay Tankers Ltd. - President & CEO   [5]
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 Well, we take a portfolio approach to our lightering business. Some of our contracts are fixed rate, and they would be more akin to the time charter rates that we've seen earlier in the year; sort of in the mid-to-high 20% range. We've also got some floating contracts that provide a premium over and above expense that sort of tags TD9. So it's a combination of both of that.

 I think, from a modeling perspective, it would be fair to assume that if you look at TD9 as a proxy and put a bit of a margin on top of that, that would give you a good guide on where we should be coming in.



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 Jon Chappell,  Evercore ISI - Analyst   [6]
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 Okay, that makes sense. And then, to the vessel sales, specifically to Suezmaxes, because obviously the MRs weren't a core segment, what was the thought process behind that? Was it just the Principal ships were kind of replacement for some of the older Suezmax tonnage and if that was the case, how do you think about the thee 1999 built Aframaxes. Should we think about those as being somewhat up your sale as well?



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 Kevin Mackay,  Teekay Tankers Ltd. - President & CEO   [7]
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 Well, on the Suezmax specifically, yes when we did the Princimar deal last year, we were focused on our existing Suezmax fleet and looking at the older tonnage and trying to decide, at what point do we pair down the older ships? And I think given the outlook for 2017 and these older ships having dry dock CapEx in the near term, we felt it was better to let those go and reduce the fleet a little bit.

 On the Aframax side, we look at the whole fleet on an ongoing basis. And at this point in time, we see those older ships actually helping our lightering business. So for the time being, we're going to maintain those. But the right opportunity comes along and the right valuation is seen or we evaluate that things change, then obviously those would be prime candidates for future sale.



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 Jon Chappell,  Evercore ISI - Analyst   [8]
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 Right. Okay and just one last quick one, maybe for Vince. You guys used to have a nice little debt amortization table on the presentation. I know you've pushed back the maturity on a big chunk of that which was set for late 2017, but can you just give us an update on the debt amortization schedule just, I guess, for the fourth quarter and 2017 as we think about managing cash flows?



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 Vincent Lok,  Teekay Tankers Ltd. - CFO   [9]
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 Sure Jon. You're right. We did the refinancing last year which stretched out our debt amortization schedule. If you look at 2017, the run rate amortization is roughly around $120 million. It does go down a little bit after that in 2018 closer to about $110 million. We do have a balloon that is maturing in November of 2017. That was the old revolver. But as a result of these recent sales, that facility will be retired in the next few months upon completion of those vessel sales.



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 Jon Chappell,  Evercore ISI - Analyst   [10]
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 Got it. And then fourth quarter would be maybe just the $120 million divided by 4, just $30 million?



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 Vincent Lok,  Teekay Tankers Ltd. - CFO   [11]
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 Roughly it's about $40 million, yeah, $30 million to $40 million.



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 Jon Chappell,  Evercore ISI - Analyst   [12]
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 Great, thanks Vince. Thanks Kevin.



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Operator   [13]
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 Noah Parquette, JP Morgan.



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 Noah Parquette,  JP Morgan - Analyst   [14]
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 Thanks. Can you talk a little bit about what you saw in the LR2 market that caused the weakness back in October and why it's recovered. And I guess, give us an idea of how many ships are trading dirty and clean in that market now and how it's changing over the past couple of months?



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 Kevin Mackay,  Teekay Tankers Ltd. - President & CEO   [15]
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 Yes, I think, as you've seen, the third quarter was weak for the LR2s. I think that was a combination of the [ARM] not being there. LPG import replacing naphtha as a source. And I think also, looking at the new deliveries in the order book, across pretty much all the segments; the order book, whether it's LR2s, Aframaxes, Suezmaxes or Vs has tended to impact more in the third and fourth quarters than it has in the first half of the year. So I think the oncoming tonnage has impacted the LR2s primarily because you're seeing Suezmaxes and Vs even, being loaded with gas oil cargos which takes away one of the runs for that fleet.

 And Christian, do you have anything to add on the number of ships trading clear and dirty?



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 Christian Waldegrave,  Teekay Tankers Ltd. - Head of Strategy & Research   [16]
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 Yes, the number of ships, on a global basis, trading clean LR2s is about 200 ships. That's about 15 more than we had at the start of the year. So there has been somewhere around 8% growth in the number of clean trading LR2s this year, which again, is one of the reasons why the rates have come under pressure.



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 Noah Parquette,  JP Morgan - Analyst   [17]
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 Okay. And then it looks like you charted in an additional Aframax. Can you talk about how you think about the operating leverage? I mean, obviously, you guys are looking on decreasing financial leverage, but is the operating leverage just going to offset that or I mean is it just a view on the marketing and how do you think about balancing those two?



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 Kevin Mackay,  Teekay Tankers Ltd. - President & CEO   [18]
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 I think we've said in the past that we had a rather large in-charter portfolio when the market was really strong. And as the markets come off, we've pared that down quite significantly. But we've never said that we were going to get out of the in-charter book. And I think I've said previously we'll use that as an opportunity to trade in and out of the market as we see opportunities.

 So this was a vessel that was in the right position at the right point in time that we felt we could take advantage of and deploy it in support of our growing lightering business. So that's why we made that decision.

 But again I would repeat that it's -- the in-charter portfolio is something that we use as one of our levers, depending on the market, the forward view and where we see our own tonnage being deployed. And that will be in and out of that market potentially doing in and out trades to make an extra margin.



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 Noah Parquette,  JP Morgan - Analyst   [19]
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 Okay. Thank you.



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Operator   [20]
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 Mike Webber, Wells Fargo.



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 Mike Webber,  Wells Fargo - Analyst   [21]
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 Kevin, I wanted to follow-up on a couple of Jon's questions around the ship-to-ship lightering business. It sounds to me like that the pricing should be effectively like a COA and I guess my question is kind of twofold; one, it looks like you're including, on a go forward basis, that ship-to-ship lightering revenue within the spot portion of your fleet, which makes sense. I think we've seen that elsewhere. But I'm just curious is that; one, how big a business do you think that can become?

 And two, do you think that overtime, does it make that, kind of that spot leverage -- put a bit of a lag on that spot leverage maybe or make you guys maybe a bit less levered to the spot market than maybe the stats might otherwise imply?



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 Kevin Mackay,  Teekay Tankers Ltd. - President & CEO   [22]
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 Yes, I mean, certainly when we entered the business, we saw this as a way to help manage our portfolio. As I've spoken about many times before about using different levers at different points in the cycle, lightering just gives us some of that under-levered that in this market, as an example, provides us good above market cover where the time charter market may have [quite down] a little bit. So we'll play that as we see fit, as we go through cycles.

 But I think there is more room to grow. I think our last estimate was roughly around 25% of that market. So I think as we look forward, there is room to grow that business. But the focus will be on providing us reduced spot exposure especially in the Caribbean market, so deploying more ships to support that business when the returns are higher than spot market.



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 Mike Webber,  Wells Fargo - Analyst   [23]
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 Just in terms of being 25% of that market, is this -- I guess dovetailing into your last comment there. Is this something where you're kind of -- you hung a shingle and people are basically approaching you, knowing you do this kind of business now or is it just something where you're actively on the margin seeking out this stuff, trying to hit a defined degree of exposure within that particular vertical?



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 Kevin Mackay,  Teekay Tankers Ltd. - President & CEO   [24]
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 No, we did an awful lot of work prior to the acquisition to understand how we would go about this and the feedback we got back from our customers with given our operating excellence that we've built a reputation around on our Aframax and Suezmax fleet. It was translating that into, can we do the same thing in lightering. And we're really encouraged by our big customers that said yes, we would like Teekay in that business to provide the standards and quality that we bring with it.

 So we knew we were going to get the support prior to going into the business. And now it's been a case of actually proving our capability and it's been just over a year since the transaction and it takes a while to prove that capability. So I think we got a lot more traction in the third quarter and I would like to see that continue over the course of the next couple of quarters as more customers talk to us about contracts and also existing customers start giving us more volumes based on our performance.



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 Mike Webber,  Wells Fargo - Analyst   [25]
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 Just one more and I'll turn it over. Around your commentary earlier around the Suezmax sales, the slightly older assets and the read through there around, I guess, the in-house view on asset values is not particularly bullish if the dry dock expenses associated with those helped to drive the economic decision to sell the asset, what is back end to the forward slope you guys have put on the asset value curve from here. But I also know it's a bit of an oversimplification. I think Vince you mentioned using the proceeds to pay down a revolver and I'm sure there were lots of faucets that go into that kind of decision.

 But maybe if you can expand on that a bit and talk through the different drivers really that drove that sale? Whether there was anything simply beyond the pure economics of what you thought the ship was worth masked the discounted cash basis and the ships are worth rather and then how you see the asset value curve moving going forward?



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 Kevin Mackay,  Teekay Tankers Ltd. - President & CEO   [26]
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 To be honest with you Mike, you've covered most of the aspects that we would look at. As I said we would when we did the Princimar deal, we were looking at our fleet size. And bringing in these new tonnage, we obviously look at the older tonnages and think it is time to take them off the table?

 Both the ships were due for dry dock in 2017 and from a cash flow perspective that was a consideration. We are sticking to our strategy of delevering the balance sheet and given the revolver balloon payment was due at the end of the year, at the end of 2017; that also factored into the consideration of now is the right time to bring, send those ships out and remove that revolver.

 We still got them for another few months. They don't delever until the first quarter 2017. So as this market should hopefully pick up, we'll enjoy some increased cash flow over the next couple of months.



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 Mike Webber,  Wells Fargo - Analyst   [27]
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 Kevin, I think that just mean though, the poorly phrased question on my part, but maybe coming at it a different way, would you have sold the assets if you didn't have the revolver payment coming up and then, what are your expectations for asset movement -- asset values over the next year or two, (inaudible) gradual slope upwards or do you think we're at or near a bottom here. Do you think we grind along a trough for a while?



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 Kevin Mackay,  Teekay Tankers Ltd. - President & CEO   [28]
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 I think we would have sold the assets anyway. I think we're looking to reduce our spot exposure. We've got a large fleet in the Suezmax arena. And given our forward view, we probably would have done it anyway. In terms of your second question, can you just repeat that one?



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 Mike Webber,  Wells Fargo - Analyst   [29]
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 Yeah, just as an overall view on asset values from here. Do you think we will be another 5%, 10% down from here or do you think we just kind of skid along the bottom or improve in 2017. Just curious what your thought are?



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 Kevin Mackay,  Teekay Tankers Ltd. - President & CEO   [30]
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 I think we're bouncing along the bottom, whether that means a further dip of another 5%, possibly. But I think we've seen the big declines. I don't think we're going to continue on that same trajectory. So whether it moves 5% lower from here or not, we'll have to see. But I think we're pretty much there.



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 Mike Webber,  Wells Fargo - Analyst   [31]
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 Okay, alright. I appreciate the time guys. Thank you.



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Operator   [32]
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 Gregory Lewis, Credit Suisse.



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 Gregory Lewis,  Credit Suisse - Analyst   [33]
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 Kevin, not a belabor the STS business, it seems like it's been a focus, but I mean I guess, as we think about lightering activity and I believe you're primarily in the Gulf of Mexico. This lightering in the Gulf of Mexico has been around for years. So is there something that is changing where there are -- is it infrastructure-related that is driving increased more lightering opportunities or is Teekay just going out in stealing business from other players?



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 Kevin Mackay,  Teekay Tankers Ltd. - President & CEO   [34]
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 I think the dynamics of the market is changing. But before I get into that, just to highlight that the SPT transaction that we did last year wasn't just focused on the US Gulf lighterage business. We do STS support services globally and we also do LNG consultancy work and terminal operations through that. So it's not just a US Gulf factor that drove us to purchase that company.

 In terms of the US Gulf itself, the market dynamics are changing. Shale oil production has brought a different dynamic to that business. And as we see US Gulf exports ramp-up and ramp-down depending on market conditions that adds to reverse lightering volume, which is essentially the same operation done the other way around.

 But there was also encouragement from our customer base that for a period of time there was essentially a singular service provider and no one (technical difficulty) likes putting all their eggs in one basket from a risk respective. So we're definitely encouraged to play a bigger role in that market. So some of it we'll be taking business away from others and some of it will be through growth of different lightering operations that are required in the region.



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 Gregory Lewis,  Credit Suisse - Analyst   [35]
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 Okay, great. And then just, my other question would be on the Suezmax market. You alluded to, in your press release, about some volumes coming back online. We've seen the VLCC market move significantly higher into the 40,000 -- I believe the spread between the Suezmaxes and VLCCs is about 3x. Is there anything that we could see happen in the next couple months that would maybe converge that spread between Suezmaxes and VLCCs or is this just the new paradigm we're going to have to get used to?





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 Kevin Mackay,  Teekay Tankers Ltd. - President & CEO   [36]
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 No. I think what -- obviously the VLCCs have benefited from more Middle East exports and the supply disruptions out of West Africa has hindered more on the Suezmax side than anywhere. But I think, as you move the Suezmax fleet from a concentration within the Atlantic to further field, they will start encroaching on the [medliftings] with VLCCs. And as that droves tonnage out, it reduces the supply balance in the Atlantic which with production coming out of the Atlantic, hopefully on the increase, you'll see the Suezmaxes eat back some of that differential with bigger ships.



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 Gregory Lewis,  Credit Suisse - Analyst   [37]
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 And is that something that is Teekay starting to, through contracts or repositioning starting to -- is that something that at least TNK is starting to -- is in the process of doing?



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 Kevin Mackay,  Teekay Tankers Ltd. - President & CEO   [38]
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 Well, we actually started this process a while back when strategically we pulled in our Suezmax pool in-house to combine with our Aframax commercial desks. And the view there was really to take our Suezmax fleet and spread it more globally than it was, perhaps, historically. So looking at AG West Cargos, looking at West-to-East movement; really spreading out our own fleet list, if you will and I think that's had a positive impact on both our customer coverage and the returns we're getting from the market.





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 Gregory Lewis,  Credit Suisse - Analyst   [39]
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 Okay, great. Hey, thank you very much for the time, gentlemen.



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Operator   [40]
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 (Operator Instructions) Spiro Dounis, UBS Securities.



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 Spiro Dounis,  UBS Securities - Analyst   [41]
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 Hey, Kevin and Vince, thanks for taking the question. Just wanted to -- Kevin you mentioned reverse lightering before, curious in terms of what you're seeing in the Gulf, I guess the WTI contango has really widened here in the last week or so. And I guess, I'm just wondering are we seeing any increase in terms of floating storage in the Gulf. Has that really ever happened in a big way at this point? Just curious, what is the view on the ground is?



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 Kevin Mackay,  Teekay Tankers Ltd. - President & CEO   [42]
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 Yeah, we haven't seen a lot of it in the immediate term. We are seeing a growth in long haul barrels coming in and I think that was a function of the uptick earlier in late September, early October a lot of barrels coming in from the Middle East. So we're seeing the impact of that now and that's why you've got the Caribbean market spiking up to close to $30,000 a day on the Aframaxes.

 But I think looking back historically from a past life, when I was heavily involved in the lightering business itself, there has been periods where the oil traders have sought to use the US Gulf as a trading region and a trading book to store assets on Vs and move cargos between Vs. So I should anticipate if we do get a stronger contango and the storage play does become a larger function of the market, the US Gulf will play a significant role in that and that should drive more volumes for us on the lightering side.



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 Spiro Dounis,  UBS Securities - Analyst   [43]
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 Got it. And then, you mentioned before your expertise, obviously in the tanker market, sort of segued you into this lightering business and you may have been asked this before, so I apologize. But in terms of what the next segue could be. Obviously, a big presence in the Gulf might lend itself to [challenge that]. Is that something that at some point you see fitting in for the strategy or no?



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 Kevin Mackay,  Teekay Tankers Ltd. - President & CEO   [44]
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 No.



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 Spiro Dounis,  UBS Securities - Analyst   [45]
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 No? Okay, fair enough. Last one for me just from a modelling perspective. I think the guidance you gave originally with the ship-to-ship transfer was EBITDA run rate of about $10 million or $12 million and as you tack on these Aframaxes and dedicate them to this. Is that $10 million to $12 million like fee based and then, beyond that, as you add an Aframax to it, whatever they got on a charter sort of incremental at $10 million to $12 million, is that the right way think about it?



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 Vincent Lok,  Teekay Tankers Ltd. - CFO   [46]
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 Yeah, I think if you if you look at the lightering business as a whole, you kind of have to separate the support services that Kevin referred to from the full service lightering, because the full service lettering business is very integrated with our existing Aframax trading and as we mentioned, that's now up to about five Aframax equivalents, so that's part of what you see in our -- almost our spot segment.

 In terms of the support services, the EBITDA there I think we're gradually ramping that up. I think for 2016, we're looking at EBITDA of around -- about $5 million or so and we expect that to increase next year probably in the region of, maybe about $7 million. So we're gradually ramping up the support service but the full service lightering, I think, is probably doing a little bit better than what we originally expected and we're continuing to chance new contracts.



------------------------------
 Spiro Dounis,  UBS Securities - Analyst   [47]
------------------------------
 Got it, great to hear. Appreciate the color. Thanks, guys.



------------------------------
Operator   [48]
------------------------------
 Magnus Fyhr, Seaport Global.



------------------------------
 Magnus Fyhr,  Seaport Global - Analyst   [49]
------------------------------
 Just one question, kind of follow-up on the potential crude flow next year, if the OPEC would cut back on production, I guess you could see shale oil production make up the difference there and I guess you guys would be in a very good position to benefit from that. Can you talk a little bit more about how you've seen export during the last year? I know they've increased here as of late and potential destinations, potentially going through the Panama Canal? Thanks.





------------------------------
 Kevin Mackay,  Teekay Tankers Ltd. - President & CEO   [50]
------------------------------
 Hi, Magnus. Yes, I think we've seen a ramp-up certainly in the first half up to, I think, it was June, there was a lot more Aframax volumes moved out of the US Gulf, primarily to Europe and also Latin America, Caribs as they sort of combined stems with heavier grades and move them to the Far East. So it was a positive trend.

 I think it's taken a breather in the third quarter. It has come off a little bit from what we are seeing in the first half. But I think it's something that -- US shale oil is a crude oil but one of the traders I was talking to last week was mentioning that it's something that the refineries still don't fully understand within their cargo mix or their feed stock mix. So I think we're seeing a lot of experimentation at the moment.

 So we're going to get vagaries from month to month in terms of where those cargos are destined and who buys them. I think it will take a while before that settles down and we see some consistency within the trade patterns. But in the meantime, we're still seeing the opportunities on Aframaxes to do think like reverse lighters and longer haul exports.



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 Magnus Fyhr,  Seaport Global - Analyst   [51]
------------------------------
 And refresh my memory, as far as going upsizing this trade. I mean, there are some talks about increasing the capabilities to export on the LOOP platform and other ports, what's the status in that now?



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 Kevin Mackay,  Teekay Tankers Ltd. - President & CEO   [52]
------------------------------
 The last I understood on the topic was there hadn't been much movement other than the public commentary that there was something that we'd like to look at. But in terms of impact to our business, we haven't seen it thus far.



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 Magnus Fyhr,  Seaport Global - Analyst   [53]
------------------------------
 Okay and just one last question on -- you mentioned the Libyan exports potentially increasing here by the end of the year. Is that a market that you will go into right now or would you like to see as far as safety going in with your ship there?



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 Kevin Mackay,  Teekay Tankers Ltd. - President & CEO   [54]
------------------------------
 Yes. At this point in time, we actually don't have any ships in that area. We're concentrating more in the Baltic and the North Sea because the returns are higher. And the [Med] has taken a bit of a breather recently. So we haven't deployed any tonnage there. So it's not something we've run into. But certainly as production increases, we'll be keeping an eye on safety and the risk of going there. And if we -- from a risk standpoint feel comfortable, then that's certainly a trade that we would like to take part in.





------------------------------
 Magnus Fyhr,  Seaport Global - Analyst   [55]
------------------------------
 Alright, thanks. Thanks for your time.



------------------------------
Operator   [56]
------------------------------
 (Operator Instructions) John Humphreys, Bank of America/Merrill Lynch.



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 John Humphreys,  Bank of America/Merrill Lynch - Analyst   [57]
------------------------------
 I just want to ask a question, I know this had been touched on before, but sort of the accounting of you lightering business. Taking a look at wage expenses on the income statement, it seems from the footnote that about $8.5 million of the $14.9 million associated with lightering. If you could just walk me through where -- and it looks as though the lightering revenue is being included in the voyage charter revenues. If you can just sort of walk through what we can expect as you grow your lightering business, sort of what 4Q voyage expense is and then, into 2017. Just trying to get a better sense of the run rate as that line item has being to ramp along with your lightering business?



------------------------------
 Vincent Lok,  Teekay Tankers Ltd. - CFO   [58]
------------------------------
 Yeah, I think to clarify, the voyage expense item on the income statement, as noted in note two to that, it does include the cost of in-chartering vessels that Kevin referred to from time-to-time to support of full service of lightering business. So that number may vary from quarter-to-quarter. That also includes certain port charges et cetera. So there is about $8.5 million of that, like you said, in the third quarter.

 I think going forward, that number probably could increase a little bit, given that we have some new full service lightering contracts starting up in the fourth quarter. I think you have to look at it on a net basis, as we had somewhat guided on slide number seven where we've included the net contribution from the full service lightering embedded in that Aframax TCE number. And that's probably the easiest way to model the full service lightering.



------------------------------
 John Humphreys,  Bank of America/Merrill Lynch - Analyst   [59]
------------------------------
 Great. Thank you very much and then the last one being sort of more general on the IMO regulation and Kevin, if you could comment on what you think this means for the overall fleet and as asset owners make decisions about sending ships back to the yard and the availability of scrubbers and what kind of impact this could have in 2017 and 2018?



------------------------------
 Kevin Mackay,  Teekay Tankers Ltd. - President & CEO   [60]
------------------------------
 Yeah, I think the IMO stated there softer emissions initiative, we held to the 2020 date for implementation as opposed to 2025 and that was based on the study that they undertook to ensure that there will be enough supply of low sulfur fuel oil. To my mind, if that is truly the case and there is a determination that there will be enough supply, I think from an economic standpoint, this shouldn't be a huge impact, given that world-scale adjust for changes in fuel source and therefore flat rates.

 I think what it does do though, if owners do decide to look at implementing scrubbers, which are a high capital expense, you will see owners with older tonnage that are facing third and fourth special survey expenses as well as the potential to have to spend on ballast water treatment implementation toward the back-end of the decade. That's an awful lot of CapEx to put into older ships. So we would forecast that the overall impact would be an increase in scrapping of those older units.



------------------------------
 John Humphreys,  Bank of America/Merrill Lynch - Analyst   [61]
------------------------------
 Great, thanks very much. That's it from me.



------------------------------
Operator   [62]
------------------------------
 John Reardon, Western International.



------------------------------
 John Reardon,  Western International Securities - Analyst   [63]
------------------------------
 Hi, good morning. My question was just answered, but I have another one. And that is, ten years ago, Teekay had a variable dividend, then it went to fixed, then it went back to a variable. As the cash flow improves and I think it will, if the stock price remains at what seem to be depressed levels, might there be some consideration to maybe use some of the additional cash flow coming in to buy back some stock? That's it.



------------------------------
 Vincent Lok,  Teekay Tankers Ltd. - CFO   [64]
------------------------------
 Hi John. Yes, our current dividend policy, as you probably know, is to pay 30% to 50% of adjusted net income with a [floor dividend] of $0.03 per quarter. That is our current policy and we currently don't have any plans to change that. I think as it relates to stock buyback, that's certainly one of the levers that is available to us to create shareholder value and return capital to shareholders when we have the excess cash.

 I think right now, given some volatility in the market and perhaps some potential headwinds in 2017, we believe it's prudent to continue to use our excess cash to delever the balance sheet.



------------------------------
 John Reardon,  Western International Securities - Analyst   [65]
------------------------------
 Very good. Thank you.



------------------------------
Operator   [66]
------------------------------
 Thank you. And at this time, we have no further questions in the queue. I would like to turn the conference back over to Mr. Mackay for any additional or closing remarks.



------------------------------
 Kevin Mackay,  Teekay Tankers Ltd. - President & CEO   [67]
------------------------------
 No. Thank you very much for listening in today folks and we'll see you in three months' time. Bye-bye.



------------------------------
Operator   [68]
------------------------------
 Thank you. That does conclude today's presentation. Thank you for your participation. You may now disconnect.




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