Q4 2016 Teekay Tankers Ltd Earnings Call

Feb 23, 2017 AM EST
TNK - Teekay Tankers Ltd
Q4 2016 Teekay Tankers Ltd Earnings Call
Feb 23, 2017 / 06:00PM GMT 

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Corporate Participants
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   *  Scott Gayton
      Teekay Tankers Ltd - VP of Finance
   *  Kevin Mackay
      Teekay Tankers Ltd - President & CEO
   *  Christian Waldegrave
      Teekay Tankers Ltd - CFO

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Conference Call Participants
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   *  Jon Chappell
      Evercore ISI - Analyst
   *  Gregory Lewis
      Credit Suisse - Analyst
   *  Spiro Dounis
      UBS Securities - Analyst
   *  Noah Parguette
      JPMorgan - Analyst
   *  John Humphreys
      Bank of America - Analyst
   *  Magnus Fyhr
      Seaport Global - Analyst

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Presentation
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Operator   [1]
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 Welcome to Teekay Tankers Limited's fourth-quarter and FY16 earnings results conference call.

 (Operator Instructions)

 As a reminder, this call is being recorded. Now for opening remarks and introductions, I'd like to turn the call over to Mr. Kevin Mackay, Teekay Tankers Limited's Chief Executive Officer. Please go ahead, sir.

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 Scott Gayton,  Teekay Tankers Ltd - VP of Finance   [2]
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 Before Mr. Mackay begins, I'd like to direct all participants to our website at TeekayTankers.com where you will find a copy of the fourth-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 in these forward-looking statements is contained in the fourth-quarter 2016 earnings release and earnings presentation available on our website. I will 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, Scott. 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 Strategic Research at Teekay Corporation. During today's call, I will be taking you through Teekay Tankers' fourth-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 adjusted net income of $5.1 million or $0.03 per share in the fourth quarter of 2016, compared to an adjusted net loss of $1.5 million or $0.01 per share in the third quarter of 2016. We generated free cash flow of $34.2 million during the quarter compared with $26.6 million in the third quarter of 2016. Our fourth-quarter results were positively impacted by the seasonal strength in the tanker market and increased oil exports from Nigeria, Libya, and the Baltic Sea, which I will touch on in more detail later in the presentation.

 In accordance with our variable dividend policy, Teekay Tankers declared a dividend of $0.03 per share for the fourth quarter of 2016, representing the minimum quarterly dividend. The dividend will be paid on March 10, 2017, to all shareholders of record as of March 6, 2017. As we have mentioned before, one of our priorities is to continue to strengthen our balance sheet which creates shareholder value by increasing underlying net asset value.

 The combination of free cash flow generated during the quarter, recent vessel sales, and other actions have allowed us to reduce our financial leverage to 47% on a net debt to book capitalization basis. Lastly, given our view of the softer 2017 tanker market, we secured three term charters, firm periods of 12 months at an average rate of $20,800. These charters increase our fixed-rate cover to approximately 40% over the next 12 months.

 Turning to slide 4, we look at developments in the crude tankers spot market. As the charts on the slide illustrate, mid-sized crude tanker rates firmed in the fourth quarter from the low scene in the summer months and reached a seasonal high in December due to combination of changing supply dynamics and seasonal demand factors.

 Exports from Nigeria, Libya, and the Baltic Black Sea ports increased by around 800,000 barrels per day through the quarter, which supported mid-sized tanker demand in the Atlantic. Further, Middle East OPEC production reached a record high of 25.6 million barrels per day by the end of the quarter, which further contributed to the overall cargoes available for export. Winter weather delays, as well as high refinery throughput and regional stock builds occurring toward the end of the quarter, provided strong upside support for mid-sized tanker rates.

 The strength in spot tanker rates continued into the early part of the first quarter of 2017. With OPEC production cuts showing a compliance of around 90%, the Brent-Dubai oil spread has narrowed such that Atlantic barrels have become more economically attractive than Middle Eastern barrel volumes to Asian buyers. Such arbitrage trading has the potential to introduce chartering volatility which we view was positive for spot rates. We believe an increase in this arbitrage-driven, long-haul trade will provide some underlying support for mid-sized tankers through 2017.

 While there were some tailwinds for mid-sized crude tanker demand at the start of the first quarter, some headwinds are developing which will present challenges to tanker demand, including ongoing OPEC cuts, heavy refinery maintenance, clearing weather winter delays. As we note on the following slide, we believe these headwinds will, however, be short-term in nature.

 Turning to slide 5, we look at where we believe we are in the current tanker market cycle. As the graph illustrates, we believe we have moved beyond the peak of the current market cycle. 2017 will present the tanker market with some specific yet short-term challenges for tanker demand that will likely lead to a weakened freight rate environment.

 These challenges include fleet growth, which is expected to be around 5% for mid-sized tankers, the significant portion of deliveries occurring in the first half of this year. OPEC production cuts reducing crude volumes for export and higher bunker prices will also play a part in challenging the freight markets.

 However, the relatively soft rates we anticipate for 2017 should be short-lived in nature and not as severe or as prolonged as we saw in the period from 2011 to 2013 given the nature of current market pressures. As we cover on the following slide, we also believe that positive fleet development factors in 2018 are likely to result in a return to stronger markets.

 Turning to slide 6, we cover our outlook for the fleet fundamentals for 2018 and beyond. We believe that a lack of both ordering and scrapping in recent years, along with ongoing rationalization of shipyard capacity, will provide a strong foundation for 2018 through the end of the decade. Scrapping in 2015 and 2016 was at the lowest level in 10 years, with 2.4 million and 2.6 million deadweight tonnes of scrapping, respectively.

 As a result, the world fleet has continued to age such that by 2020, 1/3 of the global mid-sized fleet will be age 15 years or older. With age discrimination a factor for traders and charterers, as well as pending regulatory changes such as ballast water management coming into effect, owners will face increasing pressure to scrap older vessels.

 In addition to record low scrapping, ordering in 2016 was at the lowest level since 1995 with only 9.2 million deadweight tonnes ordered. The lack of ordering is due to a variety of factors. Capital markets have been largely closed to owners looking for new build financing, while the spread between secondhand and new build prices increased such that it has become more attractive to source tonnage in the secondhand market than order a new vessel delivering into the future.

 As the lower chart on the slide illustrates, there's also been a steady decrease in shipyard capacity as ownership of the yards has consolidated, stemming the downward pressure on prices. In sum, our view is that fleet growth in 2018 and 2019 will remain constrained and well below historical averages as scrapping picks up and ordering remains low due to financial restraints and lower available shipyard capacity.

 Turning to slide 7, we look at the changing supply demand dynamics in the oil markets between 2016 and 2021. Global oil demand continues to grow an average of 1.2 million barrels per day annually, and the expectation is that this rate of growth will continue through to 2021. The real story of tanker demand, however, is the location of crude supply versus crude demand. Asia demand is expected to grow by 4.4 million barrels per day in the forecast period, while supply, particularly in China, is expected to contract.

 This translates into a need for around 5 million barrels per day of additional imports to satisfy both demand increases and supply declines. In the Americas, supply is expected to grow by 3 million barrels per day in the forecast period, while demand is expected to remain flat. The outcome could mean an additional 2.2 million barrels per day of crude available for export by the end of 2021.

 This trend of increasing exports from the region has already begun in a meaningful way. As the US has in recent weeks exported around 1 million barrels per day from the US Gulf, this growth in exports is particularly positive for mid-sized tanker demand in terms of Aframax tonnage used for reverse lightering and Suezmax demand to transit volumes longer haul.

 Depending on OPEC policies in the Middle East, which will need to contend with an increase of 2 million barrels per day of domestic demand, we view the majority of supply increases will likely come from the Atlantic Basin, while the demand increases will largely come from Asia. This translates into longer-haul movements from the West to the East, which is supportive of crude tanker trade.

 Turning to slide 8, we discuss how TNK is well-positioned for the changing market conditions. Anticipating the headwinds in the tanker market in 2017, we have increased our fixed-rate charter cover to approximately 40% from approximately 15% a year ago. This fixed-rate cover provides stable cash flows, decreasing our all-in cash breakeven level. We also strengthened our balance sheet by continuing to pay down debt, raising equity, and selling older assets.

 With increasing US exports, we significantly grew our ship-to-ship business in the US Gulf by securing several key lightering contracts with oil majors at rates well above today's spot rates. With OPEC cuts to production stemming mostly from the Middle East, we strengthened our mid-sized tanker presence in the Atlantic Basin, as Asian buyers have begun looking to replace missing Middle East OPEC barrels with increasing supply from the Atlantic.

 With the softening in the clean product trade in 2016, our LR2 product tankers have all been moved into the Aframax crude trade, thereby maximizing our earnings from the more lucrative crude markets. Looking ahead, with the expectation of improving market conditions in 2018 and 2019, we are well-positioned to reengage our strategic levers, which I've talked about previously, including actively pursuing in-charters, utilizing Teekay Tankers' operating platform to pursue consolidation and investment opportunities, and increasing fee revenues from our industry-leading services platform.

 Turning to slide 9, I will wrap up with an update on spot tanker rates for the first quarter of 2017 to date. Based on approximately 62% and 55% of spot revenue days booked, Teekay Tankers' first-quarter to-date Suezmax and Aframax bookings have averaged approximately $26,200 and $20,100 per day, respectively. For our LR2 segment with approximately 49% of spot revenue days booked, first-quarter to-date bookings have averaged approximately $19,200 per day.

 Although spot tanker rates are expected to be relatively strong in the first quarter of 2017, we do expect 2017 overall will be a challenging year for the tanker market. However, with approximately 40% of our fleet booked on fixed-rate time charters and strong support from our lightering and other fee-based businesses, we believe Teekay Tankers has a strong base of cash flow to help weather future tanker market volatility. With that, Operator, we are 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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 Kevin, you had mentioned on slide 8 that you had already spoken a little bit about re-engaging strategic levers, but I just wanted to dig a little deeper on that. It seems that what you have done with the Suezmax and the MR vessel sales was smart from a strategic perspective. Obviously, the MRs didn't fit in the fleet kind of longer-term, and the Suezmaxes were the two oldest ships of that vintage. As you look across the rest of the fleet, three 1999-built Aframaxes, a couple other 2002 and 2003. I know it's difficult to kind of sell at the trough part of the market or at least when sentiment's at a trough, but is there a two-tiered market developing for those ships, and how do you kind of think about their longevity in your fleet right now?

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 Kevin Mackay,  Teekay Tankers Ltd - President & CEO   [3]
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 The fleet portfolio makeup is something that we constantly monitored at all points in the cycle. As you saw, we did feel that the MRs don't belong in our program, and the older Suezmaxes, it was at a point in their lifecycle where we felt the cost benefit of maintaining those weren't worth it.

 If you look at our current fleet, we do have some older Aframaxes that we continue to look at. Two of those are actually trading in the US Gulf at the moment where there really isn't a two-tier market for older versus newer. We can utilize those ships very well in our lightering program. As you know, we're getting above average rates for those contracts in that utilization. In the Far East, I think you do have slight discrimination on some of the older units, and it is harder to keep positioning those.

 Really, when we look at what we're going to do going forward, it's a function of where we think the regional markets are going to be, where we think we're best positioned based on our contract volume, and in areas where we might be able to take advantage of an older unit. If we see that the upcoming cost for things like third special surveys or intermediate survey dockings, ballast water treatment implementations, those will factor into our decision whether we keep those older assets in the program or not.

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 Jon Chappell,  Evercore ISI - Analyst   [4]
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 That makes sense. And you've laid out a pretty compelling multi-year view here of that you're being challenged by headwinds, next year really setting up well for recovery. How do look beyond the next 12 months? It seems that chartering out at this point may be at the low part of the cycle, and chartering in may provide a significant opportunity, However, given the [2017] disparity in the Outlook, it could be very detrimental to near-term earnings. So are you kind of looking beyond a 12-month timeframe when you're thinking about the other operational levers?

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 Kevin Mackay,  Teekay Tankers Ltd - President & CEO   [5]
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 I think what you've seen us do in the spot -- or the fixed-rate charter cover, we have gone for periods of 12 to 18 months, which really we see as the sweet spot starting from last summer in terms of where to find that cover to get us through the weaker period. We haven't gone long on TC cover for longer-term because that would take us out of what we think would be a recovering market in [2018], certainly [2019]. I think as we look at the program going forward, those 12 to18 months TCs are still available, less so on the 18 month side. But again, I don't think we want to be putting our fixed-rate cover that far out where we miss the upside in the market

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 Jon Chappell,  Evercore ISI - Analyst   [6]
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 Right. That makes sense. Final one and it's two parts but hopefully still quick. The proceeds from the Suezmax sales that completed in the first quarter or that will complete in the first quarter, how much of that is slated for debt repayment? And then part two is, I think there's still somewhat of a misperception about pretty significant debt amortization in 2017 which I know that you have since remedied, but like I said, there still might be a misconception about it. Can you just kind of walk through the debt amortization schedule for the next 12 to 24 months?

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 Scott Gayton,  Teekay Tankers Ltd - VP of Finance   [7]
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 Sure. Hello, Jon. As a reminder, these vessels that we just sold recently, the Ganges and Yumuna, they were part of the old 2017 revolver that was in place. So all of the proceeds from those two vessel sales will go towards retiring that remaining facility that matures in November 2017. That will take care of the remaining amount of that facility.

 In terms of the new facility that we put in place January 2016, our average debt retainment is about $120 million a year. That is sort of the run rate for 2017. It goes down a little bit in 2018 to about $110 million. That is that facility as well as other small facilities, so that's an aggregate for TNK.

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Operator   [8]
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 (Operator Instructions)

 Gregory Lewis, Credit Suisse.

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 Gregory Lewis,  Credit Suisse - Analyst   [9]
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 Kevin, in some of your prepared comments you talked about, yes, OPEC's is cutting but your fleet seems to be, given the size of your vessels, may be a little bit more insulated. As we have seen the OPEC's cuts start to filter into the market, has that driven any dislocations or increased volumes from other basins sort of mitigating the lower volumes from the Middle East?

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 Kevin Mackay,  Teekay Tankers Ltd - President & CEO   [10]
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 I think primarily, I think Christian can clarify. The vast majority of the production cuts that OPEC announced are coming from three Middle Eastern countries. So that is having a dampening effect on the larger class of vessels, sort of AG East. Those barrels are being replaced by longer haul out of West Africa and Brazil and also the US Gulf now. We're seeing a lot more production coming out of the US Gulf. The first cargo I think and just recently [got fixed in] the US Gulf to India. So I think Asian buyers are looking to diversify their sources given the cuts that are primarily coming out of the AG.

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 Gregory Lewis,  Credit Suisse - Analyst   [11]
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 If we sort of look back at history when OPEC decides to change their production volumes, i.e., take down their volumes, what sort of impact does that usually have or does it have any impact on the product tanker markets? And I guess what I'm wondering is, if we're seeing less crude oil flow out of the Middle East, could we see the potential over the next 6 to 12 months that we're seeing more products flow out of the Middle East and since that is a higher-margin barrel for the producers?

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 Kevin Mackay,  Teekay Tankers Ltd - President & CEO   [12]
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 I think from a TNK perspective our long view on our LR2 program, we felt we didn't have a lot of confidence in the near-term prospects for the product tanker trade. So that is why we have gone for the higher-margin crude business and used the flexibility of that tonnage to transition over to pure Aframax trading on the crude side. I think as a general commentary on the market, maybe Christian would be able to handle that

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 Christian Waldegrave,  Teekay Tankers Ltd - CFO   [13]
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 Yes, what I think you're seeing on the products side as well as you've obviously got very high inventory levels in different parts of the world because over the past couple of years, refineries have obviously been making very good margins with the low crude oil price. Now that the crude price has come up and that is affecting refining margins, and so I actually I think the product market is actually going to be negatively impacted by that in the next 12 months. Which again, as Kevin explained, is why we have moved those ships over to the [desert] market and see more opportunities on the crude side rather than the products where I think you will see people drawing down on inventory through the course of 2017 rather than taking in lots of crude and refining it because those margins are a bit narrower.

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Operator   [14]
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 Spiro Dounis, UBS Securities.

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 Spiro Dounis,  UBS Securities - Analyst   [15]
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 Kevin, just wanted to go back to something you mentioned earlier, just in on different ways you can capitalize on an improving market. And I guess one of the things that maybe wasn't mentioned was just around vessel acquisitions or placing new build orders. Are those levers that you would pull, and where do they stack up relative to the other options you mentioned?

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 Kevin Mackay,  Teekay Tankers Ltd - President & CEO   [16]
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 Certainly, we take a portfolio approach to how we manage the fleet. So whether it is secondhand purchases, vessel acquisitions, new builds, we're constantly watching those markets on an ongoing basis. Currently, there is a fairly wide spread between the new build price and secondhand values which have come off quite sharply. That will obviously change over time.

 I think our long view is that both in the Suezmax and the Aframax/LR2 fleets there is a need for fleet replenishment. There's about one-third of the fleet is going to be turning 15 years or beyond that by 2020. So certainly we're going to have to look to the new building market at some point. It's just a question of the pricing differentials versus buying on the water assets.

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 Spiro Dounis,  UBS Securities - Analyst   [17]
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 Got it. That's helpful. And second one, just around the ship-to-ship transfer business. It sounds that the activity there is really starting to pick up in the US Gulf, and you mentioned that Western Canadian Select Cargo that I guess is now on its way to India which is pretty shocking. What is actually stopping you from deploying more Aframaxes into that trade to capture that premium rate? Is there any sort of vetting requirement that needs to happen, or could you really put a lot more of your fleet in there right now?

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 Kevin Mackay,  Teekay Tankers Ltd - President & CEO   [18]
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 First of all, I would just like to reiterate that I am really pleased with the way the acquisition has gone. I think we have timed it well and it has provided a great alternative outlet to seek fixed-rate cover for our Aframax fleet. And it's also -- it's allowed Teekay Tankers to really reestablish itself in the Atlantic and specifically in the US Caribbean region at a point in time when US exports were expected to grow. So I'm really pleased with the way we have integrated that business. I think we're getting benefits from that, and we will continue to get the benefits as we go forward.

 The vetting regime for the US Gulf is the same as it is anywhere else in the world. It is the specialized knowledge of how to put the ships together. It's where I think we have an advantage over others. Is not a market that people can break into easily. In terms of moving our fleets from one region to another, we certainly look at it in terms of maximizing our new potential, but we've also look at it, again, on a portfolio basis. And we have long-term customers that we have had relationships with for close to half a century now where we need to keep a presence in the Asian market. And those customers support us with the contracts they give us. So it'll be a balance of meeting our long-term customer objectives as well as maximizing revenue in any given spot market.

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 Spiro Dounis,  UBS Securities - Analyst   [19]
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 Just to clarify, I guess I'd be right assuming that in the event that the ship-to-ship transfer market did actually pick up or heat up from here where the relative attractiveness was that much better, you could in pretty quick fashion move those vessels in? Or am I reading that right?

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 Kevin Mackay,  Teekay Tankers Ltd - President & CEO   [20]
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 We have vessels all over the Atlantic. So we have a presence in the North Sea, which if we feel that the market over the near term will be less than the US Gulf or demand increases such that we would need to move them, we would certainly be able to do that in short order.

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Operator   [21]
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 Noah Parquette, JPMorgan.

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 Noah Parguette,  JPMorgan - Analyst   [22]
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 I wanted to ask how do you guys think about the risks of new orders here pushing back a recovery? I mean, you've seen more talk from some of your competitors putting in orders from your ships. And like you cited, the ratio of secondhand ships to new prices below the long-term average, but it is nothing like dry bulk. And plus the new build ship has advantages of you to avoid the market weakness. What do you think of the risk of new build orders in 2018 and 2019, [derailing] this idea that the recovery will be shallow?

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 Kevin Mackay,  Teekay Tankers Ltd - President & CEO   [23]
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 Noah, if you refer to our slide, I think it was on page 6, we have listed a few factors there which we believe will contribute to the dampening order book. New build capacity is a big item when we consider the long-term prospects for the order book, and it has already come off 30% from its earlier decade highs, and we anticipate with the consolidation that's going on in that market, we will probably see another possibly 10% to 15% of capacity being reduced in the near term. That is a big factor.

 There is also other fleets that have order books that they may look to replenish projects coming online that will also eat into that smaller available capacity. I think also conjoined to that is the lack of availability of capital financing. Obviously, for the public companies, the capital markets have been relatively closed, but also the rationalization in the bank market is making it harder and harder to secure debt for everyone other than the top-tier players. I don't think you will see the large players in the market going out and over ordering to the extent where it kills the future market.

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 Noah Parguette,  JPMorgan - Analyst   [24]
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 I wanted to get your thoughts on the idea that, we're all used to sort of mid cycle or normalized historical rates for the different vessel classes. But with the fall in new build prices so far, do you think that pulls that number down over the next few years?

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 Kevin Mackay,  Teekay Tankers Ltd - President & CEO   [25]
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 I don't think so. I don't think it has. With what the new build price does to spot rates, I don't think there is a direct correlation there. I think it is much more fundamentally about the demand for oil and the number of ships that are out there, not how they were priced.

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 Noah Parguette,  JPMorgan - Analyst   [26]
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 Just a follow-up on Jonathan's question about scrapping. On slide 6, you guys talked about the fleet getting older by 2020, and that is interesting in the abstract. Specifically, you guys have about one-third of your ships turning 15 years old by that timeframe. How do think about your CapEx requirements, and how do you think about your scrapping needs and maybe how are they different than other owners out there?

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 Kevin Mackay,  Teekay Tankers Ltd - President & CEO   [27]
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 I think every owner is independent and will look at their fleets in respect to what their company objectives are. For Teekay Tankers, ships get older every year. So we continually have to look at what we do with the older asset, where we can redeploy them, and when we go into the market to replenish. I think, as I have said earlier, we have some older Aframax units that in some parts of the world we think we can squeeze out some good revenue.

 But I think also the benefit that we have is the ability to contract our own fleet but not remove our presence from the market and not lose that connection with our customers and not lose the contracts that we have built over the years because we have pools. We have the ability to in charter, we have our technical and commercial management which allows us to [bear boat] in. So we have an awful lot of levers that we can pull at different points in the cycle to make sure that we manage this portfolio as it ages.

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Operator   [28]
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 John Humphreys, Bank of America.

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 John Humphreys,  Bank of America - Analyst   [29]
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 I just wanted to touch on the strategy around coverage. You mentioned you're [up 40%] and were at 15% last year. If you could sort of talk to where you see that going over 2017 to 2018 with your expectations for a strengthening market. If we should see that ease back down, if it is going to be in a linear fashion, or if it's going to be little bit lumpier.

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 Kevin Mackay,  Teekay Tankers Ltd - President & CEO   [30]
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 I think we've been really focused over the course of the end of 2016 in ensuring that we update our projections of where we think 2017 is going to go. That is why you saw us start to take a little more cover in the third, fourth quarters of last year. I think we're at a sweet spot. 40% is a comfortable number to be at. It's certainly a lot more comfortable than we were 12 months ago. I think going forward, it is a function of really where the time charter market and where the time charter rates lie versus our forward view of the market. I think you might see us slowing down a little bit in terms of seeking additional cover.

 We're also bearing in mind that the expectation that US Gulf volumes pick up and our lightering business is a lucrative addition to the portfolio that we can move more assets into that program. It is laying out where we see the benefit of the time charter cover versus helping grow our franchise in the US Gulf versus where we see the spot market further out into 2018. Sort of to sum all that up, it will be very opportunistic from here on out.

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 John Humphreys,  Bank of America - Analyst   [31]
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 Opportunities you're not expecting it to not creep up from here, that's you'd expect it to just sort of be a peak and drift downward?

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 Kevin Mackay,  Teekay Tankers Ltd - President & CEO   [32]
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 I would never say never. I think if somebody offers us a good rate that we think is worth looking in that fixed-rate income at well above market levels then certainly we might add a few. But if those opportunities don't arise or we feel that the numbers being offered aren't worth the comparative spot market exposure, then you would see us tail off.

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 John Humphreys,  Bank of America - Analyst   [33]
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 One more, you've touched on it with vessels moving from the clean into the dirty trade that you had not done yourself. If you can give me just sort of relative terms, how much -- I mean if this is being done to a scale where it is really moving rates and that supply increase could negatively impact the rates you are able to achieve? Or is it on a much smaller scale where it is not really moving market rates?

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 Kevin Mackay,  Teekay Tankers Ltd - President & CEO   [34]
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 For Teekay Tankers, we have got seven LR2 vessels in our program, two of which are on time charter cover. So the five that were in the spot market, they were the ones that were moved over. So in terms of market impact, I don't think us alone would have a significant impact on either crude or product rates with such a small number of ships moving over.

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 John Humphreys,  Bank of America - Analyst   [35]
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 Right. But I mean looking at peers and others doing this, is this sort of a trend that we need to be watching that this could move if more people in the global fleet do what Teekay did?

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 Christian Waldegrave,  Teekay Tankers Ltd - CFO   [36]
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 I think in 2016, we probably did see somewhere between 20 and 30 ships move over from the clean trade to the dirty trade on a global basis, and yet the Aframax, the crude Aframax, still outperforms the LR2s. I think it has been -- you know, the move has been justified. Going forward, I'm not sure there are many more owners that will dirty up just given that there are a lot of owners that are dedicated to those clean trades and want to keep those ships clean. So I'm not sure of the impact. I'm not sure we will see a large number of ships continue to dirty up through the course of 2017. I don't see this being a huge factor going forward.

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Operator   [37]
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 Magnus Fyhr, Seaport Global.

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 Magnus Fyhr,  Seaport Global - Analyst   [38]
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 Just a question on the lightering business with US exports picking up, can you provide any -- can you quantify the results for the fourth quarter, how much was attributed to the lightering business?

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 Scott Gayton,  Teekay Tankers Ltd - VP of Finance   [39]
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 Hi, Magnus. We were able to -- if you compare it to the fourth quarter of last year, we essentially doubled our full service lightering volumes. So there is roughly over four ship equivalents equal to about 390 ship days in full service lightering. That might increase a little bit more during the course of 2017 as we ramp up some of the recent contracts that we secured. From an EBITDA perspective, for full-service lightering for the fourth quarter was about $2.5 million.

 In the support services side, I think our overall target for the year for EBITDA is probably in the area of about $4 million to $5 million. We had probably a weaker than expected result in the fourth quarter due to some shorter-term factors, and we hope that, that will start picking up sometime in the second quarter.

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 Magnus Fyhr,  Seaport Global - Analyst   [40]
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 The guidance that you gave, I think $65 million, $70 million on an annual basis I guess revenues, is that -- are you on track to do that, or with the lightering support a little bit off, that's kind of like $15 million, $16 million per quarter. Are you on track for that now, or is that something you will reach in first quarter, second quarter of next year?

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 Scott Gayton,  Teekay Tankers Ltd - VP of Finance   [41]
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 I think if you look at it on a EBITDA basis, if you look at for the -- on a full-year basis, we're still on track to generate over $10 million of EBITDA which is more or less in line with what we had expected. I think on balance, the full service lightering is probably performing better than we expected, whereas the support lightering services is still ramping up. Hopefully, the support lightering side will catch up. As Kevin said, I think we're very pleased overall with the acquisition. It was well-timed and is contributing to more fixed-rate revenue for TNK at a time when the spot market is weaker.

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 Magnus Fyhr,  Seaport Global - Analyst   [42]
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 Just let me clarify, the EBITDA for fourth quarter was around $7 million, $2.5 million from the full service lightering and $4.5 million from the support. So that's $7 million. You say the full year is $10 million, or is that per quarter?

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 Scott Gayton,  Teekay Tankers Ltd - VP of Finance   [43]
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 Sorry. Just to clarify, the full-service lightering was about $2.5 million for the fourth quarter, and the support services I mentioned for full year is about $4 million to $5 million. So roughly call it a $1 million. The total is about $3.5 million.

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 Magnus Fyhr,  Seaport Global - Analyst   [44]
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 Then for 2017, you're looking at $10 million for the combined?

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 Scott Gayton,  Teekay Tankers Ltd - VP of Finance   [45]
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 I think for full 2017, we're targeting something probably in the region of $10 million to $15 million on a combined basis.

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 Magnus Fyhr,  Seaport Global - Analyst   [46]
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 Also, you talked about moving -- or you moved ships into the dirty trade. I mean, if the LR2 market picks up, what's the cost and kind of timing to get one ship back into the clean trade?

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 Kevin Mackay,  Teekay Tankers Ltd - President & CEO   [47]
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 That depends on where you find your vessel trading in the region. If you are in an area we you can get access to some good condensate cargoes, it could be a relatively short transition over and fairly reasonable on the cost side. If you have to position the vessel out of a region, it can take you several months. So it's not a hard and fast rule.

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Operator   [48]
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 With no further questions, at this time, Mr. Mackay, I would like to turn the conference back to you for any additional or closing remarks, sir.

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 Kevin Mackay,  Teekay Tankers Ltd - President & CEO   [49]
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 Okay. Thanks very much for joining us today and talk to you next quarter. Goodbye.

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Operator   [50]
------------------------------
 This concludes today's call. Thank you for your participation. You may now disconnect.




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