Q1 2017 Teekay Tankers Ltd Earnings Call

May 18, 2017 AM CEST
TNK - Teekay Tankers Ltd
Q1 2017 Teekay Tankers Ltd Earnings Call
May 18, 2017 / 05:00PM GMT 

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Corporate Participants
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   *  Christian Waldegrave
   *  Kevin J. Mackay
      Teekay Tankers Ltd. - CEO and President
   *  Ryan Hamilton
   *  Vincent Lok
      Teekay Tankers Ltd. - CFO

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Conference Call Participants
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   *  Donald Elwood Bogden
      Wells Fargo Securities, LLC, Research Division - Associate Analyst
   *  Fotis Giannakoulis
      Morgan Stanley, Research Division - VP, Research
   *  Gregory Robert Lewis
      Crédit Suisse AG, Research Division - Senior Research Analyst
   *  Jonathan B. Chappell
      Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst
   *  Magnus Sven Fyhr
      Seaport Global Securities LLC, Research Division - MD of Marine Transportation and Senior Shipping Analyst
   *  Noah Robert Parquette
      JP Morgan Chase & Co, Research Division - Senior US Equity Research Analyst 
   *  Spiro M. Dounis
      UBS Investment Bank, Research Division - Director and Equity Research Analyst of Shipping

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Presentation
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Operator   [1]
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 Thank you for standing by. Welcome to Teekay Tankers Ltd.'s First Quarter 2017 Earnings Results Conference Call. (Operator Instructions) As a reminder, today's call is being recorded.

 Now for opening remarks and introductions, I'd 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,    [2]
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 Before Kevin begins, I'd like to direct all participants to our website at www.teekaytankers.com, where you'll find a copy of the first quarter 2017 earnings presentation. Kevin 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 containing factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the first quarter 2017 earnings release and earnings presentation available on our website.

 I will now turn the call over to Kevin to begin.

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 Kevin J. Mackay,  Teekay Tankers Ltd. - CEO and President   [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 Strategic Research of Teekay Corporation.

 During today's call, I will be taking you through Teekay Tankers' first quarter 2017 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 $7 million or $0.04 per share in the first quarter of 2017 compared to adjusted net income of $5.1 million or $0.03 per share in the fourth quarter of 2016. We generated free cash flow of $34.4 million during the quarter, which was consistent with the previous quarter.

 While spot tanker rates were largely in line with those for the fourth quarter of 2016, the tanker market experienced downward pressure over the course of the recent quarter due to various factors, which I will touch on in more detail on the next slide.

 In accordance with our dividend policy, Teekay Tankers declared a dividend of $0.03 per share for the first quarter of 2017, representing the minimum quarterly dividend.

 In addition to the strong cash flows generated from operations during the quarter, we are continuing to focus on further strengthening our balance sheet. In April, Teekay Tankers signed a term sheet for a $153 million 12-year sale leaseback financing transaction for 4 of our modern Suezmax tankers. Once finalized, this transaction is expected to increase our liquidity position by approximately $30 million, strengthening our financial positioning, while maintaining our exposure to what we anticipate will be a tanker market upturn in 2018. This transaction, which is subject to final lessor approval and customary closing conditions, is expected to be completed by mid-summer.

 Further, we completed the sale and delivery of 2 2002-built Suezmax tankers for a total combined proceeds of $31.6 million and have agreed to sell a 1999-built Aframax tanker for proceeds of $7.5 million, which is scheduled to deliver to buyers in late May or early June.

 Lastly, Teekay Tankers secured a 12-month time charter for one of our Suezmax tankers at a daily rate of $21,000, which commenced in early April of this year.

 Turning to Slide 4, we look at developments in the crude tanker spot market in the recent quarter. As the chart on the slide illustrates, midsized crude tanker rates for the first quarter of 2017 were the lowest first quarter rates since 2013. Freight rates softened over the course of the first quarter due to the impact of OPEC supply cuts, higher fleet growth and seasonal refinery maintenance. However, rates remained above 2013 levels as a decline in Middle East to Asia movements due to the OPEC supply cuts encouraged an increase in ton-mile intensive Atlantic Basin to Asia movements, which helped to offset some of this weakness.

 Since the start of the year, OPEC cuts have taken around 1.2 million barrels per day of oil production off-line in an effort to rebalance oil prices. Compliance with these cuts across OPEC producers has been high, with most cuts coming from Saudi Arabia.

 While production cuts are negative for the overall volume of crude oil available for transport, midsized segments have found some support from an increase in changing trade patterns and subsequent growth in long-haul exports to Asia as buyers look to replace lost OPEC barrels.

 Spot tanker rates continued to soften at the start of the second quarter as a period of higher fleet growth and refinery maintenance in Asia, on top of the ongoing supply cuts, have put further downward pressure on fleet utilization. However, we believe that there is the potential for some rate volatility as continued growth in production from the U.S., Libya, Nigeria and Kazakhstan have helped drive regional demand growth, offsetting market weakness by spreading the fleet over a wider geographic area.

 Turning to Slide 5, we discuss the outlook for the remainder of 2017. As the chart on the left indicates, we are currently in the highest phase of the midsized tanker fleet growth. 54 vessels expected to deliver into the global fleet during the second quarter. We believe this will have a negative impact on freight rates in the short term. However, unlike the previous market downturn in 2013, changing trade dynamics evident in the first quarter are expected to continue through the remainder of this year, which we expect will partially offset the negative impact of this higher-than-average fleet growth.

 On the oil supply side, U.S. crude exports have averaged 750,000 barrels per day thus far in 2017, up from 485,000 barrels per day last year and in February, reached a record high of 1.1 million barrels per day. These exports are increasingly moving to Asian and European buyers, which is supportive of midsized tanker demand in the form of reverse lightering and cross-Atlantic trade into Europe.

 Teekay Tankers is well positioned to benefit from this export growth through the buildup of our Aframax presence in the U.S. Gulf and through the 2015 strategic acquisition of our ship-to-ship or STS transfer business, where we have completed approximately 30 reverse export lighterings year-to-date on top of the normal volume of crude oil imports via STS lightering into the region.

 Outside of the U.S., we are seeing an increase in supply from other Atlantic Basin producers such as Brazil and Kazakhstan, both of which are positive for midsized tanker demand. Nigeria and Libya, both exempt from OPEC supply cuts, are also showing signs of recovery. In Nigeria, the reopening of the Forcados terminal, which typically loads around 6 Suezmaxes per month and has been off-line since February of 2016, is expected to provide some support to Suezmax demand in the region.

 Libyan production is also increasing as fields returned to service, which will provide some support to midsized tanker rates in the Mediterranean as we are seeing today in the Aframax trade. In sum, we believe that as Atlantic Basin production continues to increase, while Middle East OPEC exports decline, the midsized tanker market will find support from pockets of volatility as Asian buyers diversify their crude sources and interregional trade continues to grow.

 Turning to Slide 6, we look at the positive fleet fundamentals which we believe should help drive a tanker market recovery from 2018 onwards. As shown by the chart on the left, 3 years of very low scrapping have led to a buildup of over 300 older midsized vessels, aged 15 years or older, which will likely face scrapping decisions in the coming years. When held up against the current order book of under 200 vessels, it appears midsized tanker fleet growth should drop significantly starting in 2018, particularly as impending regulation, such as ballast water and low sulfur regulations, encourage more scrapping as owners look to avoid costly capital expenditures in meeting these requirements on top of traditionally higher scheduled docking costs.

 Although recent weeks have seen a series of new tanker orders being reported, most of these orders have been in the VLCC segment, with only 2 Suezmax and 3 -- 13 Aframax orders placed since the start of the year. Furthermore, we believe the ordering will remain limited to a small number of owners, and that financing constraints and shrinking yard capacity will help keep the overall level of orders low compared to historical averages.

 Turning to Slide 7, I will wrap up with an update of spot tanker rates for the second quarter of 2017 to date. Based on approximately 55% and 52% of our revenue days booked -- spot revenue days booked, Teekay Tankers' first quarter to date Suezmax and Aframax bookings have averaged approximately $19,200 and $15,000 per day, respectively. For our LR2 segment, with approximately 40% spot revenue days booked, first quarter to date bookings have averaged approximately $14,700 per day.

 Overall, we expect headwinds for tanker rates in 2017. However, we expect this near-term dip in the market cycle to be relatively short-term in nature as a lack of new tanker ordering in the midsized segments and increased scrapping due to regulatory changes as well as a more balanced oil market is anticipated to create the environment for a market upturn in 2018.

 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) And we'll first go to Jon Chappell with Evercore.

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 Jonathan B. Chappell,  Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst   [2]
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 First question on the sale and leaseback transaction. So you gave us the $153 million and said they're modern ships. Is there any way we can get a little bit more information on that transaction at this point, either which ships are involved, whether it's going to be a bareboat or time charter leaseback and what the associated rates would be?

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 Vincent Lok,  Teekay Tankers Ltd. - CFO   [3]
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 Hi, Jon, it's Vince. We're -- I can't give a lot of details. We're just in the process of finalizing those. But as mentioned, this is really a refinancing transaction, which gives us additional liquidity of about $30 million. And it also allows us to stretch out the repayment profile, given the 12-year tenor of the leaseback. It is a bareboat leaseback, so it is a financing transaction, and it includes some purchase options, some attractive purchase options, during the term of the leaseback. And they're related to 4 of our more modern Suezmaxes.

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 Jonathan B. Chappell,  Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst   [4]
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 Okay. I'll take that for now. The last time we spoke, Vince, you also gave me an update on the debt amortization schedule in the fourth quarter conference call. What does the new quarterly amortization schedule look like post the completion of this deal?

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 Vincent Lok,  Teekay Tankers Ltd. - CFO   [5]
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 It will be, on a run-rate basis, I would say, a little bit under $100 million per year, so about $25 million a quarter on a run-rate basis. So we've been able to produce that. And as you know, we sold the older tanks well, which has now eliminated that November 2017 maturity. So that one is now gone under mobility.

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 Jonathan B. Chappell,  Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst   [6]
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 Yes. That I was aware of. A couple more things quickly. So $30 million of extra liquidity, and you've laid out a market outlook, were choppy this year, pretty optimistic for next. Is this kind of the last step? Is this enough for what you think you need as far as getting the balance sheet in a position to withstand this market? Or should we expect to see other transactions similar to this as we kind of go through the weaker period of '17?

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 Kevin J. Mackay,  Teekay Tankers Ltd. - CEO and President   [7]
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 I think it's something that we are, obviously, keenly focused on, Jon, something that the management monitors on an ongoing basis, and we speak to the board about it every quarter or so. I think a lot of it will depend on where we see the summer freight rates going and how early we get into the winter upturn. And we'll continue to evaluate if there's more that needs to be done to support the balance sheet and make sure that we're positioned well as we come out of this short-term dip in the cycle.

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 Jonathan B. Chappell,  Evercore ISI, Research Division - Senior MD and Fundamental Research Analyst   [8]
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 Okay. Final quick one then I'll turn it over. I noticed that you had done about $13.5 million of the ATM in the first quarter. Can you just update us on how much of that remains as far as the authorization is concerned and whether or not you plan on remaining active in that as well?

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 Vincent Lok,  Teekay Tankers Ltd. - CFO   [9]
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 Yes, just to clarify, that $13 million that you had mentioned was completed in January, which we talked about on the last earnings call already, so we haven't issued anything new since our February earnings call. In terms of the remaining authorization, I think there's roughly about $40 million, $45 million left under that COP, and that's sort of a long-term shelf that's in place. So right, so as I mentioned, we haven't used any of that over the past quarter.

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Operator   [10]
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 And next we'll go to Gregory Lewis with Crédit Suisse.

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 Gregory Robert Lewis,  Crédit Suisse AG, Research Division - Senior Research Analyst   [11]
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 Kevin, just as we think about -- I mean, clearly there's been a lot of headwinds this year facing the tanker market, right? I mean, we've seen OPEC cut. I guess what we're wondering is, it looks like the Atlantic Basin has done a fairly good job of replacing some of those lost barrels into the market. How is Teekay thinking about that and the ability for when, and OPEC's probably going to extend the cuts, but OPEC will eventually come back online with more volumes. How do you think about the push and pull of OPEC coming back on the market and the potential impact that has on some of these Atlantic volumes that we've been seeing?

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 Kevin J. Mackay,  Teekay Tankers Ltd. - CEO and President   [12]
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 Well, I think, clearly, the Atlantic Basin has taken away a lot of the brunt of the OPEC cuts and have spread out the ton-mile to a beneficial effect for tankers. Some will put up under where rates could have gone with the fleet by coming online. So I think looking forward, as we've seen, the U.S. Gulf exports have ramped up and I think we'll continue to see that. And I think we're well positioned with Teekay Tankers because of our strategic move in 2014 and '15 to build up our fleet and position it in the Atlantic or more so in the Atlantic, focused on the U.S. Gulf and our STS business. So I think we'll continue to get underlying support from U.S. exports. We've had a year of depressed Nigerian exports, which seem to be coming back online. And with the opening of the Forcados pipeline and the Shell terminal, we should see another 6 cargoes a month on Suezmaxes for that. It will help to support rates. So I think while OPEC may be considering the extension of cuts through the remainder of this year and possibly into early 2018, I think the U.S. Gulf, Nigeria, more production in Libya and Kazakhstan will all bolster midsized cargo volumes, which should be supportive. And then as OPEC comes back, as oil markets rebalance and OPEC comes back, that can only be positive for all tanker segments as this period of fleet growth tends to diminish towards -- as we get into 2018 and certainly into 2019.

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 Gregory Robert Lewis,  Crédit Suisse AG, Research Division - Senior Research Analyst   [13]
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 Yes. Yes. We would -- we're on the same page. And then just you mentioned the STS business and U.S. -- more volumes leaving the U.S. on exports. I mean, realizing that that's -- we're seeing reversals of some of the work that the STS fleet has been doing, should we be thinking about opportunities to deploy additional vessels on that -- in that market? How is that market? Is that market, if you were to characterize as a kind of -- is it firm? Is it sloppy? I mean, is there an opportunity for more -- for better economics or even more equipment in the STS market?

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 Kevin J. Mackay,  Teekay Tankers Ltd. - CEO and President   [14]
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 I think it's something that we're following closely because there is a -- there is various dynamics at play in that region. As you know, Venezuela is going through some extreme political turmoil, which is having an impact on Venezuelan crude. At the same time, U.S. exports continue to ramp up and the figures seem to get larger and more consistent on -- each month. So it's something that we have the capacity to move more tonnage into the area if volume grows. It's not something that a lot of people can do. The STS operations require expertise, and that was why we purchased the franchise in 2015. So it's a fairly closed market for new players to get into. So as it grows, I think it will be a question of positioning more assets into the region and bolstering up our band of experts that can perform those jobs.

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Operator   [15]
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 Next, we'll go to Mike Webber with Wells Fargo.

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 Donald Elwood Bogden,  Wells Fargo Securities, LLC, Research Division - Associate Analyst   [16]
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 This is Donald Bogden stepping in for Mike. So well, so the bulk of my questions have been answered, so I'll just ask a quick one on sort of your allocation between the spot market and the time charter fleet following the out chartering of that Suezmax. I mean, are you generally happy with that mix moving forward? Or moving to the weaker summer markets, would you like to increase that mix shift of time charter [time control] relative to spot market?

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 Kevin J. Mackay,  Teekay Tankers Ltd. - CEO and President   [17]
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 Actually, it's a good question. I think we're, as an overall portfolio, we're comfortable now to build up our fixed income exposure or fixed income cover to, well, to 40% now as we go into this weaker period in the market. If we can get additional short-term cover that can put a floor under our revenue stream through the weaker summer months, I think we'll -- you might see us do some short-term outchartering, but we're also having to balance that with what our forward view. We don't want to lock in too much of the fleet for too long and miss the turn as we get into 2018 and beyond. So I don't think you'll see us do any long-term TCs unless they're strategic in nature and are with our particular strategic customer, but I think it will be a balance between where we see short-term midterm rates and where we think we can lock in the revenues. So it's a space where we continue to watch.

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 Donald Elwood Bogden,  Wells Fargo Securities, LLC, Research Division - Associate Analyst   [18]
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 Got you. And then just one follow-up on your shipyards. In your previous Q4 presentation, you had a slide on what you thought the decrease year-on-year in shipyard capacity you spend. Do you have any update to that or any additional market color on sort of the state of shipyards right now, especially with the new administration creed indicating that they might stop financing and supplementing their shipyards?

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 Kevin J. Mackay,  Teekay Tankers Ltd. - CEO and President   [19]
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 Yes, I think -- no, we've seen since, I think 2011, 2012, capacities dropped off roughly about 30%, thereabouts. We are anticipating that will probably come off another 10% in the next year or a couple of years, so there's definitely a contraction of capacity. Some of the recent orders that you've seen, particularly in the VLCC segment, has filled some of the near-term capacity gaps with some of the shipyards we're facing. So I think it bodes well in terms of available capacity being pushed out further into the back end of the decade, which should be helpful for the long-term outlook on the market.

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Operator   [20]
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 And now we'll go to Magnus Fyhr with Seaport Global.

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 Magnus Sven Fyhr,  Seaport Global Securities LLC, Research Division - MD of Marine Transportation and Senior Shipping Analyst   [21]
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 Just a follow-up question on the reverse lightering business in the Gulf. I guess there's some new [side] of Oxy that they're trying to pursue loading crude directly onto VLCCs. Have you heard anything about it? And how would that impact your ship-to-ship transfer business or the reverse lightering business?

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 Kevin J. Mackay,  Teekay Tankers Ltd. - CEO and President   [22]
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 Yes, it's a good question, Magnus. The report that was out in the market about a VLCC going into Corpus Christi to the Oxy terminal, it's an experimental move to see what it would actually take to be able to accomplish something like that. At the moment, the draft restriction in Corpus Christi is quite severe for VLCCs. You can't load a VLCC more than halfway. So there's also restrictions in terms of the terminal berth being able to accept the VLCC alongside, and this is, I think, a trial to see what it would actually take investment-wise to make upgrades to docks and pipelines, et cetera, in order for that to be accomplished. So it's an interesting development, but I think in terms of the infrastructure restrictions and the amount of investment required to upgrade those ports to accommodate these, I think we're a long way off from having any impact on our STS business. So we're watching it, but I'm not wholly concerned at this point in time that that's going to materialize into anything.

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 Magnus Sven Fyhr,  Seaport Global Securities LLC, Research Division - MD of Marine Transportation and Senior Shipping Analyst   [23]
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 Okay. And as far as the Suezmax going into U.S. ports, which ports can accommodate that currently?

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 Kevin J. Mackay,  Teekay Tankers Ltd. - CEO and President   [24]
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 It could take us a while to go through the list. There's various -- it's not just the ports, but specific terminals have different draft restrictions. So if you want, we can provide you with that list off-line. But at this point, I don't think we can go through every...

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 Magnus Sven Fyhr,  Seaport Global Securities LLC, Research Division - MD of Marine Transportation and Senior Shipping Analyst   [25]
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 Yes. I didn't think it would be that many though. I thought most of it was restricted to Aframaxes. But anyway, just a different question, moving over, you mentioned the -- a lot of the new building activity has been on the VLCC side. How -- I mean, does that concern you at all? I mean, you would think that would have some impact on the Suezmax market as well.

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 Kevin J. Mackay,  Teekay Tankers Ltd. - CEO and President   [26]
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 No. I think there has been, what, 20 Vs reported to have been done. I think if you look at the players, they're well established, healthy or companies with healthy balance sheets that can afford the financing of those deals. I think those types of buyers are limited. So we have to understand that last year was the lowest level of ordering since the mid-1990s, so we have to expect, going into '18 and '19, that there is going to be ships ordered. The question is whether we go too heavily into ordering. But I think, at this point, we are only 30% into an average -- or below the average of what normally gets ordered. On an average basis, I think we're still within safe limits. And certainly, on the midsized space, we're well below historical averages. So at this point, I'm not concerned.

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Operator   [27]
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 Our next question comes from Fotis Giannakoulis with Morgan Stanley.

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 Fotis Giannakoulis,  Morgan Stanley, Research Division - VP, Research   [28]
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 Most of my questions have been answered. I only want to ask you about the last few weeks. We have seen a decline in both VLCC and Suezmax rates. To what degree do you think that this decline, relatively to earlier this quarter, is attributed to the deliveries of additional vessels or the upcoming deliveries later this month? And to what degree is because of supply cuts from OPEC?

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 Kevin J. Mackay,  Teekay Tankers Ltd. - CEO and President   [29]
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 Hi, Fotis. Yes, I think the -- one of the impacts that we've seen in recent weeks is the second quarter is actually the peak for deliveries in the Suezmax space. So we've seen an awful lot of vessels entering the market. And as they come out of the Far East and look to load in the AG, that's putting a downward pressure on rates and impacting the market performance in that area. I think we're also seeing an onslaught of VLCCs in the first and second quarter, and they're impacting the market more and more as they get vetting approvals and start to assimilate into the fleet. So I think it's really an issue of second quarter fleet supply increasing substantially over previous quarters. But on the Suezmax space, I think this is the worse we're going to see. And as each quarter rolls by, the numbers get far less into 2018.

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 Fotis Giannakoulis,  Morgan Stanley, Research Division - VP, Research   [30]
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 From your answers, I take that the supply continues uninterrupted. I'm just trying to find out how quickly do we expect -- or do you expect the oil market to rebalance and if OPEC countries, they comply to the supply cuts.

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 Christian Waldegrave,    [31]
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 Yes, we do expect that OPEC supply cuts will continue through the rest of 2017, possibly into the start of 2018. I think they've started to come out in the last couple of days and has said, along with Russia, that they might extend that for 9 months through to around March time. If you look at the sort of global oil demand, the non-OPEC estimate, if OPEC does maintain its supply cuts for the next 9 months, it should reduce global oil inventories by about 300 million barrels, which gets you back pretty close to the 5-year average, which is where OPEC wants to get to. So again, that's one of the reasons why come 2018, we think that the demand side as well as the supply side is going to look better because once the oil market is rebalanced as we get into Q1, Q2 of '18, I think the scope there then is for OPEC to increase production, in addition for the volumes that are already coming from the Atlantic and going to Asia as well. So it will be positive for tanker demand at a time when Kevin said fleet rate is coming up.

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Operator   [32]
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 And next, we'll go to Noah Parquette with JP Morgan.

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 Noah Robert Parquette,  JP Morgan Chase & Co, Research Division - Senior US Equity Research Analyst    [33]
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 I wanted to dig a little bit into the U.S. crude exports. From what you've seen so far this year, what vessels have gone on? Has that mostly been a VLCC trade? And if so, how are those vessels trading, and what trade routes are those vessels coming from and integrating into the rest of the trading fleets?

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 Kevin J. Mackay,  Teekay Tankers Ltd. - CEO and President   [34]
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 Yes. Hi, Noah. It's been a mix. I think, obviously, the export of -- or the initial export of the crude has to go on Aframaxes because they're the only ones that can fit the alongside the shallow draft berth. Some of those are being transshipped onto VLCCs. Some have been moved onto Suezmaxes. But we have also seen a fair volume of Aframaxes delivering crude straight from the U.S. Gulf into Europe. And recently, we've seen one Aframax carry a cargo through the Panama Canal and try and ship onto the Suezmax of the Pacific coast of Panama, headed for Japan. So it's a mix of vessels being used, but primarily Aframaxes as the primary mode. And in 2016, the last figures I saw was 80% of the export volumes have been on Aframaxes.

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 Noah Robert Parquette,  JP Morgan Chase & Co, Research Division - Senior US Equity Research Analyst    [35]
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 Have you seen any effect where the rates in that area now are attracting ships to the region? Like, I guess, would you expect to see some sort of increase in U.S. crude imports as well because the owners want to get their ships to the region and would take discounts to go there?

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 Kevin J. Mackay,  Teekay Tankers Ltd. - CEO and President   [36]
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 No. I think owners will always look to find the best rate they can for each of their voyages. They may take a triangulated view and see if there is cargoes that can position them into a region. But I think there is a steady volume of import of the heavier grades of crude into the U.S. Gulf. And again, those have to be lightered off of larger vessels on the Aframaxes. Other than that, I wouldn't comment any further on that.

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 Noah Robert Parquette,  JP Morgan Chase & Co, Research Division - Senior US Equity Research Analyst    [37]
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 Okay. And then just a follow-up on the sale leaseback. Were those -- are those going to be accounted for as capital leases or operating leases?

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 Vincent Lok,  Teekay Tankers Ltd. - CFO   [38]
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 Given the length of the leases of our 12 years, they're likely to be capital leases. So they are in the balance sheet.

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 Noah Robert Parquette,  JP Morgan Chase & Co, Research Division - Senior US Equity Research Analyst    [39]
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 Yes. And I guess you've seen a lot of those across different vessel types. And it looks like these are on uncharted ships. Or is that correct? I mean, at what point do we say that this is -- do you still believe that there's a lack of capital for ships right now? Or is this just replacing this as one form for another? Or how easy is it to obtain this type of financing?

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 Vincent Lok,  Teekay Tankers Ltd. - CFO   [40]
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 I think you've seen some other tank owners do similar financing transactions on a sale leaseback basis, and as you probably followed, there has been some contraction in the shipping and banking markets, particularly in Europe and North America, just given some of the challenges in the other sectors and including offshore and dry bulk. So the -- I think for shipowners, this is a way to -- another alternative to finance ships. In this case, we're taking some of our more modern ships and getting better repayment profile and additional liquidity and diversifying our sources of capital, so it's just another one of the several levers that we have available to us.

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Operator   [41]
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 And now we'll go to Spiro Dounis with UBS Securities.

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 Spiro M. Dounis,  UBS Investment Bank, Research Division - Director and Equity Research Analyst of Shipping   [42]
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 Just one quick one for me on the dividend. I'm not sure -- I don't think it's come up yet. Obviously, given that minimum amount here in the last 2 quarters, which obviously makes sense just given the market environment, but as you think about the recovery in 2018, do you expect -- you've obviously given yourselves a lot of discretion around where the payout's going to be. So just curious how you think about that here when you get that recovery. Is there an appetite to maybe keep that dividend lower and then recycle some of that cash for growth? Or do you think you sort of bring it back up to that 30% to 50% level as soon as you can?

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 Vincent Lok,  Teekay Tankers Ltd. - CFO   [43]
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 Yes, as you know, our dividend policy is to pay out 30% to 50% of adjusted net income per share, with a minimum quarterly dividend of $0.03, which is what we declared in the past, past couple of quarters at least. It is something that we, of course, discuss with our board on a quarterly basis. Right now, we don't have any intentions to change that. And of course, if earnings were to pick up as we expect in 2018, that minimum dividend would go above the $0.03 and would be based on the 30% to 50%. We don't have any plans on changing that range right now. The 30% to 50%, we think, is a prudent percentage to give a balance of return of capital to shareholders over the long term as well as retaining enough cash flow for reinvestment in the business. So right now, there is no particular change. The dividend is a relatively small amount, is about $4.5 million a quarter, so it's not a huge dent on the overall balance sheet.

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Operator   [44]
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 At this time, we have no further questions. So I'd like to turn it back over to Mr. Mackay for any additional or closing remarks.

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 Kevin J. Mackay,  Teekay Tankers Ltd. - CEO and President   [45]
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 Okay. Thank you, everybody, and we'll speak to you next quarter.

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Operator   [46]
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 And that does conclude today's call. We thank everyone again for their participation.




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