Teekay Tankers Reports First Quarter 2017 Results

Announced Date :  May 18, 2017


Teekay Tankers Ltd. (Teekay Tankers or the Company) reported the Company's results for the quarter ended March 31, 2017.
Highlights

- Reported GAAP net income of $2.8 million, or $0.02 per share, and adjusted net income of $7.0 million, or $0.04 per share, in the first quarter of 2017.

- Generated free cash flow of $34.4 million in the first quarter of 2017.

- Declared cash dividend of $0.03 per share for the first quarter of 2017, representing the minimum quarterly dividend.

- In April 2017, Teekay Tankers signed a term sheet for a sale-leaseback financing for four of its modern Suezmax tankers, which is expected to increase liquidity by approximately $30 million.

- Completed the sale of two older Suezmax tankers in January and March 2017 and agreed to sell an older Aframax tanker, the Kyeema Spirit, which is scheduled to deliver in the second quarter of 2017.

GAAP net income and adjusted net income were affected by lower spot tanker rates in the first quarter of 2017 compared to the same period of the prior year. GAAP net income was also affected by losses on the sales of two Suezmax tankers and two Medium Range (MR) tankers, which were sold in the first quarter of 2017 and the second half of 2016, respectively.

GAAP net income and adjusted net income were positively impacted by higher spot tanker rates in the Company's Aframax and LR2 product tanker fleets in the first quarter of 2017 compared to the fourth quarter of 2016, as well as lower freight tax accruals. Compared to the fourth quarter of 2016, GAAP net income for the first quarter of 2017 was also affected by lower unrealized gains on derivative instruments, partially offset by lower losses on vessel sales.

CEO Commentary

"During the first quarter of 2017, we generated cash flow from operations of $34.4 million, and paid a quarterly dividend of 3 cents per share," commented Kevin Mackay, Teekay Tankers' President and Chief Executive Officer. "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, primarily due to heavy refinery maintenance, OPEC supply cuts and higher tanker fleet growth.

Overall, we anticipate the tanker market to weaken into 2017 as a result of ongoing OPEC supply cuts and higher tanker fleet growth; however, robust global oil demand growth and changing trading patterns due to OPEC supply cuts are expected to provide support to mid-size tanker demand as more crude oil moves long-haul from the Atlantic basin to Asia. Looking ahead to 2018, we anticipate a renewed market upturn driven by a lack of new tanker ordering, increased scrapping due to regulatory changes, and a more balanced oil market."

"In addition to completing the sale and delivery of our older tonnage and generating strong cash flow from operations during the quarter, we are continuing to focus on further strengthening our balance sheet," commented Mr. Mackay. "We have recently signed a term sheet on a 12-year sale-leaseback financing transaction for four of our modern Suezmax tankers. Once finalized, this transaction is expected to increase our liquidity position by approximately $30 million and strengthen our financial position to manage the current spot market weakness, while maintaining our exposure to what we anticipate will be a renewed tanker market upturn in 2018."

Summary of Recent Developments

Sale-Leaseback Financing Transaction

In April 2017, Teekay Tankers signed a term sheet for a $153 million, 12-year sale-leaseback financing relating to four of its modern Suezmax tankers. The transaction, once completed, is expected to further strengthen the Company's balance sheet and increase the Company's liquidity position by approximately $30 million. The transaction, which is subject to final lessor approval and customary closing conditions, is expected to be completed in mid-2017.

Sale of an Older Aframax Tanker

In March 2017, Teekay Tankers agreed to sell a 1999-built Aframax tanker, the Kyeema Spirit, to a third party for proceeds of approximately $7.5 million, which is scheduled to deliver in the second quarter of 2017.

Secured Additional Fixed-Rate Charter

Since February 2017, Teekay Tankers entered into a time charter-out contract for one Suezmax tanker at a rate of approximately $21,000 per day and a firm period of one year, plus an extension option, which commenced in early-April 2017.

Tanker Market

Although the Company recorded stronger average spot tanker rates for its Aframax and LR2 Product tanker fleets and rates similar for its Suezmax tanker in the first quarter of 2017, compared with rates for the fourth quarter 2016, the tanker market experienced downward pressure over the course of the first quarter due to heavy refinery maintenance, OPEC supply cuts and higher tanker fleet growth. However, changing trade patterns due to OPEC production cuts have provided support for mid-sized spot tanker rates, as a decline in Middle Eastern oil exports resulted in an increase in ton-mile intensive Atlantic Basin to Asia oil movements.

Since the start of 2017, OPEC has implemented 1.2 million barrels per day (mb/d) of oil production cuts in an effort to rebalance oil prices. Compliance with these cuts by OPEC members was 92 percent as of March 2017, with most cuts coming from Saudi Arabia. While OPEC cuts are negative for overall oil volumes available for transport, the mid-sized segments have found some support from increased ton-mile demand as Asian buyers look to Atlantic Basin supply to replace reduced OPEC barrels. For the first four months of 2017, U.S. crude exports averaged 0.4 mb/d higher year-on-year, and reached 1.0 mb/d by mid-March 2017. Overall, U.S. crude volumes are increasingly moving to Asian and European buyers, which is supportive of mid-sized tanker demand. In February 2017, China imported 0.3 mb/d of U.S. crude, overtaking Canada as the largest importer of U.S. crude.

In addition to these positive trade fundamentals, global oil demand growth remains robust with forecast growth of approximately 1.3 mb/d in 2017, according to the IEA. This growth is expected to provide further support for mid-sized tanker rates during an otherwise challenging freight rate environment.

In 2017, the Company anticipates high tanker fleet growth to present headwinds to the crude spot tanker market. During the first four months of 2017, the world tanker fleet grew by 12.1 million deadweight tons (mdwt), or 2.2 percent. Total tanker fleet growth for 2017 is forecast to be 24.1 mdwt, or approximately 4.3 percent, which is slightly lower than 2016 but consistent with the ten-year average. Mid-size tanker fleet growth is expected to be around 10.7 mdwt, or approximately 5.6 percent, for 2017. After two years of record low scrapping, the Company believes that scrapping has the potential to ramp up in the near-term given the current weakness in spot tanker rates combined with an aging fleet across all segments. New regulations, including ballast water management, may also increase scrapping in the medium-term.

Overall, the Company expects 2017 to be a year of softer tanker rates compared to 2016. However, growing crude oil supply in the Atlantic moving long-haul to Asia is expected to provide some underlying support to help offset the negative fundamentals of lower OPEC supply and a period of higher fleet growth. The Company anticipates this near-term dip in the market cycle to be relatively short-term in nature, as a lack of new tanker ordering in the mid-sized segments and increased scrapping due to regulatory changes, as well as a more balanced oil market, is expected to lead to a renewed market upturn in 2018.

Operating Results

Liquidity Update

As at March 31, 2017, the Company had total liquidity of $86.3 million (comprised of $47.6 million in cash and cash equivalents and $38.7 million in undrawn revolving credit facilities), compared to total liquidity of $102.4 million as at December 31, 2016. Giving pro forma effect to the above-mentioned sale-leaseback financing transaction, the Company had total liquidity of approximately $116 million as of March 31, 2017.

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