Teekay Tankers Ltd. today reported the Company’s results for the quarter ended June 30, 2022

Second Quarter of 2022 Compared to First Quarter of 2022
GAAP net income and non-GAAP adjusted net income for the second quarter of 2022 increased compared to the first quarter of 2022, primarily due to higher average spot tanker rates in the second quarter of 2022. In addition, GAAP net income in the second quarter of 2022 included a $1.2 million gain on the sale of two vessels compared to a net expense of $0.4 million relating to the asset write-downs recorded as part of the GAAP net loss in the first quarter of 2022.

Second Quarter of 2022 Compared to Second Quarter of 2021
GAAP net income and non-GAAP adjusted net income for the second quarter of 2022 increased compared to the same period of the prior year, primarily due to higher average spot tanker rates and a lower number of scheduled dry dockings in the second quarter of 2022, partially offset by the sale of five vessels between the two periods. In addition, GAAP net income in the second quarter of 2022 included a $1.2 million gain on the sale of two vessels, while GAAP net loss in the second quarter of 2021 included a $86.7 million write-down of vessels.

CEO Commentary
“The wide-ranging impacts of Russia’s invasion of Ukraine are reshaping global energy markets. With Europe reducing imports of Russian crude oil and replacing them with longer-haul cargoes from across the Atlantic basin or through the Suez Canal, and with Russian cargoes increasingly flowing to China and India, the improvement in tanker tonne-mile demand has been significant. These changes appear likely to be sustained, as sanctions are coming into force which will formalize import restrictions that have thus far been largely voluntary. Given both the draft restrictions and parcel sizes in many of the most impacted ports, this newly created tonne-mile demand has disproportionately benefited mid-sized tankers, driving rates to their highest level in two years. Meanwhile, tanker supply fundamentals are as supportive as they have been at any point during the last 25 years, with net supply growth in the mid-sized segments expected to be negligible or negative from now until 2025, and little capacity for additional orders that could deliver during this period.”

“Following the tanker downturn that has persisted throughout much of the COVID-19 era, we are pleased to have returned to profitability in the second quarter as our high operating leverage and spot market exposure enabled us to quickly capture charter rates that have now risen to several times their prior-year levels. The strength in spot rates has continued into the third quarter, where rates booked to-date are tracking higher than the second quarter. While we expect continued volatility, the strong fundamentals that we saw building prior to the pandemic seem at last to be reasserting themselves in ways that are supportive of a firmer tanker market. At the same time, there remains uncertainty related to the potential for further COVID-19 lockdowns in China, the ongoing war in Ukraine, and concerns about a potential recession. In this context, we will use our increased cash flows to continue fortifying our balance sheet, prioritizing our long-term financial strength and ability to act opportunistically moving forward, which we believe will maximize shareholder value.”

Summary of Recent Events
In July 2022, the Company entered into an agreement to sell a 2005-built Aframax vessel for $24.8 million. The vessel sale is expected to be completed during the third quarter of 2022, at which time the Company will record a gain on sale of approximately $8.0 million.

The Company in-chartered one Aframax vessel for $23,000 per day for a 2-year period. The vessel was delivered in late-July 2022.

Tanker Market
Crude tanker spot rates increased during the second quarter of 2022 to the highest level in two years. The increase was largely due to ongoing trade route disruption and longer voyage distances resulting from Russia’s invasion of Ukraine, coupled with positive underlying tanker supply and demand fundamentals.

The increase in tanker tonne-mile demand due to Russia’s invasion of Ukraine has proven to be durable. Short-haul exports of Russian crude oil to Europe have fallen significantly in recent months, with Russian crude oil increasingly being diverted to destinations East of Suez, particularly to India and China, which is increasing tanker tonne-mile demand. In turn, Europe is having to replace short-haul Russian barrels with imports from other regions, most notably from the U.S. Gulf, Latin America, West Africa, and the Middle East, which is also leading to tonne-mile growth. These changes are primarily benefiting the mid-size sectors due to the load and discharge regions involved. Furthermore, these changes appear likely to be long-lasting, with the EU planning to phase out all Russian seaborne crude oil imports by the end of 2022.

Looking ahead, an increase in oil demand over the medium-term is expected, with the IEA forecasting 1.7 million barrels per day (mb/d) growth in 2022 and a further 2.1 mb/d growth in 2023, despite high oil prices and concerns over the health of the global economy. Much of this growth is expected to be driven by the non-OECD and in particular by China. While strict lockdowns have capped Chinese oil demand for much of the past year, there have been some reduced restrictions in recent weeks, with any significant or sustained movement in that direction likely to necessitate increased oil imports in China. Global oil supply is also rising, driven by both OPEC and non-OPEC sources, with the IEA forecasting an increase of 1.8 mb/d in global oil production between June and December 2022. However, it remains to be seen how Russian oil supply and exports will be impacted once the EU embargo on Russian crude oil imports comes into effect at the end of 2022. In addition, concerns surrounding the health of the global economy due to rising interest rates and inflation, and the potential for further COVID-19 lockdowns in China, are key areas of uncertainty in the coming months.
The outlook for tanker fleet supply continues to be very positive driven by historic low levels of new tanker orders, a rapidly shrinking orderbook, and an aging tanker fleet. Only 2.1 million deadweight tons (mdwt) of tanker orders were placed in the first half of 2022, which is the lowest total for a 6-month period since Clarksons started reporting data in 1996. Furthermore, most of this ordering has been smaller tankers, with no VLCC or Suezmax orders placed since June 2021 and only a small number of Aframaxes ordered. The Company expects that the level of new tanker orders will remain low in the near-term due to high newbuilding prices, a lack of yard space through the end of 2025 due to record levels of containership and LNG carrier orders, and continued uncertainty over vessel technology. With a diminishing orderbook and an aging fleet, the Company expects minimal global fleet growth in 2023 and for negative fleet growth in 2024 and 2025 as removals are expected to outweigh new deliveries into the world fleet.

In summary, recent months have seen average spot rates significantly higher year-on-year and a return of tanker market volatility driven by changing trade patterns and longer voyage distances in the mid-size sectors; the Company anticipates that this volatility will continue in the near-term. Looking further ahead, tanker supply and demand fundamentals currently look very positive, with the best fleet supply fundamentals seen in more than 25 years and steady demand growth as global oil consumption continues to rebound from the COVID-19 pandemic.

Operating Results
The following table highlights the operating performance of the Company’s time-charter vessels and spot vessels trading in revenue sharing arrangements (RSAs), voyage charters and full service lightering, in each case measured in net revenues(1) per revenue day, or time-charter equivalent (TCE) rates, before off-hire bunker expenses:

Third Quarter of 2022 Spot Tanker Performance Update
The following table summarizes Teekay Tankers’ TCE rates booked to-date in the third quarter of 2022 for its spot- traded fleet only:

Teekay Tankers Fleet
The following table summarizes the Company’s fleet as of August 1, 2022:

Liquidity Update
As at June 30, 2022, the Company had total liquidity of $228.4 million (comprised of $66.3 million in cash and cash equivalents and $162.1 million in undrawn capacity from its credit facilities), compared to total liquidity of $178.2 million as at March 31, 2022. Pro forma for one Aframax vessel sale to be completed in the third quarter of 2022, the Company’s total liquidity would have been $249.3 million as at June 30, 2022.

Source: Teekay Tankers