Teekay Tankers Ltd. (Teekay Tankers or the Company) yesterday reported its first quarter results for 2012. During the quarter, the Company generated $13.6 million in Cash Available for Distribution(1), up from $9.3 million in the fourth quarter of 2011. On May 16th, 2012, Teekay Tankers declared a dividend of $0.16 per share(2) for the first quarter of 2012, which will be paid on June 5, 2012 to all shareholders of record on May 29, 2012. The first quarter dividend was calculated using the weighted average number of shares outstanding for the quarter ended March 31, 2012, a methodology that is consistent with the Company's dividend policy.(3)
Teekay Tankers' policy is to pay a variable quarterly dividend equal to its Cash Available for Distribution, subject to any reserves its board of directors may from time to time determine are required. Since the Company's initial public offering in December 2007, it has declared a dividend in 18 consecutive quarters, which now totals $7.025 per share on a cumulative basis (including the $0.16 per share dividend to be paid on June 5, 2012).
Summary of 13 Vessel Acquisition
As previously announced, Teekay Tankers entered into an agreement to acquire from Teekay Corporation (Teekay) a fleet of 13 double-hull conventional tankers, including seven crude oil tankers and six product tankers, along with related time-charter out contracts, debt facilities and an interest rate swap, for an aggregate price of approximately $455 million. In addition, Teekay will grant Teekay Tankers a right of first refusal on any new conventional tanker opportunities developed by Teekay for a period of three years from the closing date of the transaction, which is expected to be in June 2012. Nine of the 13 vessels to be acquired currently operate under fixed-rate time-charters which, upon completion of the transaction, will increase Teekay Tankers' fixed-rate coverage from approximately 29 percent to approximately 43 percent for the 12-month period commencing July 1, 2012. Partially as a result of this additional contract coverage, the transaction is expected to be accretive to Teekay Tankers' Cash Available for Distribution during this period.
The transaction includes the assumption by Teekay Tankers of outstanding debt of approximately $180 million in term loans and approximately $290 million in available revolving credit facilities, of which approximately $40 million will be undrawn. As a result, upon closing, Teekay Tankers' total liquidity is expected to increase to approximately $400 million. As partial consideration, Teekay Tankers will issue to Teekay $25 million of new Teekay Tankers Class A common stock at a price of $5.60 per share.
"Our recently announced acquisition of 13 conventional tankers from Teekay Corporation represents a unique opportunity to nearly double our fleet size through a single en bloc acquisition of a modern fleet at an attractive, cyclical low purchase price," commented Bruce Chan, Teekay Tankers Chief Executive Officer. "In addition to providing a larger and broader platform in the crude tanker segment, the transaction provides an entry point for Teekay Tankers into the attractive product tanker segment."
"Our first quarter dividend was higher than the previous quarter primarily due to a combination of seasonal factors and increased tonne-mile demand arising from higher OPEC production which contributed to higher spot tanker rates during the first quarter. However, we believe strong tanker supply growth will continue to contribute to spot rate volatility through much of 2012, as the market has demonstrated in recent weeks," Mr. Chan continued. "We believe that the fixed-rate time-charter contracts associated with nine of the 13 Teekay Corporation vessels to be acquired will provide additional stability to our dividend during this period and is aligned with our outlook for improving spot tanker market fundamentals in 2013."
Mr. Chan added, "As a result of our post-acquisition liquidity position, we will be in an even stronger financial position to pursue further accretive growth opportunities."
Tanker Market
Crude tanker rates strengthened during the first quarter of 2012 due to a sharp increase in global oil production, longer voyage distances and seasonal factors. According to the International Energy Agency (IEA), global oil supply increased by 1.2 million barrels per day (mb/d) in the quarter ended March 31, 2012 to reach a record high 90.6 mb/d. This included a 0.9 mb/d increase in Organization of Petroleum Exporting Countries (OPEC) crude oil production to make up for lower production in non-OPEC countries, and to meet demand for crude oil inventory stockpiling in China. The increase in OPEC oil production also contributed to increased tonne-mile demand during the quarter as OPEC countries are generally located at longer voyage distances from main consumption centers in North America, Europe and Asia, compared to non-OPEC oil producing countries. Seasonal factors, including cold weather in the northern hemisphere during February and March and weather delays in the Atlantic, also helped strengthen rates during the first quarter.
The global tanker fleet grew by a net 4.1 million deadweight (mdwt), or 0.9 percent, during the first quarter of 2012 compared to net fleet growth of 9.3 mdwt, or 2.1 percent, for the same period in 2011. The slower rate of fleet growth during the first quarter was due to an increase in tanker scrapping, with 4.7 mdwt of tankers removed compared to 2.7 mdwt for the same period in 2011. A total of 13.3 mdwt was scrapped during the year ended December 31, 2011. A weak spot tanker market, coupled with increasing charterer discrimination against older vessels and relatively high scrap prices, has resulted in tankers being scrapped at a younger age than in the past. In the first quarter of 2012, a total of 22 crude oil tankers with an average age of 21 years were scrapped, including four vessels under 20 years of age, which helped dampen tanker fleet growth in the quarter.
The International Monetary Fund (IMF) recently upgraded its outlook for the global economy in 2012 and 2013, with a forecast of 3.5 percent and 4.1 percent growth, respectively, up from 3.3 percent and 4.0 percent in the previous IMF outlook. Based on the average range of forecasts from the IEA, the Energy Information Agency and OPEC, global oil demand is expected to grow by 0.8 mb/d in 2012. This is expected to translate into increased demand for tankers which, coupled with a slowdown in the rate of fleet growth, could lead to improved tanker fleet utilization in 2013.
Financial Summary
The Company reported adjusted net income(1) (as detailed in Appendix A to this release) of $3.1 million, or $0.04 per share, for the quarter ended March 31, 2012, compared to adjusted net income of $5.6 million, or $0.10 per share, for the quarter ended March 31, 2011. The reduction in adjusted net income is primarily the result of lower average realized tanker rates for our spot and time-charter Aframax fleets during the first quarter of 2012, compared to the same period in the prior year, which was partially offset by higher average realized tanker rates for our spot and time-charter Suezmax fleets during the first quarter of 2012, compared to the same period in the prior year. Adjusted net income excludes an unrealized gain relating to the changes in fair value of interest rate swaps of $1.1 million, or $0.02 per share, for the quarter ended March 31, 2012. Adjusted net income for the three months ended March 31, 2011 excludes an unrealized gain of $2.0 million, or $0.03 per share, relating to changes in the fair value of interest rate swaps, and a one-time management fee associated with the portion of stock-based compensation grants of the Company's former Chief Executive Officer of $0.5 million, or $0.01 per share. These adjustments are detailed in Appendix A included in this release. Including these items, the Company reported, on a GAAP basis, net income of $4.1 million, or $0.06 per share, for the quarter ended March 31, 2012, compared to net income of $7.1 million, or $0.12 per share, for the quarter ended March 31, 2011. Net revenues(2) were $31.1 million for the first quarters of 2012 and 2011.
Source: Teekay Tankers