Teekay Tankers Ltd. yesterday reported the Company’s results for the quarter ended September 30, 2023:

Third Quarter of 2023 Compared to Second Quarter of 2023
GAAP net income and non-GAAP adjusted net income for the third quarter of 2023 decreased compared to the second quarter of 2023, primarily due to lower average spot tanker rates, partially offset by lower income tax expense. GAAP net income in the third quarter of 2023 was positively impacted by a $5.8 million reversal of income tax accruals.

Third Quarter of 2023 Compared to Third Quarter of 2022
GAAP net income and non-GAAP adjusted net income for the third quarter of 2023 increased compared to the same period of the prior year, primarily due to a lower number of scheduled dry dockings and the commencement of five charter-in contracts between the third quarter of 2022 and the first quarter of 2023, lower income tax expense, as well as lower net interest expense resulting from lower overall loan and finance lease obligation balances and higher interest income. In addition, GAAP net income in the third quarter of 2023 included a $5.8 million reversal of income tax accruals, while GAAP net income in the third quarter of 2022 included a $8.2 million gain on the sale of one vessel.

CEO Commentary
“The combination of typical third quarter seasonality and OPEC+ actions resulted in pronounced volatility in the spot tanker market. However, the strength of underlying tanker market fundamentals enabled Teekay Tankers to achieve our highest third quarter rates since 2008 and our highest ever third quarter adjusted net income,” commented Kevin Mackay, Teekay Tankers’ President and Chief Executive Officer. “By maintaining our spot market exposure, and exercising options to extend some chartered-in tankers at very attractive rate levels, Teekay Tankers has continued to create significant shareholder value and increase our strategic optionality. Additionally, we have continued to refine our capital structure by repurchasing four tankers previously under sale-leaseback arrangements, as well as cancelling our $80 million working capital loan facility, which is further evidence of our financial strength and prudent capital management.”

“During the third quarter, particularly in August, oil export volume restrictions from both Saudi Arabia and Russia reduced demand for crude tankers, which in addition to the normal seasonal impacts related to refinery maintenance resulted in seasonally weaker rates. However, oil demand remained firm and the resulting inventory draws have set up the need for additional supply to be added to the market as we progress into the final quarter of the year.”

“So far in the fourth quarter, Russian and Saudi export volumes have recovered from the summer lows, returning both trade volumes and freight rates to levels enjoyed earlier in the year. As we factor in normal seasonal disruptions such as weather and logistical delays, we anticipate these strong freight rates will continue to positively impact our quarter-to-date and early-2024 performance. Looking further out, with oil demand expected to increase, shipyard capacity almost full through 2026, and few crude tankers delivering during that period, we believe that Teekay Tankers is very well positioned for what could be an extended period of market strength.”

Summary of Recent Events
In September 2023, as previously announced, four vessels under sale-leaseback arrangements were repurchased using existing cash, for a total cost of $57.2 million. These vessels were refinanced under the previously-announced $350 million 19-vessel revolving credit facility. In 2023 to date, the Company has repurchased 19 vessels previously under sale-leaseback arrangements for $364 million. The Company has eight remaining vessels under sale- leaseback arrangements, which can be repurchased starting in the first quarter of 2024.

In September 2023, the Company terminated its $80 million working capital loan facility which had a maturity date in November 2023. The working capital loan facility had no balance drawn at the time.

In September 2023, the Company extended the chartered-in contract for one vessel for an additional 12 months at a rate of $21,250 per day.

The Company’s board of directors declared a fixed quarterly cash dividend of $0.25 per outstanding share of common stock for the quarter ended September 30, 2023. This dividend is payable on November 27, 2023 to all of Teekay Tankers’ shareholders of record on November 14, 2023.

Tanker Market
Mid-size crude tanker spot rates declined during the third quarter of 2023 due to reduced crude oil exports from some members of the OPEC+ group and normal seasonality. Saudi Arabia announced a voluntary supply cut of 1.0 million barrels per day (mb/d) in July 2023, and has pledged to keep these cuts in place to the end of the year, which has negatively impacted crude tanker demand. In addition, Russian crude oil exports fell during the third quarter as higher Russian domestic demand through the summer meant that there was less crude oil available for export. Despite these factors, tanker rates remain firm on a historical basis, with Teekay Tankers recording the best mid-size spot tanker rates for a third quarter in the past 15 years.

Spot tanker rates have strengthened during October 2023 in line with normal fourth quarter seasonality as refiners increase their crude purchasing ahead of the winter demand season. In addition, crude oil export volumes from both Russia and Saudi Arabia have increased from the low point in August 2023 as regional refinery maintenance and lower domestic demand have made more crude oil available for export. Crude oil exports from other key load regions, such as the U.S. Gulf and West Africa, have also strengthened which is giving further support to mid-size tanker demand. The Company expects that spot rates will remain well supported through the fourth quarter of 2023 as the onset of winter tanker market conditions, such as weather delays, are expected to support rates by tightening available vessel supply.

Following an expected 2.3 mb/d of oil demand growth in 2023, which reflects in part the continued impact of the post-pandemic rebound effect, the International Energy Agency (IEA) expects global oil demand to grow by an additional 0.9 mb/d in 2024, reaching a new record high of 102.7 mb/d. Demand from non-OECD countries is projected to grow by 1.3 mb/d in 2024 with just under half of the increase coming from China. OECD demand is projected to decline by 0.4 mb/d due to the impact of increased fuel efficiency and a more challenging economic environment due to persistently high inflation and interest rates.

As per the IEA, the majority of oil supply growth in 2024 is expected to come from non-OPEC+ countries in the Atlantic Basin such as the United States, Canada, Brazil, and Guyana. Given that oil demand growth is expected to be focused on the Asia-Pacific region in 2024, there could be an increase in Atlantic-to-Pacific crude oil movements, which may be beneficial for tanker tonne-mile demand. Furthermore, the Company expects that the mid-size tanker fleet will continue to benefit from altered Russian crude oil trade patterns, with the majority of volumes flowing long- haul on mid-size vessels to China and India. The recent conflict in the Middle East, while not having an immediate impact on global oil production or seaborne crude oil trade flows, could impact the tanker market should the conflict escalate and expand to other oil producing nations in the region.

Tanker fleet supply fundamentals continue to be positive. Just under 24 million deadweight tons (mdwt) of new tanker orders have been placed to date during 2023, which is in line with average levels of newbuild ordering over the past 20 years, and the orderbook remains close to historic lows at just under 6 percent of the existing tanker fleet size. As per Clarksons(1), global shipyard forward cover currently stands at 3.5 years with limited berths available prior to 2027. The combination of a small tanker orderbook, an aging tanker fleet, and a lack of shipyard capacity are expected to lead to very low levels of tanker fleet growth in the next 2 to 3 years.

In summary, spot tanker rates have increased at the start of the fourth quarter of 2023 and are expected to remain firm in the coming months due to a tight supply / demand balance and the onset of winter market seasonality. The outlook for the next 2 to 3 years continues to look positive, primarily due to favorable fleet supply fundamentals, and the Company believes that the market is still in the early stages of an extended market upturn.

Source: Teekay Tankers