Teekay Tankers Ltd. reported the Company’s results for the quarter ended June 30, 2023:
Second Quarter of 2023 Compared to First Quarter of 2023
GAAP net income and non-GAAP adjusted net income for the second quarter of 2023 decreased compared to the first quarter of 2023, primarily due to lower average spot tanker rates and lower results from full service lightering, as well as higher income tax expense. GAAP net income in the second quarter of 2023 included a foreign exchange gain of $2.2 million, while the first quarter of 2023 included a foreign exchange loss of $0.6 million.
Second Quarter of 2023 Compared to Second Quarter of 2022
GAAP net income and non-GAAP adjusted net income for the second quarter of 2023 increased compared to the same period of the prior year, primarily due to higher average spot tanker rates and the commencement of five charter-in contracts between the third quarter of 2022 and the first quarter of 2023, partially offset by higher income tax expense and lower results from full service lightering in the second quarter of 2023.
CEO Commentary
“The charter market for mid-sized tankers was once again very strong in the second quarter of 2023, benefiting from supply and demand fundamentals that we believe are durable in nature,” commented Kevin Mackay, Teekay Tankers’ President and Chief Executive Officer. “With our fleet of mid-sized owned and chartered-in vessels mainly deployed in the spot market, Teekay Tankers has been a prime beneficiary of this market environment, generating substantial free cash flow.”
“The second quarter’s strong mid-sized tanker demand was supported by the continuation of high export volumes from both the US Gulf and Russia, much of which went to satisfy record-high import demand from China and India, resulting in significant tanker tonne-mile demand. With the market having now worked through much of the initial disruption to trading activity that accompanied the imposition of EU sanctions on Russian imports, crude trading patterns have settled into a new normal marked by significantly elevated voyage distances. While the moderating of spot rates in the third quarter reflects typical seasonality for this time of year, rates are currently tracking well above any third quarter of the last 15 years. Looking ahead, with oil demand projected to increase in the second half of the year, we are expecting a strong winter market. Meanwhile, the limited amount of new vessel ordering that has taken place in recent months and the lack of shipyard capacity until 2026 has all but ensured that mid-sized fleet growth will be strictly limited through the medium term. When combined with the significant portion of the global fleet that will be of potential recycling age over the same period, these clear fundamentals support our view that the mid-sized tanker market should see continued strength over the medium term.”
“Against this backdrop, and with a balance sheet transformed by our substantial free cash flow generation and financial discipline, Teekay Tankers’ balanced capital allocation policy enables us to provide our shareholders a well- supported quarterly dividend of $0.25 per share while also positioning us to reinvest in our fleet at the right time.”
Summary of Recent Events
In May and July 2023, the Company extended two chartered-in contracts for 12 months each at an average rate of approximately $20,600 per day. An additional 12-month optional period was secured on one of the related vessels.
In July 2023, the Company gave notice to exercise four vessel purchase options under existing sale-leaseback arrangements for a total of $57.2 million. These vessels are expected to be purchased with cash on hand and refinanced under the previously announced $350 million 19-vessel revolving credit facility when the vessels are redelivered in the third quarter of 2023.
In July 2023, the Company cancelled a revolving credit facility which was entered into in 2020 and which had a maturity date of December 2024. The credit facility had no balance drawn and a maximum available drawdown of $65.7 million. Following the cancellation, the Company has 17 unencumbered vessels.
The Company’s board of directors declared a fixed quarterly cash dividend in the amount of $0.25 per outstanding share of common stock for the quarter ended June 30, 2023. This dividend is payable on August 25, 2023 to all of Teekay Tankers’ shareholders of record on August 14, 2023.
Tanker Market
Mid-size crude tanker spot rates remained very strong during the second quarter of 2023. Record-high Chinese and Indian crude oil imports, supplied by an increase in long-haul Russian crude oil exports, and high levels of crude oil exports from the U.S. Gulf, were the main drivers of strong spot tanker rates. Mid-size spot tanker rates have remained very strong at the start of the third quarter of 2023, albeit at moderated levels in line with seasonal norms.
Indian and Chinese seaborne crude oil imports reached a record high of 15.6 million barrels per day (mb/d) during the second quarter of 2023 based on data from Kpler. This was an increase of 1.8 mb/d year-on-year, or approximately 13 percent, reflecting the strong recovery in Chinese and Indian oil demand over the past 12 months. With Middle East exports being constrained by OPEC+ supply cuts, an increasing proportion of Asian imports were sourced from the Atlantic basin during the second quarter of 2023, which led to an increase in tanker tonne-mile demand.
The mid-size tanker market continues to benefit from longer voyage distances as a result of changing trade patterns following Russia’s invasion of Ukraine in early 2022. During the second quarter of 2023, approximately 90 percent of all Russian crude oil exports were shipped to India and China, creating significant tonne-mile demand for mid- sized tankers given that VLCCs cannot load directly from Russian ports. Furthermore, Russian crude oil exports increased during the second quarter of 2023, peaking at a three-year-high of 3.9 mb/d in May. While the Company does not transport Russian oil, these changes have benefited the wider tanker market by increasing overall tonne- mile demand. Mid-size tanker rates also found support during the second quarter of 2023 from high export levels from other key load regions, such as the United States, where crude oil exports remained at a record-high of over 4 mb/d for three consecutive quarters.
Looking ahead, the International Energy Agency (IEA) expects global oil demand to increase during the second half of 2023 due to expected robust demand from non-OECD countries, particularly in China where transportation fuel demand is recovering strongly following the lifting of COVID-19 related restrictions, which is more than offsetting weaker growth in OECD countries. For 2023 as a whole, the IEA expects global oil demand growth of 2.2 mb/d to a record-high of 102.1 mb/d, and for 2024, it expects a further 1.1 mb/d of oil demand growth to 103.2 mb/d.
The OPEC+ group continues to take action to restrict oil supply in a bid to support oil prices, with Saudi Arabia announcing a supply cut of 1 mb/d for July and August 2023, with the option to extend, while Russia has pledged to reduce oil exports by 0.5 mb/d from August 2023 onwards. This could lead to a reduction in seaborne crude oil volumes in the near-term, which would be negative for crude tanker demand during the third quarter of 2023. However, the impact of these cuts could be offset by an increase in long-haul movements of Atlantic basin oil to Asia should Chinese and Indian oil demand remain strong. In addition, constrained supply in the near term is expected to lead to a drawdown in global oil inventories during the second half of the year, which should give support to oil prices and may lead to a relaxation of OPEC+ supply cuts later in the year.
Fleet supply fundamentals continue to be very positive with the global tanker orderbook remaining close to historic lows at around 5 percent of the existing tanker fleet. Just over 13 million deadweight tonnes (mdwt) of tanker orders have been placed to date in 2023, which on an annualized basis is in line with the 10-year average level of around 27 mdwt. Furthermore, the tanker orderbook is still relatively small compared to the fleet of older vessels which may face phase-out in the next few years, meaning that fleet growth should remain low over the medium-term. With shipyard capacity now largely sold out for 2025 deliveries, low fleet growth over the next 2 to 3 years is highly probable, with approximately 2 percent fleet growth expected in 2023 and negligible levels of fleet growth in both 2024 and 2025.
In summary, the tanker market remains very firm, underpinned by strong supply and demand fundamentals which the Company believes are durable in nature. Spot tanker rates have remained strong at the start of the third quarter of 2023, although they have moderated relative to the very high rates seen in the first half of the year, due to normal seasonal factors. The Company believes that the tanker market will be very firm again this winter with continued market strength over the next 2 to 3 years due to very supportive fleet supply fundamentals.
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(2), or time-charter equivalent (TCE) rates, before off-hire bunker expenses:
Third Quarter of 2023 Spot Tanker Performance Update
The following table presents Teekay Tankers’ TCE rates booked to-date in the third quarter of 2023 for its spot- traded fleet only, together with the percentage of total revenue days currently fixed for the third quarter:
Teekay Tankers Fleet
The following table summarizes the Company’s fleet as of August 1, 2023:
Liquidity Update
As at June 30, 2023, the Company had total liquidity of $608.8 million (comprised of $178.9 million in cash and cash equivalents and $429.9 million in undrawn capacity from its credit facilities), compared to total liquidity of $332.3 million as at March 31, 2023.
Source: Teekay Tankers