Teekay Tankers Ltd. reported the Company’s results for the quarter and year ended December 31, 2022:

Fourth Quarter of 2022 Compared to Third Quarter of 2022

GAAP net income and non-GAAP adjusted net income for the fourth quarter of 2022 increased compared to the third quarter of 2022, primarily due to higher average spot tanker rates and a lower number of scheduled dry dockings in the fourth quarter of 2022. In addition, GAAP net income in the third quarter of 2022 included an $8.2 million gain on the sale of one vessel.

Fourth Quarter of 2022 Compared to Fourth Quarter of 2021

GAAP net income and non-GAAP adjusted net income for the fourth quarter of 2022 increased compared to the same period of the prior year, primarily due to higher average spot tanker rates and stronger results from full service lightering, the expiration of certain fixed-rate time charter-out contracts during the second quarter of 2022 that subsequently earned higher spot rates, as well as the commencement of three charter-in contracts during the fourth quarter of 2021 and the second half of 2022. In addition, GAAP net loss in the fourth quarter of 2021 included an
$11.6 million equity loss relating to the write-down of an equity-accounted investment and a net expense of $4.3 million relating to vessel write-downs and loss on vessel sales.

CEO Commentary

“While the mid-size tanker market in the third quarter was among the strongest in recent years, rates in the fourth quarter of 2022 surged to among the highest rates ever recorded,” commented Kevin Mackay, Teekay Tankers’ President and CEO. “In this environment, we are greatly benefiting from the high operating leverage of our business with our near-total spot market exposure, including the very strong performance of our chartered-in fleet, resulting in Teekay Tankers reporting its highest ever quarterly adjusted net income. By continuing to pay down debt and refinancing vessels currently in sale-leaseback arrangements, we are taking action to further reduce our fleet breakeven levels and utilize our strong operating cash flow to increase shareholder value.”

“In addition to the positive fundamentals of recovering oil demand growth and limited tanker supply growth, the impact of Russia’s invasion of Ukraine has continued to stretch oil supply chains. The EU’s ban on Russian crude imports has caused short-haul voyages both into Europe and out of Russia to be replaced by longer-haul voyages, a change that appears to be durable. Given both parcel sizes and port restrictions in affected import and export regions, the tonne-mile demand benefit of these changes has accrued disproportionately to the mid-sized tankers that make up the Teekay Tankers’ fleet, driving Suezmax and Aframax rates to outperform other tanker segments since Russia’s invasion last year.”

“Moving forward, with China’s economic re-opening expected to be a major driver of global oil demand growth, the orderbook for newbuilding vessels at a record low level with little capacity to increase through late-2025, an increasingly complex and inefficient trading environment caused by Russia’s invasion of Ukraine, and first quarter- to-date rates continuing at very high levels, we believe Teekay Tankers is ideally positioned within the right segments to continue benefiting from strong spot tanker rates, generating significant free cash flow, and creating lasting value for our shareholders.”

Summary of Recent Events

In November 2022, the Company entered into a charter-in agreement for one Suezmax vessel at a rate of $32,250 per day for 54 months with an option to extend for an additional 12 months, while simultaneously entering into a charter-out agreement for the same vessel at a rate of $38,475 per day for a 21 to 26-month period. Both charters commenced in December 2022.

In December 2022, the Company entered into a charter-in agreement for one Aframax vessel at a rate of $31,150 per day for 36 months with an option to extend for an additional 12 months, while simultaneously entering into a charter-out agreement for the same vessel at a rate of $48,500 per day for a 12-month period. Both charters commenced in February 2023.

In January 2023, the previously announced eco-Aframax newbuilding was delivered to the Company under a charter-in agreement for seven years at a rate of $18,700 per day. The charter includes three one-year extension options as well as a purchase option.

In February 2023, the Company entered into a charter-in contract for one Aframax at a rate of $35,750 per day for 24 months with an option to extend for an additional 12 months. The vessel is expected to be delivered prior to the end of the first quarter of 2023.

In January 2023, the Company gave notice to exercise nine vessel purchase options under sale-leaseback arrangements for a total of $164 million. The Company expects to purchase the vessels in March 2023 using cash on hand.

In February 2023, the Company signed a term sheet for a new secured revolving credit facility for up to $350 million to refinance 19 vessels (including the nine vessels mentioned above) currently under sale-leaseback financing arrangements. The facility is expected to be completed during the second quarter of 2023.

Tanker Market

Mid-size crude tanker spot rates were the second highest on record during the fourth quarter of 2022 as a combination of longer voyage distances, a rush to book cargos ahead of the implementation of the EU ban and G7 price cap on Russian crude oil imports, an increase in Chinese crude oil imports, and weather-related vessel delays in key load regions led to a stretched tanker fleet and very high levels of fleet utilization. Mid-size tanker spot rates have remained at historic highs during the first quarter of 2023-to-date.

Russia’s invasion of Ukraine in February 2022 has led to a significant redrawing of global oil trade routes. Short- haul movements of crude oil from Russia to Europe fell immediately following the invasion, and continued to decline through the course of the year as European countries looked to replace Russian imports with crude oil from other, more distant destinations. This culminated in the total ban of Russian seaborne crude oil imports into the EU from December 5, 2022, with a similar ban on refined products which came into effect on February 5, 2023. Most of the crude oil which Russia was previously exporting to Europe is now moving long-haul, primarily to India and China, which has created significant tonne-mile demand in the mid-size sectors given that the main Russian load ports in the Baltic Sea, Black Sea, and Far East are inaccessible to VLCCs. In addition, Europe has been replacing Russian barrels with imports from further afield, including the U.S. Gulf, Latin America, West Africa, and the Middle East, further contributing to mid-size tanker tonne-mile demand. These changes are expected to be durable, and the Company expects that mid-size tanker trade routes will continue to be stretched in 2023, which will help support spot tanker rates.

The IEA expects global oil demand to grow by 2.0 million barrels per day (mb/d) in 2023 to 101.9 mb/d, taking global oil demand above pre-pandemic levels for the first time. Almost half of this growth is expected to come from China, with demand accelerating from the second quarter of 2023 onwards as the country opens up after three years of strict COVID-19 management measures. Accelerating oil demand growth in China, and elsewhere in the non- OECD, will help offset slower growth in the OECD countries due to economic headwinds as a result of high inflation and rising interest rates. The outlook for global oil supply is mixed, with uncertainty surrounding the trajectory of Russian oil supply in the coming weeks and months following the implementation of EU sanctions and price cap. In January 2023, Russian crude oil exports were not negatively impacted, with exports reaching an eight month high of 3.5 mb/d. However, in early February 2023 Russia announced that it would cut production by 0.5 mb/d in March, though it is uncertain whether this will negatively impact crude oil export volumes or could instead be related to reduced refinery throughput. While the OPEC+ group is expected to maintain current production quotas throughout 2023, non-OPEC+ supply is projected to grow by 1.8 mb/d in 2023 led by the United States, Brazil, Norway, and Guyana. With the majority of oil demand growth expected to come from Asia, this should lead to an increase in long- haul movements from West to East during 2023, which is positive for tanker tonne-mile demand.

Fleet supply fundamentals are very positive. As of February 2023, the global tanker orderbook, when measured as a percentage of the existing fleet, has fallen to a record low of less than 4 percent. This is due to a lack of new vessel ordering, with just 8 million deadweight tons (mdwt) of new tanker orders placed in 2022, which was the lowest since the mid-1990s. As a result, the Company expects very low levels of new tanker deliveries over the next 2 to 3 years, with little scope to add to the orderbook during this timeframe as shipyards are largely full through the second half of 2025 due to the record amount of containership and LNG carrier orders placed over the past two years. Finally, the introduction of new environmental regulations from 2023, such as the Carbon Intensity Indicator (CII), could lead to increased fleet inefficiencies in the form of slow steaming, which will further tighten available fleet supply in the medium-term.

In summary, the Company expects that the tanker market will remain firm during 2023 due to positive oil market fundamentals, the continued rerouting of Russian oil exports away from Europe and the subsequent replacement of imports into Europe from other sources, and an expected rebound in Chinese oil imports following the removal of COVID-19 mobility restrictions. The Company also retains a positive outlook for the longer-term due to the best fleet supply fundamentals in several decades, which should ensure that spot tanker rates remain well supported, albeit volatile, in the coming years.

Source: Teekay tankers ltd