Teekay Tankers Ltd. reported the Company’s results for the quarter ended June 30, 2024

Second Quarter of 2024 Compared to First Quarter of 2024

GAAP net income and non-GAAP adjusted net income for the second quarter of 2024 decreased compared to the first quarter of 2024, primarily due to lower average spot tanker rates and a higher number of scheduled dry dockings. In addition, GAAP net income in the first quarter of 2024 included a $11.6 million gain from the sale of one vessel.

Second Quarter of 2024 Compared to Second Quarter of 2023

GAAP net income and non-GAAP adjusted net income for the second quarter of 2024 decreased compared to the same period of the prior year, primarily due to lower average spot tanker rates and the sale of two vessels between the fourth quarter of 2023 and the first quarter of 2024, as well as a higher number of scheduled dry dockings, partially offset by lower income tax expense resulting from the re-assessment of certain tax positions, lower interest expense resulting from the repurchases of certain vessels previously under sale-leaseback arrangements between the second quarter of 2023 and the first quarter of 2024, and higher interest income.

CEO Commentary

“Mid-size crude tanker rates remained strong and stable for the second quarter,” commented Kevin Mackay, Teekay Tankers’ President and Chief Executive Officer. “The underlying fundamentals, and resulting strong utilization levels within the mid-sized tanker segment specifically, continue to support historically high spot charter rates for our Suezmax and Aframax-sized fleets.”

“With the Trans Mountain Pipeline expansion continuing to ramp up towards one Aframax cargo per day, vessel attacks in the Red Sea continuing to divert ships, and a newbuilding delivery schedule that is very low in historical terms, the mid-size tanker market is expected to remain well supported through the remainder of 2024.”

“Looking ahead, we are optimistic about the operating environment for mid-size tankers in the coming years. With high operating leverage to the spot tanker market and a debt-free balance sheet(1), Teekay Tankers expects to continue generating significant free cash flow, supporting our ability to prudently reinvest in our fleet, return capital to shareholders and maintain financial strength. We are pleased to be adding new, modern tonnage to our fleet by redeploying capital from selling some older vessels, while we remain confident that our patience in pursuing growth opportunities positions us well to drive value creation in both the near and long-term.”

Summary of Recent Events

In May 2024, the Company agreed to sell one 2005-built Aframax vessel and one 2005-built Suezmax vessel for combined gross proceeds of approximately $64.8 million. The vessels are expected to be delivered to the buyer during the third or fourth quarter of 2024. The Company expects to record a combined gain on sale of approximately $27 million for these vessels on closing.

In May 2024, the Company extended the charter-in contract for one Aframax vessel for an additional 12 months at a rate of $34,000 per day and secured an additional one-year option period on the charter. In addition, in June 2024, the Company out-chartered one Aframax vessel for $49,750 per day for 12 months.

In June 2024, the Company agreed to purchase one 2021-built Aframax vessel for $70.5 million. The vessel purchase was completed in July 2024 with cash and it is currently unencumbered.

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, 2024. This dividend is payable on August 23, 2024, to all of Teekay Tankers’ shareholders of record on August 12, 2024.

Tanker Market

Mid-size crude tanker spot rates remained firm during the second quarter of 2024, counter to normal seasonal trends. Tonne-mile demand continues to be supported by a combination of strong oil exports from key mid-size tanker load regions, geopolitical events which are causing longer voyage distances, and the start-up of the Trans Mountain Pipeline expansion (TMX) from Vancouver, Canada. In addition, a strong product tanker market has caused LR2s that were previously trading crude oil to switch to clean product trading, increasing tightness in an already firm market. As refinery throughput increases to meet demand going into the winter months, and the other factors underpinning tonne-mile demand for mid-sized tankers remain strong, we expect spot tanker rates to be well supported through the second half of 2024 and into next year.

Global oil demand is projected to grow by 1.4 million barrels per day (mb/d) in 2024 and 1.5 mb/d in 2025 as per the average of forecasts from the International Energy Agency (IEA), the U.S. Energy Information Administration (EIA) and OPEC. Much of this demand growth is expected to be met by increased oil supply from non-OPEC+ countries in the Atlantic Basin led by the United States, Brazil, Guyana, and Canada, which would be positive for tanker demand. In addition, the OPEC+ group has announced their intention to unwind 2.2 mb/d of voluntary production cuts over the course of 12 months starting in October 2024, which should give further support to crude tanker demand from the fourth quarter of 2024 onwards.

The increase in Canadian seaborne crude oil exports is being facilitated by the ramp up in exports from TMX, which opened in mid-May 2024. As all exports from the terminal are via Aframax tankers, the opening of TMX is another positive for Aframax demand. Exports from the pipeline totaled approximately 300 thousand barrels per day (kb/d) during June with volumes flowing to refineries on the US West Coast, the Pacific Area Lightering (PAL) off the coast of California for ship-to-ship transfer to larger tankers for onward transportation to Asia, or directly to Asia. Volumes are expected to increase towards the full capacity of 550 kb/d in the coming months, further supporting Aframax demand.
Geopolitical events continue to impact seaborne trade flows, including the ongoing attacks on shipping in the Red Sea which are causing vessels to divert long-haul via the Cape of Good Hope. This has been particularly evident in the product tanker sector, with refined product movements via the Cape of Good Hope increasing from an average of 0.8 mb/d in 2023 to 2.7 mb/d in 2024-to-date. Given the long-haul nature of these movements, the LR2 sector has benefited the most from these diversions with elevated spot rates through the first half of the year. As a result, a number of LR2s have switched from trading crude oil to clean products, with the clean trading LR2 fleet increasing by 30 to 35 vessels since the start of the year, thereby tightening fleet supply in the crude Aframax sector.

Just 3.5 million deadweight (mdwt) of new tankers were delivered into the global tanker fleet during the first half of 2024, and deliveries this year are on track for the lowest total since the late 1980s. As such, we expect negligible tanker fleet growth through the rest of the year. Looking further ahead, the Company believes a combination of a modest tanker orderbook, an aging tanker fleet, and a lack of shipyard capacity until mid-2027 should ensure that tanker fleet growth remains at low levels over the next two to three years.

In summary, the Company expects mid-size crude tanker spot rates to remain well supported through the remainder of 2024 with geopolitical factors and resultant trade disruptions adding to rate volatility. Looking further ahead, a combination of rising oil demand and low tanker fleet growth point towards multiple years of tanker market strength.

Source: Teekay Corporation