Teekay Tankers Management Discusses Q2 2012 Results - Earnings Call Transcript

Teekay Tankers (TNK)

Q2 2012 Earnings Call

August 09, 2012 1:00 pm ET

Executives

Kent Alekson

Bruce Chan - Chief Executive Officer and President

Vincent Lok - Chief Financial Officer and Principal Accounting Officer

Analysts

Michael Webber - Wells Fargo Securities, LLC, Research Division

Jonathan B. Chappell - Evercore Partners Inc., Research Division

Joshua Katzeff - Deutsche Bank AG, Research Division

Christopher Snyder

Ken Hoexter - BofA Merrill Lynch, Research Division

Presentation

Operator

Welcome to Teekay Tankers Limited Second Quarter 2012 Earnings Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Now, for opening remarks and introductions, I would like to turn the call over to Mr. Bruce Chan, Teekay Tankers Limited's Chief Executive Officer. Please go ahead, sir.

Kent Alekson

Before Mr. Chan begins, I would like to direct all participants to our website at www.teekaytankers.com, where you'll find a copy of the second quarter of 2012 earnings presentation. Mr. Chan will review this presentation during today's conference call.

Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from results projected by those forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the second quarter of 2012 earnings release and earnings presentation available on our website.

I will now turn the call over to Mr. Chan to begin.

Bruce Chan

Thanks, Kent. Hello, everyone, and thank you very much for joining us. With me here in Vancouver is Vince Lok, Teekay Tankers' Chief Financial Officer; and Peter Evensen, Teekay Corporation's CEO.

During today's call, I'll be taking you through Teekay Tankers second quarter earnings results presentation which can be found on our website. Beginning with our recent highlights on Slide 3 of the presentation, we continue to pay out essentially all of our free cash flow in the form of dividends to shareholders after reserving for estimated dry dock expenses and principal repayments.

In the second quarter of 2012, Teekay Tankers declared a dividend of $0.11 per share, down from $0.16 per share in the previous quarter mainly due to a weaker spot tanker market for Suezmaxes and Aframaxes, as well as a onetime transaction cost of $750,000 associated with the recent 13-vessel acquisition. Our second quarter dividend, which is our 19th consecutive quarterly dividend, will be paid out on August 27 to all shareholders of record on August 20.

In June, we successfully completed the acquisition of 13 modern conventional tankers and related time-charters and debt facilities from our sponsor, Teekay Corporation, for a total purchase price of $454.2 million. The transaction has made Teekay Tankers one of the largest owners of midsized conventional tanker tonnage and has enhanced our modern fleet at a time of increasing discrimination by charterers against older tonnage.

We continue to focus on tactically managing our fleet to enhance our fixed rate coverage during this period of weak tanker markets. During the second quarter, our fixed rate fleet earned an average of $20,400 per day, which is more than $3,000 per day higher than the average rate of $17,100 per day earned by our spot-traded vessels. Our ability to obtain new time-charter coverage to replace charters that have recently expired is a competitive advantage because it supports the stability of our dividend.

In addition to the 9 vessels in the fleet acquired from Teekay Corporation with existing time-charter out contracts, we recently time-chartered out 2 additional Aframax tankers at above market rates, leveraging Teekay Corporation's extensive chartering relationships. In combination, the additional time-charter coverage provided by both the acquisition and recent time-charters has increased Teekay Tankers' fixed-rate coverage from 29% to 47% for the 12-month period commencing July 1, 2012.

Lastly, Teekay Tankers remains financially well-positioned following the recent transactions with total liquidity of $386 million with no significant debt maturities until 2017. Our strong balance sheet and liquidity places us in a strong position to pursue future accretive growth opportunities.

Turning to Slide 4. We have provided the details of our recent time-charter transactions. We continue to actively manage our fleet employment to ensure the right mix of downside protection through fixed coverage in the current weak tanker market and upside potential from spot exposure. Given the weakening tanker market outlook over the near term, we recently entered into 2 additional 1-year time-charter out contracts at rates above the current spot market. In addition, we have the opportunity to charter in an additional spot-traded Aframax tanker at a relatively low rate, which when combined with one of the recent out charters, locks in approximately $2,000 per day of cash flow for the initial 6-month firm period of the in-charter contract.

In-charters are an ideal way to take on operating leverage without requiring a large capital commitment, preserving our balance sheet and liquidity for future acquisition opportunities. The options on the in-charter also provide us with flexibility to extend if the spot market turns out to be stronger than expected, or redeliver if it turns out to be weaker.

On Slide #5, we have provided an updated summary of Teekay Tankers fleet employment profile with the 13 vessels recently acquired from Teekay Corporation highlighted using green bars with black labels and Teekay Tankers pre-transaction fleet shown as blue bars with the blue labels. As I noted a moment ago, many of the acquired time-charters provide coverage through 2012 and into 2013, locking in revenue at a time when we expect further spot market weakness and volatility.

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