Teekay Tankers reported the Company’s results for the quarter and year ended December 31, 2018.
- Reported GAAP net income of $11.5 million, or $0.04 per share, and adjusted net income(1) of $14.0 million, or $0.05 per share, in the fourth quarter of 2018 (excluding items listed in Appendix A to this release).
- Generated GAAP income from operations of $31.2 million and total cash flow from vessel operations(1) of $62.3 million in the fourth quarter of 2018.
- In November 2018, completed two previously-announced financings that when fully drawn will amount to approximately $40 million of additional liquidity; and, in February 2019, signed a term sheet for a further sale-leaseback transaction for two vessels, which is expected to increase liquidity by approximately $25 million.
- Since November 2018, entered into time charter-in contracts for 2.5 Aframax tanker vessel-equivalents for periods ranging 1 to 2 years with extension options.
|Consolidated Financial Summary|
|Three Months Ended||Year Ended|
|(in thousands of U.S. dollars,
except per share data)
|GAAP FINANCIAL COMPARISON|
|Income (loss) from operations||31,206||(2,166||)||2,822||7,204||1,416|
|Net income (loss)||11,502||(17,484||)||(1,879||)||(52,548||)||(58,023||)|
|Earnings (loss) per share||0.04||(0.07||)||(0.01||)||(0.20||)||(0.31||)|
|NON-GAAP FINANCIAL COMPARISON|
|Total cash flow from vessel operations (1)||62,254||27,750||32,134||128,870||123,138|
|Adjusted net income (loss) (1)||14,002||(18,001||)||(5,939||)||(54,718||)||(19,945||)|
|Adjusted earnings (loss) per share (1)||0.05||(0.07||)||(0.03||)||(0.20||)||(0.11||)|
|Free cash flow (1)||44,580||12,558||22,859||66,980||87,875|
- These are non-GAAP financial measures. Please refer to “Definitions and Non-GAAP Financial Measures” and the Appendices to this release for definitions of these terms and reconciliations of these non-GAAP financial measures as used in this release to the most directly comparable financial measures under United States generally accepted accounting principles (GAAP).
Fourth Quarter of 2018 Compared to Third Quarter of 2018
GAAP net income and non-GAAP adjusted net income for the fourth quarter of 2018 improved compared to the prior quarter, primarily as a result of higher average spot tanker rates. This was partially offset by an increase in general and administrative expenses, a portion of which is non-recurring.
Fourth Quarter of 2018 Compared to Fourth Quarter of 2017
GAAP net income and non-GAAP adjusted net income for the fourth quarter of 2018 compared to the GAAP net loss and non-GAAP adjusted net loss in the same period of the prior year were positively affected by higher average spot tanker rates and the acquisition of Tanker Investments Ltd. in late-November 2017. This was partially offset by higher interest expense associated with the sale-leaseback transactions relating to ten tankers that were completed in September and November 2018.
“Crude tanker spot rates reached three-year highs during the fourth quarter of 2018, driven by winter seasonality underpinned by positive supply and demand fundamentals, which led to our results exceeding the prior quarter and the same quarter of the previous year,” commented Kevin Mackay, Teekay Tankers’ President and Chief Executive Officer. “This strength continued into early Q1-2019 and I am pleased that our secured first quarter to-date spot rates are significantly higher than the fourth quarter. However, in the last few weeks, crude tanker rates have declined from those highs, as a result of OPEC supply cuts, higher fleet growth, and the impact of seasonal refinery maintenance which we believe could weigh on crude tanker demand as we go through the first half of 2019. We believe the near-term headwinds should however give way to a much stronger second half of 2019 and 2020 due to positive underlying oil demand, an expected increase in U.S. crude oil exports, higher OPEC production, lower tanker fleet growth, and the positive impacts of IMO 2020.”
“We continue to focus on strengthening our balance sheet and financial position. Since the beginning of 2018, we have completed various financing initiatives and recently signed a term sheet for a further sale-leaseback transaction, all of which have or are expected to increase our liquidity position and extend our maturity profile.”
Mr. Mackay added, “Consistent with our strategy and based on our forward views of the market, we recently entered into time charter-in contracts for 2.5 Aframax/LR2 vessels for periods ranging from 1 to 2 years with extension options. Securing these new vessels at attractive charter rates, will add to our significant operating leverage and further position Teekay Tankers to add value and benefit from an expected strengthening global tanker market as we move through 2019 and into 2020.”
Summary of Recent Events
In November 2018, Teekay Tankers completed a sale-leaseback transaction relating to four vessels and a loan to finance working capital for the Company’s revenue sharing agreement (RSA) pool management operations, which when fully drawn will contribute a total of $40 million of additional liquidity after the repayment of outstanding debt related to the four vessels.
In addition, in February 2019, Teekay Tankers signed a term sheet for a further sale-leaseback transaction relating to two Suezmax tankers. The transaction, once completed, is expected to further increase the Company’s liquidity position by approximately $25 million after the repayment of outstanding debt related to these vessels. The transaction, which remains subject to final lessor approval and customary closing conditions, is expected to be completed in the first quarter of 2019.
Since November 2018, Teekay Tankers entered into time charter-in contracts for 2.5 Aframax tanker vessel equivalents for periods ranging 1 to 2 years with extension options. The new time charter-in contracts have a weighted average daily rate of $17,600.
Teekay Tankers’ current dividend policy is to pay out 30 to 50 percent of its quarterly adjusted net income, subject to reserves the Board of Directors may determine are necessary for the prudent operation of the Company. Given the tanker market weakness and losses generated during the first three quarters of 2018, and the additional debt incurred from recent sale-leaseback transactions to improve Teekay Tankers’ liquidity position, the Company has elected to reserve the amount that would have otherwise been paid out as a dividend for the fourth quarter of 2018 to repay outstanding debt.
Crude tanker spot rates improved significantly during the fourth quarter of 2018, spurred by both winter market seasonality and positive underlying supply and demand fundamentals. In the fourth quarter of 2018, OPEC crude oil production rose to 32.4 million barrels per day (mb/d), the highest level since July 2017 and up from 31.4 mb/d earlier in 2018. Most of this increase came from the Middle East, where higher production levels more than offset lower output from Venezuela and Iran. Russian oil production reached a record high 11.5 mb/d by the end of 2018, which was positive for mid-size tanker demand in the Mediterranean / Black Sea and Baltic Sea regions. Rising U.S. exports also supported tanker demand, with U.S. crude oil production reaching a record high 11.7 mb/d and crude oil exports reaching 2.5 mb/d during the fourth quarter of 2018. This was positive for both crude tanker demand, as well as lightering demand in the U.S. Gulf.
Crude tanker spot rates have softened through the first quarter of 2019, which is typical for this time of year as refineries enter into seasonal maintenance programs. OPEC supply cuts are also weighing on crude tanker demand, with OPEC (plus select non-OPEC partners) pledging to cut production by 1.2 mb/d starting in January 2019. Early data suggests that OPEC is achieving high compliance with these cuts, which is negative for crude tanker demand in the near-term. Venezuelan crude oil production could also decline in the near-term due to impending U.S. sanctions, though this may be offset by longer voyage distances as Venezuela looks to sell its oil into other markets, such as Asia. The Company expects OPEC cuts to have a negative impact on tanker demand through the first half of 2019; however, looking ahead to the second half of 2019, with well balanced oil markets, the Company believes that OPEC will increase production when oil demand is expected to increase substantially versus first half 2019 levels, driving positive crude tanker demand.
The global tanker fleet grew by just 5.7 million deadweight (mdwt), or 1.0 percent, in 2018, which was the lowest level of tanker fleet growth since 2001. High tanker scrapping was the main driver of low fleet growth in 2018, with a total of 22.4 mdwt removed, representing the fifth highest scrapping year on record. Looking ahead, the Company expects an increase in tanker fleet growth during 2019 as a firmer freight rate environment should lead to relatively fewer vessels sold for scrap. The Company forecasts total tanker fleet growth of approximately 3.5 percent during 2019, with much of this growth weighted towards the first half of 2019. The Company expects this will further add to pressure on the tanker market during the early part of 2019, although it paves the way for much lower fleet growth in the second half of 2019 and into 2020, when the Company forecasts that the global tanker fleet will grow by less than 2 percent.
Global oil demand remains firm, with a forecast of 1.4 mb/d growth in 2019 (average of IEA, EIA and OPEC forecasts). Furthermore, the Company expects that tanker demand will be boosted in 2019 by an increase in global refining capacity. According to the IEA, a total of 2.6 mb/d of new refining capacity will come online in 2019, which is the largest annual increase on record. This should be positive for both crude and product tanker demand. The Company also expects that the new IMO 2020 regulations will be positive for tanker demand, as it may lead to an increase in refinery throughput. The new regulations could also open up a number of new trade patterns and arbitrage opportunities for both crude and product, which would be beneficial for overall tonne-mile demand. Finally, new pipeline capacity to the U.S. Gulf Coast is expected to result in increased U.S. crude exports during the second half of 2019 from approximately 2.5 mb/d at present to approximately 4 mb/d, which is expected to contribute to both crude tanker demand and U.S. Gulf lightering demand.
In summary, the Company believes that OPEC supply cuts, higher fleet growth, and the impact of seasonal refinery maintenance could weigh on tanker demand through the first half of 2019. However, the Company believes that this will give way to a much stronger second half of 2019 and 2020 due to strong underlying oil demand, an increase in U.S. crude oil exports, the return of OPEC crude oil supply, lower tanker fleet growth, and the positive impact of IMO 2020 regulations.
The following table highlights the operating performance of the Company’s time-charter vessels and spot vessels trading in RSAs, voyage charters and full service lightering, in each case measured in net revenues(v) per revenue day, or time-charter equivalent (TCE) rates, before off-hire bunker expenses:
|Three Months Ended||Year Ended|
|December 31,||September 30,
||December 31,||December 31,||December 31,|
|Time Charter-Out Fleet|
|Suezmax revenue days||180||162||438||819||1,853|
|Suezmax TCE per revenue day||$20,868||$17,630||$21,821||$20,144||$24,198|
|Aframax revenue days||172||393||658||1,674||2,283|
|Aframax TCE per revenue day||$23,230||$20,559||$21,145||$21,216||$22,085|
|LR2 revenue days||12||92||183||420||837|
|LR2 TCE per revenue day||$16,583||$17,732||$17,176||$17,287||$18,063|
|Suezmax revenue days||2,427||2,476||1,679||9,795||5,621|
|Suezmax spot TCE per revenue day (ii)||$23,554||$15,825||$15,294||$16,154||$16,627|
|Aframax revenue days||1,612||1,402||766||5,515||3,956|
|Aframax spot TCE per revenue day (iii)||$22,023||$13,693||$16,773||$16,034||$15,739|
|LR2 revenue days||724||644||438||2,488||1,771|
|LR2 spot TCE per revenue day (iv)||$19,806||$12,527||$14,323||$14,131||$14,407|
|Suezmax revenue days||2,607||2,638||2,117||10,614||7,474|
|Suezmax TCE per revenue day||$23,369||$15,936||$16,644||$16,461||$18,504|
|Aframax revenue days||1,784||1,795||1,424||7,189||6,239|
|Aframax TCE per revenue day||$22,139||$15,197||$18,794||$17,240||$18,061|
|LR2 revenue days||736||736||621||2,908||2,608|
|LR2 TCE per revenue day||$19,754||$13,178||$15,165||$14,587||$15,580|
- Revenue days are the total number of calendar days the Company’s vessels were in its possession during a period, less the total number of off-hire days during the period associated with major repairs, dry dockings or special or intermediate surveys. Consequently, revenue days represents the total number of days available for the vessel to earn revenue. Idle days, which are days when the vessel is available to earn revenue yet is not employed, are included in revenue days.
- Includes vessels trading in the Teekay Suezmax RSA, Teekay Suezmax Classic RSA and non-pool voyage charters.
- Includes vessels trading in the Teekay Aframax RSA, Teekay Aframax Classic RSA, non-pool voyage charters and full service lightering voyages.
- Includes vessels trading in the Teekay Taurus RSA and non-pool voyage charters.
- Net revenues is a non-GAAP financial measure. Please refer to “Definitions and Non-GAAP Financial Measures” for a definition of this term.
First Quarter of 2019 Spot Tanker Rates Update
Below is Teekay Tankers’ spot tanker fleet update for the first quarter of 2019 to-date:
- The portion of the Suezmax fleet trading on the spot market has secured TCE per revenue day of approximately $26,000 per day on average with 70 percent of the available days fixed(1);
- The portion of the Aframax fleet trading on the spot market has secured TCE per revenue day of approximately $28,500 per day on average with 68 percent of the available days fixed(2); and
- The portion of the Long Range 2 (LR2) product tanker fleet trading on the spot market has secured TCE per revenue day of approximately $24,500 per day on average with 51 percent of the available days fixed(3).
(1) Combined average TCE rate includes Teekay Suezmax RSA, Teekay Classic Suezmax RSA and non-pool voyage charters.
(2) Combined average TCE rate includes Teekay Aframax RSA, non-pool voyage charters and full service lightering voyages.
(3) Combined average TCE rate includes Teekay Taurus RSA and non-pool voyage charters.
Teekay Tankers’ Fleet
The following table summarizes the Company’s fleet as of February 1, 2019:
|Total Fixed-Rate Fleet||2||—||2|
|LR2 Product Tankers(ii)||9||2||11|
|Total Spot Fleet||55||5||60|
|Total Conventional Fleet||57||5||62|
|STS Support Vessels||3||3||6|
|Total Teekay Tankers’ Fleet||60||8||68|
- Includes three Aframax tankers with charter-in contracts that are scheduled to expire in November 2019, December 2019 and March 2021, respectively.
- Includes two LR2 product tankers with charter-in contracts that are scheduled to expire in January 2021, each with an option to extend for one year.
- The Company’s ownership interest in this vessel is 50 percent.
As at December 31, 2018, the Company had total liquidity of $66.7 million (comprised of $54.9 million in cash and cash equivalents and $11.8 million in undrawn revolving credit facilities) compared to total liquidity of $89.2 million as at September 30, 2018. The Company’s liquidity as at December 31, 2018 does not reflect Teekay Tankers’ loan to finance working capital for the Company’s RSA pool management operations, which will contribute approximately $20 million of liquidity when fully drawn. Due to timing of various receipts and payments, the Company’s working capital balances were temporarily elevated at December 31, 2018, resulting in temporarily low liquidity. As of February 20, 2019, the Company had total liquidity of approximately $115 million, which does not reflect the signed term sheet for a sale-leaseback transaction announced today, which is expected to add approximately $25 million of additional liquidity.