Teekay Tankers Ltd.

Welcome to TKTanker LTD's first quarter 2021 earnings results conference call. During the call, all participants will be in a listen-only mode. Afterwards, you will be invited to participate in a question and answer session. At that time, participants will be asked to press star 1 to register for a question. For assistance during the call, please press star 0 on your touchtone phone. As a reminder, this call is being recorded. Now, for opening remarks and introductions, I will turn the call over to the company. Please go ahead.

Before we begin, I would like to direct all participants to our website at www.tktankers.com, where you will find a copy of the first quarter 2021 earnings presentation. Kevin and I 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 first quarter 2021 earnings release and earnings presentation available on our website. I will now turn the call over to Kevin McKay, TK Tanker's President and CEO, to begin.

Thank you, Stuart. Hello, everyone. Thank you very much for joining us today. for TK Tanker's first quarter 2021 earnings conference call. I hope you and your families are all safe and healthy. Joining me today on the call are Stuart Andrade, TK Tanker's CFO, and Christian Waldegrave, Director of Research for TK Tankers. Moving to our recent highlights on slide three of the presentation. TK Tankers generated total adjusted EBITDA of approximately $16 million during the first quarter, an increase of $6 million from the fourth quarter of 2020. We reported a total adjusted net loss of approximately $22 million, or 65 cents per share, during the first quarter, an improvement from an adjusted net loss of $41 million, or $1.21 per share, in the fourth quarter of last year. Our improved results are largely due to higher spot tanker rates during the quarter and supported by revenues from several lucrative fixed rate charters secured during periods of market strength at rates substantially higher than first quarter spot rates. Despite a challenging quarter, we have maintained our strong balance sheet with liquidity of $372 million and a net debt capitalization of 32% at the end of the first quarter of 2021. Our strong financial position has enabled us to continue reducing our overall cost of capital on an opportunistic basis. In March, we declared additional purchase options on six vessels currently on sale leasebacks, bringing our total of such purchase options exercised since November 2020 to eight vessels, with the transactions expected to close in May and September. Lastly, while improved relative to last quarter, The tanker market weakness continued into the first quarter due to lower oil demand as a result of the ongoing impact of the COVID-19 pandemic. However, midsize tanker rates did see a spike in March as a result of bad weather and the Suez Canal blockage. Looking ahead, although we expect near-term headwinds with the continued impact of COVID-19, we are seeing early positive signals that indicate a market rebound starting in the second half of 2021, which I will touch on in more detail later in the presentation. Turning to slide four, we look at recent developments in the spot tanker market. Spot tanker rates remained generally weak during the first quarter as COVID-19 continued to have a negative impact on tanker demand. Global oil demand fell by around a million barrels per day in Q1 due to a resurgence in COVID-19 cases over the winter months in several countries. OPEC continued to limit oil production during the first quarter, with Saudi Arabia implementing an additional voluntary supply cut of a million barrels per day from February in response to weaker oil demand. Finally, the first quarter saw further 4.5 million deadweight tons of tankers returned to the trading fleet from floating storage, adding to available fleet supply and worsening the supply-demand imbalance. While overall the first quarter was a weak quarter in terms of spot rates, we did see some great spikes during the month of March, as shown by the chart on the right. Most notably, Afromax rates reached $20,000 per day on some trade routes. These spikes were driven by bad weather in the U.S. Gulf and Mediterranean and the blockage of the Suez Canal towards the end of the month, both of which caused disruption and boosted rates for a short period of time. Although these temporary disruptions have now ended and rates have reduced at the start of Q2, it is encouraging to see a positive rate reaction to these factors in what was otherwise a depressed quarter for rates. And it is perhaps a sign that the worst of the market may now be behind us. Although spot tanker rates were weak during Q1, TNK managed to mitigate the impact through its fixed rate time charters as shown by the chart on the left. This is particularly true for our Suezmax fleet, where our fixed rate charters lifted overall Suezmax earnings to around $16,800 per day versus spot earnings of around $10,700 per day. Turning to slide five, and provide a summary of our spot rates in the second quarter to date. Based on approximately 55% and 49% of spot revenue days booked, TK Tanker's second quarter to date Suezmax and AfraMax bookings have both averaged approximately $10,500 per day. For our LR2 fleet, which are predominantly trading dirty, based on approximately 49% of spot revenue days booked, Second quarter date bookings have averaged approximately $11,900 per day. Turning to slide six, we look at some of the key indicators which we believe point towards a future tanker market recovery. First, we acknowledge that there is still uncertainty in the near term due to the ongoing COVID-19 pandemic. and its potential to further disrupt oil demand as new outbreaks occur. This has been highlighted recently by the devastating outbreak in India and rising case numbers in several other countries. While first and foremost a human tragedy, the increase in cases also has the potential to lower oil demand and possibly oil imports to the detriment of spot tanker rates. However, if we look further ahead through the remainder of 2021 and beyond, There are a number of reasons for optimism, as several of the key indicators that we track have improved since the start of the year. Firstly, the global economic outlook is improving, with the IMF recently increasing their forecast for global GDP growth in 2021 from 5.5% to 6%. As a result of this revised outlook, the IEA have increased its forecast for global oil demand in the second half of the year by 0.3 million barrels per day to 98.9 million barrels per day. More importantly for the crude tanker market, the IEA expects crude throughput at refineries to increase by 6.6 million barrels per day between April and August of this year, which should create significant crude tanker demand. Oil inventories, which increased significantly in the second half of 2020, have been drawn down significantly due to the production cuts of the OPEC Plus group of oil producers and are now almost back to the five-year average. The combination of normalized inventory levels and rising oil demand as we move through the second half of 2021 should result in more oil production, with OPEC Plus indicating their intention to return the supply of 2.1 million barrels per day between May and August. In order to meet rising demand, we believe that further such increases will be necessary, and it is this additional production that really should help rebalance tanker supply with demand, increasing fleet utilization, and helping to kick-start a tanker market recovery. The fleet supply side continues to look very positive, with the order book as a percentage of the fleet currently at approximately 8 percent, very close to historic lows and well below the long-term average of around 20 percent. Rising new build prices spurred by an increase in steel price and a very large amount of ordering in the container ship sector since the start of the year are acting as a deterrent to tanker new building orders. We've also seen a modest increase in recycling numbers since the start of the year, though we would look for a more substantial increase in demolitions if, or more likely when, sanctions on Iran are lifted and the fleet of older ships currently serving sanctioned trades are phased out. Overall, market conditions indicate very low levels of fleet growth for the next two to three years, which should help facilitate a tanker market recovery once demand starts to normalize and improve. In summary, it appears that we may be past the worst of the tanker market downturn. And although the next few months still appear challenging due to the uncertainties of COVID-19, we are increasingly positive on the longer-term fundamentals, which we believe will underpin the tanker market recovery. This belief is already being reflected by the wider market through higher time charter rates and asset values. the second-hand AfriMax values increasing by up to 20% since the beginning of the year. I will now turn the call to Stuart to cover the financial slide.