Teekay Tankers Ltd.

Welcome to the TKTankers LTD's 3rd 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, if you have a question, participants will be asked to press star 1 to register for a question. For assistance during the call, please press star 0 on your touchstone phone. As a reminder, this call is being recorded. Now, For opening remarks and introductions, I'd like to turn the call over to the company. Please go ahead.

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

Thank you, Ryan. Hello, everyone. Thank you very much for joining us today. for TK Tankers third quarter 2021 earnings conference call. Joining me on the call today are Stuart Andrade, TK Tankers CFO, and Christian Waldegrave, Director of Research. Moving to our recent highlights on slide three of the presentation, TK Tankers had a negative adjusted EBITDA of $16 million during the third quarter, down from negative $7 million in the prior quarter. We also reported an adjusted net loss of $50 million, or $1.48 per share, during the third quarter, compared to $42 million, or $1.23 per share, last quarter. Our results are largely due to weak spot tanker rates and a heavy dry dock schedule during this quarter. Despite another challenging quarter, we continue to maintain a strong balance sheet with performance liquidity of $209 million, and a net debt capitalization of 39% at the end of the third quarter. In addition, we completed the refinancing of eight vessels with new lower-cost sale-leaseback financings, which lower our overall cost of capital. Stuart will elaborate on this later in the presentation. In the freight market, spot tanker rates sank to historic lows during the third quarter, with the weakest rates seen since the 1980s. However, rates have seen a modest improvement at the start of the fourth quarter due to a combination of higher trade volumes and positive short-term factors, with further potential upside over the winter months. Although the timing of a more significant market recovery remains uncertain due to COVID-19, we believe many key indicators continue to trend in a positive direction. which I will touch on in more detail later. Lastly, the company took advantage of relatively firm secondhand tanker prices by selling a 2003 built Afromax for approximately $12 million. Turning to slide four, we look at recent developments in the spot tanker market. As noted in my opening remarks, spot tanker rates sank to historic lows during the third quarter. This was primarily due to ongoing OPEC Plus supply cuts, as well as a series of unplanned outages in non-OPEC countries, which led to relatively low trade volumes during the quarter. Tanker demand was also negatively impacted by the Delta COVID-19 variant, particularly in Asia, where renewed lockdowns led to reduced mobility. This was further compounded by relatively weak Chinese crude oil imports, due to a combination of inventory drawdowns and reduced import quarters for independent refiners. Finally, an increase in crude oil price led to higher bunker fuel prices for our vessels, further weighing on vessel earnings during the quarter. Spot tanker rates have modestly improved at the start of the fourth quarter, as shown by the chart in the middle of the slide. This improvement has been spurred by an increase in trade volumes in recent weeks as OPEC Plus returns more supply to the market and as some of non-OPEC outages seen in Q3 start to ease. Looking ahead, the IEA projects an increase in global oil production of 2.7 million barrels per day between September and the end of the year due to the continued unwinding of OPEC Plus supply cuts as well as more supply from non-OPEC countries. This should lead to a further increase in crude oil exports and therefore tanker demand over the winter months. However, we should caution that although global oil trade is improving, it remains well below pre-COVID levels and more oil supply is needed if the market is to return to full health. Global oil demand is expected to improve during Q4 and could get a boost this winter from the global energy crunch which has led to record high natural gas and coal prices in some regions and is encouraging some power plants to switch to cheaper oil for power generation. As shown by the chart on the right side of the slide, the IEA expects fuel switching to add 0.5 million barrels per day to global oil demand in the coming months. Though a very cold winter could boost demand by up to a million barrels per day compared to the base case, due to additional heating requirements. This, coupled with normal seasonal factors, such as weather delays, are potential positive factors for spot tanker rates this winter. Turning to slide five, we provide a summary of our spot rates in the fourth quarter to date. Based on approximately 50% and 37% of spot revenue days booked, TK Tanker's fourth quarter to date Suezmax and AfriMax bookings have averaged approximately $11,600 per day and $10,300 per day respectively. For our LR2 fleet, based on approximately 35% of spot revenue days booked, fourth quarter date bookings have averaged approximately $10,200 per day, all of which are higher than the rates achieved in Q3. To optimize vessel utilization in anticipation of tanker market recovery, We have tactically brought forward four additional dry dockings into the fourth quarter. For more detail, please refer to the appendix slide summarizing our dry dock and off-hire schedule. Turning to slide six, I'll give an update on some of the key indicators we track, which we believe point towards a significant future tanker market recovery. One of the main reasons that tanker rates have been so weak in 2021 is that while all demand has recovered and now stands at less than 2 million barrels per day below pre-COVID levels, oil trade has remained relatively flat. Global oil production has trailed demand for most of the year due to OPEC plus supply cuts, resulting in a large drawdown in global oil inventories to levels well below the five-year average. The tanker market is linked to the oil inventory cycle and periods where we see large inventory drawdowns tend to contribute to weaker stock tanker rates as drawdowns essentially displace oil imports. This has been the case for virtually all of 2021 and helps explain why stock tanker rates have been at historic lows this year. Looking ahead to 2022, global oil demand is expected to rise by between 3 and 4 million barrels per day as the recovery from the COVID-19 pandemic continues. The world will therefore need significantly more oil in the coming months and years to meet rising demand and to replenish depleted oil inventories. With this in mind, the OPEC Plus group plans to unwind its remaining supply cuts by September 22, while non-OPEC countries are expected to add a further 2 million barrels per day. Together, this should lead to a significant increase in oil production next year. and more importantly for the tanker market, an increase in oil trade. Turning to fleet supply, the outlook continues to be very positive. New tanker ordering ground to a virtual halt in the third quarter, with just 0.8 million deadweight tons of orders placed, the lowest quarterly total since the second quarter of 2009. Elevated new building prices, which are currently the highest since 2009, are expected to limit further new build orders in the near term. Meanwhile, shipyard availability is becoming increasingly scarce, as record container ship ordering has filled shipyard capacity well into 2024. The third quarter of 2021 also saw an increase in tanker scrapping, with 4.7 million deadweight tons removed, the highest quarterly scrapping total since the second quarter of 2018. The combination of low tanker ordering and higher scrapping bodes well for limited future fleet growth, and we currently estimate approximately 2% fleet growth in both 2021 and 2022, before minimal fleet growth in 2023, where scrapping is expected to largely offset new vessel deliveries. In sum, the fundamentals continue to trend in the right direction and point towards a future market recovery. The exact timing of this recovery remains uncertain, however, and will continue to depend to a large extent on how the COVID-19 pandemic and the global economy evolve in the coming months. I'll now turn the call over to Stuart to cover the financial slide.