Teekay Tankers Ltd.

Welcome to TK Tankers Limited's second quarter 2024 earnings conference call. During this 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 touchtone phone. As a reminder, this call is being recorded. Now, for opening remarks and introductions, I would like to 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.tk.com, where you will find a copy of the second quarter 2024 earnings presentation. Kevin and Stuart 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 2024 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, Ed. Hello, everyone, and thank you very much for joining us today for TKTanker's second quarter 2024 earnings conference call. Joining me on the call today are Stuart Andrade, TKTanker's CFO, and Christian Waldegrave, our Director of Research. Moving to our recent highlights on slide three of the presentation, TKTanker's had another strong quarterly result, generating total adjusted EBITDA of $124 million. down from the $151 million we generated last quarter. The company reported adjusted net income of $107 million, or $3.11 per share, a decrease from $132 million, or $3.86 per share in the first quarter of 2024. With our fleet of mid-sized tankers trading almost entirely in the strong spot market, TK Tanker's high operating leverage enabled us to continue generating significant earnings and free cash flow. As a reminder, for every $5,000 increase in tanker rates above our free cash flow breakeven of $15,000 per day, we expect to generate approximately $2.36 of annual free cash flow per share. Here we'll provide further information on our ability to generate value for shareholders later in the presentation. In line with our capital allocation plan, we have declared a fixed quarterly cash dividend of 25 cents per share for the second quarter of 2024. Mid-size tanker spot rates remained strong during the second quarter. Startup and ongoing increase of exports from the Trans Mountain pipeline expansion has been an important source of additional Aframex demand and helped support rates during the second quarter. I'll give more detail on TMX later in the presentation. Looking ahead, tanker supply and demand fundamentals continue to look positive and point towards multi-year strength in the tanker market. Since our last earnings call, the company sold two of our oldest ships for a combined firm price of nearly $65 million and redeployed that capital into the purchase of a 2021 built modern eco-design Afromax for $70.5 million. And finally, in the time charter market, we extended an existing in-chartered Afromax for a further 12 months at a rate of $34,000 per day and secured an additional one-year option period on that charter, while also out-chartering an Afromax for 12 months at $49,750 per day. The spread between these two charter deals illustrates the value of an active time charter portfolio. Turning to slide four, we look at recent dynamics in the spot tanker market. As mentioned in the highlights, midsize crude tanker spot rates remained strong and stable during the second quarter. In fact, Q2 marked the third quarter in a row in which midsize tanker spot rates averaged above $40,000 per day, demonstrating both the elevated historical level and stability of Afromax and Sousmax rates over the last nine months. Spot tanker rates were supported by a combination of factors during the second quarter, including the start of crude oil exports in the Trans Mountain pipeline expansion and disruptions in the Red Sea region due to ongoing attacks on merchant shipping. In addition, a strong product tanker market has led to some LR2s that were previously trading crude oil to switch to clean product trading, increasing tightness in an already firm crude tanker market. With global oil demand set to remain firm and the other factors underpinning ton-mile demand for midsize tankers remaining intact, we expect spot tanker rates to remain well-supported through the second half of the year. Turning to slide five, we provide an update on our Suezmax and AfriMax size spot rates in the third quarter to date. Based on approximately 40% and 41% of Revenue Day's book, TK tankers third quarter to date Suezmax, and Afromax-sized vessel bookings have averaged approximately $40,800 per day and $45,300 per day, respectively, well above our spot tanker rates secured in Q3 of last year. Importantly, I once again highlight the value being created by TK Tanker's eight vessel chartered-in fleet, of which seven are trading in the strong spot market. With an average in-charter rate level of $26,800 per day, the chartered-in fleet has a current marked market value of approximately $53 million. Turning to slide six, we look at supply and demand factors, which we believe point towards continued tanker market strength. Looking at the oil market, global oil demand is projected to grow by around 1.5 million barrels per day in both 2024 and 2025, as per the average of forecasts from the three major energy agencies. A substantial portion 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 Plus Group has announced their intention to unwind 2.2 million barrels per day of voluntary production cuts over the course of 12 months, starting in October this year, which could give further support to crude tanker demand from the fourth quarter onwards. Turning to seaborne oil trade, the Afromax market received a boost in the second quarter from the startup of the TMX pipeline, with the first vessel loading from Vancouver in mid-May. As all exports from this terminal are via Afromax tankers, the opening of TMX is a positive for Afromax-specific demand. Exports from the pipeline totaled approximately 300,000 to 350,000 barrels per day in June and July, or approximately 20 AfriMax loadings per month. As shown in the middle graph on the slide, AfriMax loading TMX cargoes at discharge on the U.S. West Coast in Asia and at Pacific Area Light Ring Zone off the coast of California for ship-to-ship transfer to larger tankers. Volumes are expected to increase towards the full capacity of 550,000 barrels per day in the coming months. or approximately one Afromax loading every day, further supporting Afromax demand in the Pacific region. Geopolitical events continue to impact seaborne trade flows, most prominently the ongoing attacks on shipping in the Red Sea, which are causing vessels to divert on longer haul voyages by the Cape of Good Hope. This has been particularly evident in the product anchor sector, with refined product movements by the Cape of Good Hope increasing from an average of 0.8 million barrels per day in 2023 to 2.7 million barrels per day in 2024 to date. Given the long-haul nature of these movements, the LR2 sector has been the primary beneficiary from these diversions with elevated spot rates in the first half of the year in that segment. As a result, a number of LR2s have switched from trading crude oil to clean products with the clean trading LR2 fleet increasing by between 30 to 35 vessels since the start of the year, which has also had a knock-on effect on tightening fleet supply in the crude afromax sector. Turning to tanker fleet supply, just 3.5 million deadweight tons of new tankers delivered into the global tanker fleet during the first half of this year. And deliveries this year are on track for the lowest total since the late 1980s. As such, we expect minimal tanker fleet growth this year. Although the pace of new tanker ordering has increased in recent months, the order book as a percentage of the existing fleet is still relatively modest at around 11% versus the long-term average of 20%. In addition, shipyard capacity is becoming increasingly scarce as yards fill up with orders, particularly from the container ship and LNG carrier sectors. we estimated the main shipyards capable of building tankers bathroom exercise or larger are now full through 2026 and are almost 80% full through 2027. As such, the tanker order book now stretches out over the next three and a half years with little scope to add meaningfully to tanker fleet until the second half of 2027, with some yards already taking orders for 2028 delivery. The combination of a modest tanker order book an aging tanker fleet, and a lack of shipyard capacity until the second half of 2027 should ensure that tanker fleet growth remains at low levels over the next two to three years. Combined with positive tank demand growth, we believe that conditions remain in place for a continuation of firm spot tanker rates. It is worth noting that our customers also appear to share this view, as we are seeing an increase in time-treader inquiries and activity from customers to secure vessels for periods of up to three years at firm rates. This increased activity indicates a growing belief that the tanker market should remain strong over the medium term. I'll now turn the call over to Stuart to cover the next slide.