Teekay Tankers Ltd.

Welcome to the TK Group First Quarter 2025 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 touch-tone 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'll find a copy of the TK Group's first quarter 2025 earnings presentation. Kenneth 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 2025 TK Group earnings presentation available on our website. I will now turn the call over to Kenneth Head, TK Corporation and TK Tankers President and CEO to begin.

Thank you, Ed. Hello, everyone, and thank you very much for joining us today for the TK Group's first quarter 2025 earnings conference call. Joining me on the call today for the Q&A session is Brody Spears, TK Corporations and TK Tanger's CFO, Ryan Hamilton, our VP Finance and Corporate Development, and Christian Waldegrave, our Director of Research. Starting on slide three of the presentation, we will cover TK Tanger's recent highlights. TK tankers reported gap net income of $76 million or $2.20 per share and adjusted net income of $42 million or $1.21 per share in the first quarter. TK tankers also generated approximately $65 million in free cash flow from operations during the quarter. Over the last several years, TK tankers has created significant value through a strategy of maximizing our operating leverage to a strong tanker market, both by keeping our fleet spot-exposed as well as opportunistically increasing our exposures through well-timed in-chargers. As asset values have been plateauing and remain at historically high levels, we have focused on reducing our exposure to 18- to 19-year-old tankers as well as opportunistically selling some 2009-built Suez Maxes. Altogether, since the beginning of the year, our pace of vessel sales has increased, as we have sold six vessels for total gross proceeds of approximately $183 million, for a total expected accounting gain on sale of approximately $53 million. In addition, as previously announced, we have also agreed to acquire a modern LR2 vessel, which we expect to take delivery of at the end of the month. All of this is part of our fleet renewal plan, which includes selling older vessels and acquiring modern vessels. While we have been more active recently in selling rather than buying, we expect this trend to change over time as we see opportunities to acquire more modern tonnage. Looking at our second quarter to date rates, The spot tanker market has strengthened and we are booking rates at meaningfully higher levels than the first quarter. We have secured spot rates of $40,400 per day and $36,800 per day for our Suezmax and Afromax LR2 fleets, respectively, with approximately 45% of our spot days booked. We will discuss the drivers of the market in subsequent slides. TK Tankers has declared a of $1 per share for a total dividend payout of $1.25 per share payable in May. Since updating our capital allocation plan in May 2020, our historical book values. Lastly, TK Corporation also declared a special dividend of $1 per share, payable in July. Please refer to the appendix for more details on TK Corporation's updates and results. Moving to slide 4, we look at recent developments in the slot market. Rising oil production, particularly from the Americas and the position of U.S. sanctions on Russian and Iranian shipping since the beginning of the year, has led to Asian buyers sourcing more crude from the Atlantic Basin, resulting in higher mid-sized tanker ton-mile demand. In addition, fleet supply has tightened as more vessels have been drawn into the Russian trade to replace sanctioned vessels, and as the price of crude has fallen below the price cap of $60 per barrel, allowing some owners to carry Russian crude without penalties. Starting with the chart on the left, Suezmax's tanker ton-mile demand has benefited from a strong increase in the export of Kazakh crude oil from the Caspian Pipeline Consortium, or CPC, terminal in the Black Sea, with Suezmax loadings at a record high during March. In addition, we've seen an unusually high number of CPC cargoes heading long haul to Asia, almost all of which are transiting via the Cape days for voyage to the Mediterranean or 12 days to Northwest Europe, thereby creating significant ton mile demand. We've also seen an increase in Afromax loadings from Vancouver via the TMX pipeline in the past couple of months, with a record high of 30 loadings in both March and April. These cargoes have been increasingly transiting directly to Asia on Afromaxes, with a record 14 direct transits in April. An Afromax voyage from Vancouver to China takes around 18 days compared to four days to Southern California. The increase in direct transit to Asia is therefore leading to higher Afromax tanker tonne mild demand in the Asia-Pacific region. And we expect that this trend will continue as China and other Asian countries look to diversify their sources of oil supply. These are just two examples. weeks and months. Global oil prices are currently at a four-year low due to concerns over the impact of U.S. tariffs on future oil demand and the announcement from the OPEC Plus Group that they will As shown by the chart on the right, OECD oil inventories, including both commercial and government stockpiles, are currently at the bottom of the five-year Petroleum Reserve in the coming years. Turning to slide 7, we look at some of the uncertainties surrounding the medium-term tanker market outlook due to recent economic and geopolitical developments. The imposition of trade tariffs by the United States and subsequently retaliatory tariffs have clouded the outlook for the global economy and oil demand. While the outcome remains uncertain, industry analysts have started to adjust their global economic and oil demand forecast downwards due to concerns that tariffs may harm global trade and lead to lower economic growth. It is worth noting that all of the major oil forecasting agencies are still expecting demand growth for this year and next, with the average forecast from the IEA, EIA, and OPEC projecting 1.2 million barrels of growth. uncertainty does exist with the potential for further downgrades on global oil demand growth depending on how things progress during the year with the increased risk of a potential global recession. In addition, last month saw an updated proposal from the U.S. Trade Representative regarding the imposition of fees on Chinese owners and operators and Chinese-built ships calling at U.S. ports. While the final outcome is still uncertain, that the current proposal shouldn't be enforced will be manageable, both from an industry and a T&K perspective, due to the various exemptions granted to non-Chinese operators of Chinese-built vessels. A further hearing of the proposal is due to be held on May 19th, following which we would expect to have more clarity on how these rules will impact the wider tanker market. The geopolitical landscape adds another layer of complexity to the outlook, including the ongoing war in Ukraine, the U.S. maximum pressure campaign against Iran, and the safety situation in the Red Sea, which continues to limit vessel transits. Any changes to these factors could impact the tanker market in the coming months, potentially adding to supply chain inefficiency or significant rerouting of trade flows. So it remains very difficult to predict how these events will unfold and what impact they will have on the market. Turning to slide 8, we look at fleet supply dynamics, which remain supportive through at least the medium term. The pace of tanker new-build orders has slowed significantly since the middle of 2024, with just 2.8 million deadweight tons of orders placed in the first quarter of 2025, the lowest quarterly total since Q3 of 2022. Although the pace of tanker ordering has slowed, shipyards continue to receive orders global tanker fleet standing at 13.9 years as of April 2025, the highest since 2001. Should tanker market conditions worsen, there would be increased pressure on the large and growing pool of scrap candidates to leave the market, providing a mechanism to rebalance the global fleet. We therefore believe the combination of the current order book and aging tanker fleet and constraints on available yard space points toward a balanced supply outlook and should result in continued low levels of tanker fleet growth over the medium term. Turning to slide 9, we highlight how TK Tankers has strong cash flow generation while remaining patient for future fleet renewal. TK Tankers' free cash flow breakeven has declined over the last several years to its lowest level of $13,200 per day from a peak of $21,300 per day in 2022. Combined with our operating leverage, we can generate cash flow in almost any market conditions. To emphasize, every $5,000 increase in spot rates above our break-even produces $2.01 per share of annual free cash flow, or 4.4% on a free cash flow yield basis. The shipping industry is a cyclical, capital-intensive business, which requires reinvestments as vessels age. While we have been returning capital to shareholders through dividends, a key priority is to retain significant cash flows to ensure we can act when the right opportunities present themselves as part of our fleet renewal strategy. While we continue to exercise patience, we are well positioned to generate cash flows in almost any tanker market and are ready to use our balance sheet to take advantage of opportunities as they emerge. With that, operator, we are now available to take questions.