Welcome to Teekay Tankers Limited First Quarter 2012 Earnings Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Now, for opening remarks and introductions, I'd like to turn the call over to Mr. Bruce Chan, Teekay Tankers Limited Chief Executive Officer. Please go ahead, sir.

Before Mr. Chan begins, I would like to direct all participants to our website at www.teekaytankers.com, where you will find a copy of the first quarter 2012 earnings presentation. Mr. Chan 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 of 2012 earnings release and earnings presentation available on our website. I will now turn the call over to Mr. Chan to begin.

Thanks, David. Hello, everyone, and thank you very much for joining us. With me here in Vancouver is Vince Lok, Teekay Tanker's Chief Financial Officer; Brian Fortier, Corporate Controller of Teekay Corporation; and Peter Evensen, Teekay Corporation's CEO. I'd now like to discuss Teekay Tankers' results for the first quarter of 2012. The associated presentation can be found on our website. Beginning with our recent highlights on Slide #3 of the presentation, our dividend policy remains unchanged. We continue to payout essentially all of our free cash flow in the form of dividends to shareholders after reserving for estimated drydock expenses and principal payments. In the first quarter, Teekay Tankers declared a dividend of $0.16 per share, up from $0.11 per share in the previous quarter, thanks to a stronger spot market for Suezmaxes and Aframaxes. Our first quarter dividend, which is our 18th consecutive quarterly dividend, will be paid out on June 5 to all shareholders of record on May 29. Our tactical approach to managing our fleet employment and our preference for fixed-rate coverage at this point in the tanker cycle has enabled us to consistently pay a dividend each quarter. Our fixed-rate fleet earned an average of $21,000 per day in the first quarter, more than $3,000 per day higher than the average rate of $17,800 per day earned by our spot-traded vessels in the quarter. Excluding the impact of non-cash items, which have been summarized in Appendix A to the earnings release, we reported adjusted net income of $3.1 million, or $0.04 per share. Finally, as announced in April, Teekay Tankers has agreed to acquire 13 conventional tankers and related time-charters and debt facilities from our sponsor, Teekay Corporation, for a total purchase price of approximately $455 million. Turning to Slide 4 of the presentation. I…

[Operator Instructions] The first question comes from Jon Chappell of Evercore Partners.

Bruce, you pointed out some of the broader industry reasons why some of the longer haul, bigger crude carriers did better in the first quarter than prior; however, your Suezmax spot fleet specifically did much better than the market and considerably better than some of your peers who've already reported in the Suezmax space. Can you speak to any changes that's happened, either company specific or pool specific wise that could have driven the outperformance in your Suezmax fleet, both in the first quarter and quarter-to-date 2Q?

Right. Well, Thanks, Jonathan. For the Gemini pool, as you know, we've changed our partnership structure in that our pool partners are consisting of König and Diamond S, and the fleet of Suezmax is being operated in that pool now since the beginning of 2012. It is a much more modern, newer than it was in 2011. And that's contributed to a much stronger ability to earn rates and position the fleet more nimbly in the right markets. And so I think that's been reflected in our strong first quarter performance.

Does that help with the efficiencies in bunkers as well from a cost point of view?

Absolutely. The newer fleet contributes in multiple ways. It's better accepted to customers in terms of bettings, approvals, as well as the fuel savings really come through in the newer ships because that just contributes with the high bunker prices to higher net realized earnings per day.

Now, it seems that the Suezmax fleet in general has been doing better as you just talked about, but the Aframax fleet has been struggling a little bit more, both industry-wide and your fleet specifically. Are there any kind of shifts going on within the mid-size fleet that's making Suezmax perform significantly better than Afras?

Right, well, Suezmax this quarter has benefited from the longer haul movements to Asia as has the VLCC fleet. Those markets have moved well correlated. And even just recently, the increase in West African cargoes has really improved the Suezmax market. I think it's more of an anomaly. In the longer -- medium to long-term, we always see Aframaxes, Suezmaxes and VLCCs pretty correlated, although obviously in the short term, there can be divergence. And certain of the things that happen in the first quarter in terms of Iranian and more Chinese development in terms of strategic growth in their inventories has lended more itself towards Suezmaxes and VLCCs. But going forward, we see developments in Aframaxes. We're seeing strong movements in the gulf at certain periods with Kasmino [ph] coming online and the new Usluga [ph] pipeline, both are tend to be towards the smaller Afro or Suezmax-size ships. So, again, I think the demand fundamentals for Aframaxes going forward still remains strong.

And then just the timing and targets of your liquidity, obviously you're absorbing 13 ships, almost doubling your fleet in the near-term; however, that happens to be in a period that you think is going to be pretty weak and may potentially offer the best opportunities, how are you thinking about the timing of the deployment of the liquidity that you have right now? And then also as you dip your toe into the product tanker segment, which segments do you see yourself kind of focusing on going forward with any additional growth?

Right. To your first question of deployment of liquidity, I think what the benefit of the Teekay Corporation acquisition has provided us with the time-charter coverage to sustain us through the low market. I think growth will depend on what type of growth it is or how to deploy that liquidity. If it comes with some fixed-rate cover or delayed start, then you'll get further -- that the new assets would deliver further into a potential market recovery. Obviously, spot assets taken in the low point look bad initially, but sometimes, those are the types of investments that pay off the most in the long run. In terms of the product tanker space, we see that the fundamentals overall are positive. I think that situation is evolving. You see, we do believe there will be a longer haul product tanker trade evolving as the Middle East and Indian refineries products will start coming on to line and those -- that will create longer haul ton-mile demand, but also the MRs are still a staple of that factor, kind of the Aframax of the product tanker segment, and the parcel sizes are favored by traders. And so that situation will probably evolve over time to see how those ship sizes favor. But overall, that whole segment will probably benefit from the improved product tanker fundamentals.

Okay, just one last quick one for Vince. The G&A run rate post-transaction, what should we be looking at there? And then also, was there any kind of transactional cost that we should assume that would make the second quarter G&A run rate higher than the first?

Yes, in the second quarter, given that we're expecting to close sort of middle way through June, it won't have a material impact on the second quarter. However, there are some transaction costs -- one-time transaction costs of about $750,000, and that's built into our dividend table for the second quarter, and we've added the note below that. Going forward on a run rate basis, I with the G&A -- it won't go up in a linear fashion necessarily because we'll get some economies of scale. And I think, as a rough guideline, if you use the current per ship day run rate, I think building in some economies of scale, you should probably see that maybe sort of, go up about 70% to 75% of the current run rate for the new 13 ships.

The next question comes from Justin Yagerman of Deutsche Bank.

This is Josh in for Justin. I just wanted to quickly get a modeling question out of the way. In your dividend tabulation, are you assuming a June 15 close?

Yes, we are, for the second quarter. That's right.

I guess just broadly in the product tanker market, you could note that Teekay has a big presence in the LR2 space, not so much in the MRs, is this -- I guess, does this impact your thinking about whether to redeploy, I guess, some of the MRs on 2013 in the spot versus time-charter market? Or is that going to maybe lead any decision to increase your presence in that sector?

I think the MR market has very good positive fundamentals going forward, and the benefit of having those charters expire into that gives us that optionality of either renewing into a higher market or putting -- trading those ships spot depending on the outlook at the time. So that does give -- that gives us some time to see how that market develops. And you're right, in terms of the LR2 ships, those are trading spot in Teekay's source LR2 pool, and that gives us the scale by trading in that pool of having around 20 ships on the water. And so we benefit from the developing nature of that market as well.

Could we see the development of a Teekay-MR pool or a partnership with an existing pool operator?

Right now, we -- those are on TCE. We haven't looked at developing our own spot trading pool. We don't have the size or the scale of that market, just on a number of ships basis that we control versus the number of ships out there. We just don't have the scale right now to create that type of spot-trading pool. We're primarily just -- because we have the benefit of having them on time-charter right now, we have the luxury of time to see what develops there.

I guess now with the potential for these East Coast refineries staying online, does that really impact your long-term thesis on product tankers or even maybe a shorter term outlook on the sector?

It's clearly evolving. But you're right, the refinery is not shutting down. It has been initially on the short-term, obviously, for that story developing, it clearly benefits Suezmax -- 30 Suezmaxes and Aframaxes, so we win on that side. But in the long -- in the medium to long run, the refineries in India and the Middle East are coming online, and that product's going to have to move somewhere. And so whether -- when those products come online, it's going to be a scale advantage to move them on the bigger ships. So whether it goes to the U.S. East Coast or elsewhere, those refineries in India and the Middle East are going to benefit if they move them on larger ships.

And maybe switching gears over to the SMP market. I guess, Teekay Tankers just took down big transaction, but for the most part, operationally, it's a paper transaction because Teekay already manages the ships. So, I guess, how should we think about kind of new acquisitions and how the third-party market is really shaping up right now? I guess, we haven't seen very much transactions, what are you seeing out there? And is it kind of maybe more just being put available in crude or the product side?

Yes, I mean, you're right, there's not a lot of third-party non -- ships out there that are being transacted in the second-hand market. We see the liquidity for modern ships is down, and that's why the ability of having a sponsor at this time is good. Going forward, as you can see with the Gemini pool results, fuel efficiency is very important and the ability to earn -- and to be able to earn money. And so that's something we would look at over -- when you look at second-hand ships, you have to be really discriminating on which ships. And, I guess, the real benefit of this transaction and the liquidity is having the money when others don't in this market. And so that adds the ability to be a little bit picky or flexible and choosing right opportunities to add exposure, whether that's through some of the in-charters that we have done in the past with options or select second-hand purchases that have good fuel consumption or new design ships that have very good fuel consumption. So those are some of the ways that we look at it. And then the last point about the liquidity is that, again, we have the ability to spend the cash without needing to raise equity at this point. So it gives us a lot of firepower to add to the dividend.

The next question comes from Michael Webber of Wells Fargo.

Just one modeling question, I guess, sorry [ph], it's a longer-term question, and forgive me if you mentioned this earlier and I just missed it. What's the plan for the Bell? I know you've got a [indiscernible] series of options on the charter-end and it's not showing up in your fleet [indiscernible] but believe it'll roll off in June. Should we just assume that, that's not going to be renewed?

Yes, that is -- I mean, we have optional extension periods for that ship. But as they roll off in the summer, which is the traditionally weaker markets, it's an opportunity to potentially renew and extend options even further into the recovering market. But you have to weigh off that cost versus potentially -- depending on the rate at the time to end the market outlook. So...

They shouldn't read into the fact that it's not in your fleet deployment -- fleet employment data?

No. I think that might have just been the way the graph showed up...

I guess, and this has already been kind of parsed over a couple of times, and I'll try to maybe come at it in a different way and just from the pure long-term perspective, when you kind of exclude kind of the zombie East Coast refineries, when you look at the makeup of your fleet and the increase in kind of inland U.S. crude production, kind of, fewer cargoes heading West and the incremental barrels heading East, do you think about adding VLCC exposure to the TNK fleet? Is there one area where you're a little bit light across the asset spectrum? And certainly, it seems like, from a dynamic perspective, it would hedge the fleet a little bit, maybe a little bit of color there will be helpful.

Yes, I mean, we have 1 VLCC, as you know, Mike, on order with the charter. So it's a little bit of a start. And so it is -- I mean, our longer-term thesis is that Aframaxes and Suezmaxes and VLCCs have been correlated, and there is -- as we've seen this recent quarter, Suezmaxes have done us very well in that longer haul movement. And so -- and in terms of longer haul movement, we also have the benefit, which we really like, which is Aframaxes and coded Aframaxes that gives us that optionality of trading in the crude markets when they improve. But as -- if longer haul products trades develop, then we can trade in that. So having an asset that has the ability to benefit from both crude and clean dynamics, we feel, is a benefit, whereas VLCCs, while they do have a good fundamentals in terms of that longer haul has just that one market to play off of as opposed to the flexibility of the Aframaxes.

And kind of the thing -- I guess, this is technically VLCC exposure, but the 2 mortgages you guys have in your fleet, can you remind us on the payment structure there and whether there is any sort of backloaded payment associated with those? And I know it's getting a little bit ahead of ourselves, but has there been any talk around maybe like refi-ing those from your customers' end, and maybe how should we think about the long-term?

Yes, those loans, they do have a repayment premium of 3% upon maturity in the middle of next year. So that's what gives us the extra 1% per annum yield from 9% to 10%. Right now, there are -- we still have some time before they expire, so we don't currently have any discussions with them about refinancing or rolling over yet.

So performing loans and you haven't had any discussions about refi-ing those at all?

No, they've been performing very well.

Is it something that you guys are open to refi-ing at some point? Or, I guess, maybe kind of coming at it in a different way in terms of allocating that capital, any preference to move that back into steel?

It's -- we haven't really -- it's a year off. We haven't really looked at it; they haven't approached us. It is a -- on a risk-adjusted return basis, it's pretty good. And with our liquidity, it's not the last dollar that we're investing. I think even with the very end, then maybe we'd have a more serious thought between it. But we'll -- we can -- we'll have a better assessment at the time.

And just one more for me, and I'll turn it over. You mentioned you wrote there on your debt profile in the previous answer, can you just remind us on the swap roll-off schedule that you guys are looking at right now?

Swap roll-off.

Oh, yes, we've got a couple of short term slots related to the VLCC loans, so those will roll off over the next year. And then we have the existing $100 million swap, that's the long-term swap, that's got probably another 5 or 6 years left. And then the new $200 million swap, which is part of the 13 ship drop-down, that goes out to 2016. So -- we've got some partial coverage at pretty good swap rates.

Bruce, do you happen to have the notional value on the swaps that roll over the next year on the [indiscernible]?

Yes, one of them is about $70 million, and the other one is $45 million.

[Operator Instructions] The next question comes from Christopher Combe of JPMorgan.

Most of my questions have been answered. I just want to ask a follow-up on your comment about Asian stockpiling. Can you give us a color -- some color as to the split between the strategic reserve build-up in China versus the Iranian effects? And with regard to the SPR, has that been relatively consistent flow, and what do you expect going forward? Would you anticipate a more erratic trade pattern? Or is there any visibility whatsoever?

The Chinese strategic petroleum reserve, their information flow is pretty lacking, it's pretty difficult. There's different views on how much of that is for inventories versus how much they're actually using. I mean, there is certainly inventory building because we know that they're just not using as much as they're importing. But in terms of the actual amounts, I don't know if we have any really good data on that. Your second question, I'm sorry, was it on the effects of the Iranian?

Sort of the split between the 2 factors and if its predominantly general stockpiling versus specifically the Chinese SPR.

I think it's been locked into a bunch of factors. Number one, they're still reporting normal production and, yes, it's pretty hard to imagine that it's not being affected because of the potential sanctions. We have seen a reduction in Chinese purchases of Iranian crude, and so there's just got to be less production there and also, therefore, by definition, less of the SPR filling. And I -- we're also seeing more Iranian floating storage as a result of them maybe being not able to sell that oil into the market. And Saudi Arabian increases in production to cover some of that reduced production. So it's really hard to determine the mix between the 2.

And just one last follow-up. Your comment about the trend of younger average age for scrap in the single-hull, is there a consistent, sort of, newer threshold now in terms of a specific age where you see consistency in terms of a more recent scrapping activity?

The traditional age of the past 20 years has been being brought back further and further [indiscernible] the 17.5 or 15-year age. The real key benchmarks that determine scrapping is the cost of the drydock or special survey at the time. And what is a precursor to that even is the maintenance and quality of the ship in the years preceding those drydockings. And so if the maintenance has been good, those drydockings might not be as high, and then the shipowner can afford to do the docking and try to recoup that cost through until the next docking. But if that docking is very high because of poor maintenance track record leading up to that, then that cost of the docking becomes prohibitive in terms of the chances of being able to recoup it over the next few years until the next docking. And so we've seen the age move forward just because of the poorer rates and people are experiencing higher docking cost and not being able to make investment thesis that justifies doing the docking.

There are no further questions at this time.

Well, thank you, everyone. We look forward to seeing you at the Investor Day.

Ladies and gentlemen, this does conclude the conference call for today. You may now disconnect your line, and have a great day.