Welcome to Teekay Tankers Limited Second Quarter 2013 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. (Operator Instructions) As a reminder, this call is being recorded. Now, for opening remarks and introductions, I would like to turn the call over to Mr. Bruce Chan, Teekay Tankers Limited's 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'll find a copy of the second quarter 2013 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 the 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 2013 earnings release and earnings presentation available on our website. I will now turn the call over to Mr. Chan to begin.

Thank you, Ryan. Hello, everyone and thank you very much for joining. With me here in Vancouver is Vince Lok, Teekay Tankers' Chief Financial Officer, Art Bensler, Teekay Tankers' Chairman and Director and Brian Fortier, Corporate Controller of Teekay Corporation. During today's call, I'll be taking you through Teekay Tankers' second quarter earnings results presentation, which can be found on our website. Beginning with our recent highlights on slide 3 of the presentation, Teekay Tankers generated cash available for distribution of $0.07 per share in the second quarter, down slightly from the $0.10 per share generated in the first quarter, mainly due to the change in employment of certain vessels from fixed rates to lower spot rates on expiry of their time charter out contracts. For the second quarter, we reported an adjusted net loss of $0.08 per share, compared to our adjusted net loss of $0.04 per share reported in the first quarter. The company declared a dividend of $0.03 per share for the second quarter, Teekay Tankers' 23rd consecutive quarterly dividend, which was paid on July 31st to all shareholders of record on July 19. Teekay Tankers dividend is currently fixed at an annual level of $0.12 per share payable quarterly. Our 50% owned VLCC newbuilding, the Hong Kong Spirit delivered in June 2013 and is now employed on a five-year fixed-rate time-charter contract with a major Chinese company at an attractive about market rate of $37,500 per day as well as an additional profit share if market rates are about 40,500 per day. In addition to the three-year time-charter out contract that we entered into in April for the Everest Spirit, we recently extended a fixed time-charter contract on one of our Aframax tankers, the Kanata Spirit for an additional year securing more fixed rate business at…

Okay. (Operator Instructions) The first question comes from Michael Webber from Wells Fargo. Please go ahead.

I wanted to kind of zero-in on the STX orders and they've been kind of widely debated in market. From your advantage point, I know you give pretty much that all that you can, but maybe from a perspective has the delivery window moved back for you guys to the point where if you were to walk away from these orders and look for growth elsewhere. Is it likely coming in a later window? Then maybe if you could maybe kind of walk us through a timeframe for how you think STX and this refund given to you issue plays out?

Mike, in terms of the delivery window when we placed the order, I think we had said that we had put it out quite far, because we always thought the recovery would be gradual and that as the recovery took place we would be exposed to it. So, I think we do have some cushion in there in terms of the delivery schedule. They weren't scheduled until late 15 and 16, and so that's still where newbuildings that are ordered today would be delivered.

The 15 deliveries what I was basically getting at, do you think that…

They were late. I think we said they were late 2015 and so in terms of slippage that's not something that we were really that focused on.

Got you. In terms of kind of what kind of what timeframe around this, how are you thinking about?

Yes. I mean, as we said in our prepared remarks the yards latest correspondence with us is that they are going to be reapplying for them once this process has been finalized. But, as we all know in this processes, it's still uncertain so we are really on their schedule more than anything that we can dictate.

Got you. You talked in your prepared remarks, you gave a bit of review on the sector, on the product and crude, the risk, the product side gets a bit overbuilt over the next two to three years and it seems like you are a bit more positive on the crude supply side. Would there be a thought to potentially can diversifying that future order kind of maybe placing more growth towards the Crude segment given that you've got the bit more overcapacity risk growing in the product space right now?

Yes. I mean, we still like the LR2 sector because of the optionality of being able to go back and forth between crude and products, but certainly we are looking at the product supply side that there is finely balanced than the crude. And, while we still think the balance is still okay, we certainly will be watching like everyone whether people continue to expand in that segment. So, that's obvious the supply of over ordering in that segment would be concerning.

Got you. Okay. That makes sense. One more for me and I'll turn it over and let someone question on these, but from a growth perspective there's a newbuild orders, they are still relatively fresh as it replace a few months ago. If you kind of think about other avenues, your equity is trading well above [NAV]. You've got a strong brainer management and there are bunch of distressed tank runners out there that would probably wouldn't mind having (Inaudible) back paper. Is M&A a realistic opportunity for you guys here?

I think, we continue to look at different ways growing, but with our are current fleet excluding the newbuilding order, we still feeling that we have a lot of good exposure to a rebound in rates as I said in my remarks and you mentioned, we think there is potential for some upside surprises in the medium-term and that's we think were fully exposed to that.

Thank you. The next question comes from Jon Chappell from Evercore Partners. Please go ahead.

Thank you. Good morning, guys.

Jon, how are you doing?

Pretty good. Bruce, I just want to follow-up on STX as well. Maybe ask you in a different way. Clearly we've seen some orders placed since you placed the original order in April or talked about the original order, that was really placed without a refund guarantee but naphtha prices have definitely gone up. So, how sensitive are you STX potentially trying to mark the orders to, what I guess in the market right now and then how do you compare that with kind of on that last question you just had, your growth ambitions. Because, if the market is starting to recover, now still may be an opportune time vis-à-vis your rates per [asset estimate] maybe in year or two.

That's a good question. In terms of STX and I am looking at other orders of higher prices are certainly a concern of ours. Certainly not unheard of for people to try to renegotiate contracts like that, I think what's different this time is most times is when shipyards default on contracts it's because they are failing or have failed, but STX survives is because they have support and so there is a more solid shipyards to stand behind the contracts upon which we would enforce all of our legal remedies there, so that is our primary focus is to still follow through with that order. But as you say if that order has to be replaced at higher current values, then we have to see how that evolves. It's certainly been a lot of orders that have driven up the prices recently and whether that's sustainable is another question and so we will have the benefit of them sometime here to see how that market develops then make the appropriate decision.

Have you been in conversation with any other yards for kind of similar assets, just so you have that bid compare what potentially could be a new price range from STX?

We certainly have the data, because within the TK group and as you heard Peter say on his earlier on his earlier call there's a lot of other activity going on with the yards from our other parts of the business, and so we constantly have the good calls on what replacement orders would look like, but we are still primarily focused on resolving our current binding contract with STX.

Okay. Then regarding the VLCCs, this Egyptian arrest is somewhat near legit, or at least surprising and I am just trying to figure out what that means financially for you as the manager of that vessel now? Is there any liability for TNK even though this incident happened before you to management of it? Then also you if it's 10,000 a day kind of breakeven for the ships and assuming you are marketing your revenue that's why you are still paying the operating costs the [vessel]?

The biggest downside as you just touched on is, every day they are certainly not earning revenue, but in terms of reliability the P&I insurers are actively engaged in this and are the ones actually negotiating the release, so we are confident that that liability is insured and will be taken care of. So, it's really just a matter of expediting that process as much as you can in Egypt so that that ship can start trading. Fortunately for the first ship, [Allison A], which has been trading, we've done pretty well on the timing of some of the contracts for that ship, so on average we are still pretty close if not at I'd cash breakeven for the two ships combined.

My last question is just on the OpEx front. It's clearly high, big sequential step up in the second quarter. There was really no significant drydockings to kind of explain that. Was there any timing issues in the second quarter and should we expect that to be the run rate going forward or be something in between first and second quarter run rate?

Hi, Jon. The OpEx was a little bit higher than we had expected in the Q2. I can't pinpoint anyone particularly reason. There were a number of small items and some of it is related to the heavy drydock schedule. Although, we didn't have a lot of drydocks in Q2, specifically, there are four drydockings happening in the third quarter and typically you do need more purchases in preparation for those drydocks, so we expect the run rate in Q3 to be somewhat similar to Q2, but we should see it maybe come back to more normal levels in Q4.

Thanks, Vince. Since I have you, I didn't remember my follow-up before. That provision that you took for VLCC, does that include the anticipated off-hire time of the second vessel also under arrest or is that strictly from the payments that you are basically writing off now for TMT ships?

The loss provision takes into account our expected future cash flows and from operating the ships, so we have taken into account the fact that we can't trade that second vessel for the very near-term, so that's already taken into consideration.

Thank you. The next question comes from.net Justin Yagerman from Deutsche Bank. Please go ahead.

Hi, it's actually Josh Katzeff on for Justin. I just want to switch maybe just the product crude market markets and just taking look at your Suezmax rates in Q3 to-date, you mentioned that retail West Africa have improved, but I guess they remain a bit weaker in the Mediterranean, Black Sea and AG as well. Is that the reason for the for the weaker Suezmax rates so far?

That's partly the reason and also there's time lag between that and reported pictures, so I think based on where the market is today that rate is certainly trending higher weather that holds through the rest the quarters is up for debate, but it's certainly trending higher right now.

Okay. Then with regard to fleet employment you mentioned maybe you are fixing up some more ships, how should we think about fleet employment going forward? Should we expect you to actually take ships out of the pools and into fixed-rate contracts or is this more just a renewal of expiring contracts?

It's been a renewal so far of expiring contract, but really as our track record shows it's really opportunistic fixing of the ships when the fixed rate time charters present themselves, and so that just happens when customers have the new requirements, so we will pursue those when those become available. They are not readily available all the time. They are consistently through the year, and so we've I think demonstrated that as those opportunities come up, we pursue them and that enables us to earnings those higher fixed revenues over and above what the spot market would have provided.

Got it, and I guess switching back over to VLCCs; you mentioned potentially disposing of the assets. Can you just maybe give us a little bit of insight into, I guess, who is running that process and I guess whose determination that would be and maybe the role of the secondly lender in this whole process as well?

Right now, we are still through. As Jon mentioned earlier that Egypt arrest and then once that ship is released, then we will be trading the ships and looking for opportunistic ways of selling it, but as Vince mentioned the impairment may move up or down depending on the cash flows and with the low breakeven we've taken a of view of what we can earn, but that may surprise us on the outside in which case the corresponding sale value would be higher or conversely it may be other ways, so that process is something that is really just evolving and will depend on the outlook of VLCCs in the coming months.

Then I guess maybe to follow-up with that, you are already concerned that maybe these subsidiaries would be followed into the into the bankruptcy proceedings and what effect that have?

With any proceeding like this it's uncertain, but these entities are separate from the other business that's going on with the borrower and so the fact that we've been able to take over commercial and technical management showing the ongoing cooperation and we are hopeful that this will continue to be amicably resolved.

Okay. Then just one more before I turn it over. Just for an accounting basis for these loans, I guess the VLCC's earnings will be counted as, will that be treated as revenue and OpEx as expense?

No. I think that requires a little bit of clarification. We haven't taken ownership of the vessels, so therefore the actual vessels are not on our balance sheet. We are not recording any revenues or OpEx ,so we are essentially technical and commercial managers. So, the operating cash flows are essentially going toward to pay our accrued interest and to recover on our book value of the loans. So from an accounting perspective, what we would expect that we would stop accruing the interest income in the third quarter then the balance sitting on our balance sheet about $123 million. That's depending on what the cash flows we can get from the VLCCs.

So, any sort of operating income or losses will I guess be flow through some sort of year loss provision calculation.

Yes. So, cash flow is coming higher than what we projected in the provision. Part of that could be reversed.

Well, I appreciate the time. Thank you.

Thank you. The next question comes from (Inaudible) from Morgan Stanley. Please go ahead.

Good afternoon, gentleman. Mostly of my questions were already answered. There's just one follow question I want to ask with VLCCs. You said that you were looking to sell them. Do you maybe see the possibility of taking them over onto your balance sheet or are you definitely looking to sell the vessels.

Well, I guess, first, they are on our balance sheet as investment and loan right now. The cash breakeven is attractive at $10,000 a day and that provides us the optionality of seeing how the market evolves. We are certainly not going to be distressed sellers and we'll time to sale in an orderly fashion, but if the market improves that has an opportunity to generation some cash and provide a recovery on that loan. So, again, it's hard precisely forecast how that's going to play out, but we're trying to leave all of our options open right now.

Okay. Great Then you mentioned the change in trading patterns due to the WTI Brent spreads coming close together. I was wondering if you could maybe give us a bit more color on that. How do you think Suezmax rates kind of develop and how long do you think it's going to carry on going? And, what sort of changes in trade patterns you've seen there?

Yes. It's certainly has been a higher volume of pictures for Suezmaxs, particularly early in July one of the highest month number of pictures in a month for the year and amongst the highest going back for few years and August was shaping up to be okay, but I think there's probably some downside risk in that as well VLCC rates or weak. You'll see some of those cargoes maybe starting to go back on VLCCs. So, again in short-term, it's nice to have this volatility and certainty no complaints on the higher fixtures that we are seeing currently in the market, but again in the near-term here we do see some volatility over the sustainability of our trading pattern,.

That was very helpful. Thank you very much.

Thank you. The next question comes from Chris Combe from JPMorgan. Please go ahead.

Good afternoon, guys. It's actually Nish Mani on for Chris. Just want to ask question about the drydock. Could you give us a quick rundown if possible which vessels are being upheld for repairs in the third quarter?

Yes. For the third quarter we have four vessels that are drydocking. Two of them are in the spot traded rate and then two of them in a fixed-rate fleet and the smart ships are the Godavari Spirit the Narmada Spirit and the fixed-rate tankers are the Kanata Spirit and Nassau Spirit.

Great. Thank you so much. Then just wanted to get sense, I noticed that you had some voyage revenue annual expense both, pick up in the quarter, which is opportunistic from vessels in the spot and pool trading kind of doing small voyages or was there something else?

Yes. We did had some ships that trade outside the pool, so that's where you would see some voyage expenses as opposed to net pool revenues, but I guess what's important is really just the total net revenues which is revenues less voyage expenses.

Right. Then taking up in the quarter is a result of increased voyage activity?

Yes. The increase in the voyage expenses or I guess they are clearly comparable actually quarter-on-quarter we had some shifts that were trading out pools, so that's why you see some voyage expenses directly.

Got it. That's actually it for me. Thank you so much.

Thank you. (Operator Instructions) There are no further questions at this time. Please continue.

All right. Thanks, everyone, for joining and we look forward to speaking to you next quarter.

Ladies and gentlemen, this concludes the conference call for today. We thank you for your participation. You may now disconnect your line and have a great day.