Welcome to Teekay Tankers Ltd.'s First Quarter 2014 Earnings Results Conference Call. During the call all participants will be in a listen only mode. Afterwards you will be invited to participate in the 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 Ltd.'s Chief Executive Officer. Please go ahead, sir.

Before Mr. Chan begins, I'd like to direct all participants to our web site at www.teekayTankers.com, where you'll find a copy of the first quarter 2014 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 2014 earnings release and earnings presentation available on our web site. I will now turn the call over to Mr. Chan to begin.

Thank you, Ryan. Hello, everyone, and thank you very much for joining us. With me here in Vancouver is Vince Lok, Teekay Tankers' Chief Financial Officer; and Brian Fortier, Group Controller of Teekay Corporation. During today's call, I will be taking you through Teekay Tankers' first quarter 2014 earnings results presentation, which can be found on our web site. Beginning with our recent highlights on Slide 3 of the presentation, Teekay Tankers generated adjusted net income of $0.20 per share in the first quarter compared to an adjusted net loss of $0.03 per share in the fourth quarter and an adjusted net loss of $0.04 per share in the first quarter of 2013. Cash available for distribution, or CAD, was $0.36 per share in the first quarter, up from $0.10 per share in the first quarter of 2013 which demonstrates the company’s tremendous operating leverage to our recovering spot Tanker market. These increases were primarily due to stronger Suezmax, Aframax and MR spot Tanker rates earned in the first quarter and an increase in interest income recognized on our term-loan investments secured by two modern VLCCs. In accordance, with our current fixed dividend policy, the company declared a first quarter dividend of $0.03 per share. This was Teekay Tankers' 26th consecutive quarterly dividend, which was paid on April 30 to all shareholders of record as of April 17. Since inception, Teekay Tankers has paid a total of $7.33 per share in dividends. Teekay Tankers' dividend is currently fixed at an annual level of $0.12 per share payable quarterly. As a result of the strong winter market rally in the first quarter, Teekay Tankers achieved its highest quarterly spot earnings since 2010 with our spot Suezmax Tankers averaging $28,100 per day and our Aframax Tankers averaging $22,600 per day. In late…

(Operator Instructions) the first question comes from Donald McLee of Wells Fargo. Please go ahead.

It looks like forward fundamentals of pretty attractive given the shrinking mid-size fleet and the current rate of backlog; I just want to know how that affects your posted growth over the next year or two?

I think that the fundamentals are pointing towards, us wanting to increase our exposure to that market, and we’re naturally doing that as our fixed rate portfolio declines and having the ability now of having sold the VLCCs to have additional financial liquidity to grow, is something that we’ll be looking at doing.

And will there be a particular focus on maybe Suezmax’s versus Aframax’s or it’s kind of either way?

I think the lots are either way, it depends on quality of the ship and availability and the right price.

And also, kind of does that improving backlog effect is growth coming directly at TNK or TIL?

It will come through both ways, being a co-investor in TIL as well as direct growth at TNK.

Got it, and then just kind of talking about how rates move during Q1. Could you speak a bit about how much, I guess of that, I’ll try to - due to tightening fundamentals and how much of that was of a seasonal nature?

It’s a combination of both. It’s very hard to pinpoint which of those two is the main catalyst. It’s obviously a combination of that. But I think, the fact that, rates were higher in Q1 is a sign that the supply demand balance is close and then therefore when the fundamentals due to towards being short of ship supply, the rates do have these potentials to go to high levels.

Got you. And then just one quick question on your Q2 spot earnings guidance. I don’t think you guys gave any guidance for MR spot rates?

It’s correct. Year to date so far looking at right now it is about 14,000, 13.5, 14,000.

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

Pretty good. I wanted to ask you about the Teekay operations joint venture. Maybe this is just my misunderstanding but I thought when the TIL entity was announced, that TNK would be taking the entire Management structure from Teekay Corp. Was I incorrect with that and if I wasn't, kind of what lead the decision to just do the 50/50 split? Was it Teekay didn't want to let go of the whole thing or was it TNK wasn't prepared to take on the entire Management structure?

I think the day-to-day Management control part of it from TNK is achieved and in a way that still shows long term commitment from the parent, especially through the fact that they're taking equity back and achieves our goal of having that platform embedded at TNK, without paying for the whole 100% up front so I think the goals are at the end of the day we've achieved a structure that I think works well for both entities and so that's the structure we wound up on.

And then also maybe for Vince I wanted to be clear on the accounting and economics of the VLCC sales so out of the 154 million roughly 115 goes to the loans that were backing that ship which is would leave about 39 million of excess. Is that all going to the revolver or are there other fees or stuff that I'm missing?

No, the 154 million in proceeds, pretty much all that is going towards retaining the revolver so you'll see that coming through in the June 30 balance sheet.

So then when you look at call it fire power or whatever for acquisitions and Bruce talked so first time I've seen in awhile about kind of gaining more market leverage through acquisitions or chartering and more tonnage, you mentioned 300 million of liquidity in the Press Release, how do you see the total acquisition capability if you levered it say 50% conservatively to actually add tonnage in the next 12-18 months.

Yes, as you said we do have pro forma those 300 million of liquidity through the revolvers and that gives us quite a bit of near term capacity to act quickly on any on the water acquisition opportunities. I don't think we should give any specific guidance as to Quantum or anything but we certainly have the flexibility to act quickly as well as access to new capital.

And it gives us the balance sheet capacity to support increased leverage through in charters as well.

And then just finally when we think about the 2017 pretty big bullet payment obviously you've made a big step towards paying that down with the sale of these VLCCs but how are you thinking about potentially refinancing that facility? I know it's still a long way away but we're moving up in this part of the cycle versus using any new liquidity and cash flow well above what you're paying in the dividends towards expansion.

As you said, that still is a long ways away, that revolver is due at the end of 2017 and I think given the some of the positive results that we seen so far this year, as well as the sales of VLCCs, that's all moving in the right direction in terms of helping delever Teekay Tankers and generating that cash flow so that we're in a much stronger financial position, and so I think we're in pretty good shape there.

Thank you. The next question comes from Taylor Mulherin of Deutsche Bank. Please go ahead.

Just wanted to start off with a quick one. I wanted to make sure the interest recognition from the sale that around 9.5 million from the VLCCs, there's none of that continuing on a go forward basis, that was just a Q1 specific event?

That’s correct. That’s a Q1, it was 9.1 million.

Okay, perfect. And then just wanted to dig a little bit into the tanker operations acquisition. So just on a sort of nuance question, can you help me understand where that fits into the Income Statement? Is it just like a revenue line and then if you could just talk a little bit more about you alluded to this but just sort of how you expect to grow that 2.5 million or so of annual income over time and then the last part of it was this has come up in the past but as far as TIL's relationship in the pool, when there's any sale or purchase activity at TIL, would TNK now benefit from that from its ownership in tanker operations? I know that was a lot of questions.

Okay. I’ll start with the first question that was the income statement. First of all, I think one of the benefits of the 50/50 joint venture structure we've come up with between Teekay Corporation and TNK is first of all it strategically aligns both parties to grow that business and I think both parties are very much aligned and the other benefit in a way, it actually keeps that fee business in a very clean on the financial statement so given that it's a 50% joint venture it will be equity accounted for and so the 2.5 million that we provided here that would basically show up as equity income on the Income Statement. So it should help keep the Income Statement fairly clean. Taylor to your second and third questions around how we can benefit from the operations. The big component of those fees is a Commission of 1.25% on gross freight and so as the market, the guidance we've given is based on the current tanker market-rates but as we expect an improving market-rate recovery, the fees will increase as those rates get higher, as well as additional ships which ties into your third question around TIL. As TIL stated the goal or strategy is to increase and buy more ships to benefit from the tanker market asset improvement though TIL is contractually obligated to use Teekay operations to manage those ships so that will be an additional income from managing those ships as well as expanded income as the rates improve.

Great it makes sense and I'll finish up with just one more sort of market question. So obviously Q2 has been fairly weak so far and you guys laid out your expectations for Q3. Just wanted to get a sense of basically what you thought the timeline and I know this is a moving target but what the thought it timeline would be for more normalized rates when you look back historically. You're obviously putting your money where your mouth is in terms of increasing spot exposure so just wanted to get a sense of your timeline for what you thought or when you thought improvement in the market might happen.

A good way to look at it is on the utilization slide where we look at it going forward, typically Mid 80% utilization is what we call or car mid cycle rates or where rates would be where they got to be at a 10 year average type rate level and anything kind of in the higher 80s and low 90s is really into the high cycle rate level and below that is the low cycle like we saw and so as you see the supplies and demand going forward and as you saw last year, when the rates did kind of spike during the quarter, it shows that that utilization number is moving up and so based on that chart then it's in the next couple years you kind of get back to that Mid 80% utilization live.

Your next question comes from Nish Mani of JP Morgan. Please go ahead.

Wanted to ask a question about the commercial transaction to see if I understand the financing correctly but the roughly $15.5 million consideration are there new shares going to be issued to fund that transaction and if so is it on the handle of about 4 million shares?

That is correct. That 15.6 million divided by $3.70.

Okay, got it. So there is going to be an initial share offering, correct?

Correct.

And then I kind of wanted to touch back on your guidance and kind of shifting towards the spot market and what you view as being the recovering market. Obviously we're looking at about 1/3 cover for the next 12 months. I mean realistically,, how low would you be willing to go kind of in the medium term and do you see yourself letting several of the charters that come up later this year expire and then go immediately to the spot market or do you envision yourself maintaining this roughly 1/3 cover?

No, I can see those charters expiring and us not renewing them. I believe the market is going to be improving here and they do naturally run-off through the year and into 15.

Just eyeballing it, it looks like you can get as low as 20% by the end of the year, that doesn't seem like it's out of Sink -- with your think something.

That’s right. It could definitely get that low and we could have forward starting in charter which also exposes us to further leverage and that's a benefit because that in charter doesn't start until later in the year where some of the seasonal period is already behind us and so that's an opportunistic in charter and I think we would be looking at doing more of those as well.

Great and you know kind of picking back on what John asked earlier with regards to growth opportunities and dry capital, clearly you guys are in a position to grow given the cash infusion of the VLCC sale but I kind of wanted to get you to help me think about what the growth strategy is at TIL versus TNK, and how they kind of differ. I understand that TIL is kind of asset value focused but are we likely to see the similar kind of transactions replicated at one vehicle versus the other over the next several months?

It is certainly complimentary. TIL's intended strategy is to buy assets below their historical average values and then wait until they increase and yield a gain and TNK will benefit through its ownership of TIL, and we could also participate in further equity raises if those happen at TIL, but then aside from that, in a complimentary strategy as we just discussed around the in chartering and rolling off of the existing ships and as demonstrated now, we already have significant operating leverage or exposure to our recovering market and we will be looking to enhance that further and that may be ships Director further in charter, so it's all complimentary around trying to create the most value as the market recovers for TNK shareholders

Sure, and you know it's complimentary but in some sense also competitive right theoretically speaking TIL and TNK could be bidding for the same assets in the open market; correct

Theoretically but being part of the overall Teekay Group, we're certainly going to be not having bidding wars among ourselves if it came down to it. That would be destructive.

And then I just guess the asset value play does that imply TIL will be pursuing a more distressed transaction and TNKs has a broader acquisition mandate?

No, I won’t say that’s a distress. They are certainly looking at buying assets below the historical average and obviously if it's distressed, that is a benefit, but they will be looking at accumulating those types of assets. They aren't necessarily also as it's focused around like we have core operating segments where we had a lot of value to our customers since we're full shipping platform and that's why they bought the VLCCs because again, they're in it looking for areas where it can have a lot of asset value appreciation.

Got it and my final question. I know you sold the VLCC due to its precarious nature and odd situation but that doesn't preclude you from going after the VLCCs in the future right, even though the Aframax Suezmax in this segment has been your core focus?

It doesn't preclude us from going after anything in particular although my view has always been and I think is supported by a lot of analysts that those segments are largely correlated and that cargoes do move around between those segments on the periphery all when there is over demand or lack of supply in different areas so those rates in the medium term tend to be correlated.

Thank you. (Operator Instructions) The next question comes from Hardin Bethea from HSB Capital. Please go ahead.

Hi. I have a question regarding the FCX (ph) contract if you have any updates on the status of that?

That contract is no longer valid and we’re in proceeding towards arbitration for a claim against them for damages.

Is there a status or a time line you could provide on your anticipate recovery or what’s the current status of it?

No, I can’t speculate on that.

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

All right. Thanks everyone for joining. I look forward to listening in next quarter.