Welcome to Teekay Tankers Third Quarter 2014 Earnings Results Conference Call. [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. Kevin Mackay, Teekay Tankers' Chief Executive Officer. Please go ahead, sir.

Before Mr. Mackay begins, I would like to direct all participants to our website at www.tktankers.com, where you will find a copy of the third quarter 2014 earnings presentation. Mr. Mackay 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 third quarter 2014 earnings release and earnings presentation available on our website. I'll now turn the call over to Mr. Mackay to begin.

Thank you, Ryan. Hello, everyone, and thank you very much for joining us today. 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' third quarter 2014 earnings results presentation, which can be found on our website. Beginning with our recent highlights on Slide 3 of the presentation, Teekay Tankers reported adjusted net income of $0.03 per share in the third quarter compared to an adjusted net loss of $0.05 per share in the same period in the prior year. Cash available for distribution or CAD was $0.19 per share in the third quarter, up from $0.10 per share in the same period in the prior year. The improved results were primarily due to stronger Suezmax, Aframax and LR2 spot tanker rates earned in the third quarter. In the third quarter of 2014, the company declared and paid a quarterly dividend of $0.03 per share. Since inception, Teekay Tankers has declared dividends in 28 consecutive quarters, which now totals $7.395 per share in dividends. Teekay Tankers dividend is currently fixed at an annual level of $0.12 per share payable quarterly. In August, Teekay Tankers completed an acquisition of its 50% joint venture interest in Teekay's conventional tanker commercial and technical management operations, which has resulted in Teekay Tankers becoming a more integrated tanker company. In October, Teekay Tankers secured 2 new in-charter Aframax tankers at an average rate of $18,000 per day for duration periods of 6 and 33 months, respectively, with options to extend beyond the firm periods. With the addition of these 2 vessels, our total in-charter fleet grossed 10 ships and meaningfully increases our exposure to what we anticipate will be affirming spot tanker market.…

[Operator Instructions] our first question comes from the line of Jon Chappell of Evercore ISI.

Kevin, I wanted to ask about strategy in light of the TIL investment and the new charter-ins. Is that a commentary at all on vessel acquisitions? Do you feel you'll go on an asset light-type expansion manner at this part of the cycle?

No. I think the acquisition -- or the additional acquisition in our shares of TIL was really an opportunistic move based on the fact that TIL shares are trading under net asset value. And we saw it as a way to increase TNK shareholder value by taking advantage of an opportunity. I think strategically, as I said at Investor Day, TNK is looking to grow the fleet. And we've got several levers at our disposal to do that. You've seen us use the in-chartering lever recently through the summer months, and we'll continue to look at that. But we're also on the lookout in evaluating fleet acquisitions.

Okay. And it seems that asset values have tightened or improved, I guess, as the market is tightened and improved. Do you think -- do you feel like asset prices have run away from you yet? And if TIL continues to trade at a discount, which I believe it still is, would you consider more purchases of that today?

Looking at asset prices, yes, they've obviously come up from their floor at the beginning of the year but I think there's still room to grow when you improve -- when you compare it with both 10- to 15-year average asset prices for second-hand values. So I don't think it's too late to look at to M&A. We will evaluate all potential acquisitions and investments on an ongoing basis.

And any potential more investments in TIL do you see right now?

We will look at TIL as we look at any other investment. And if they continue to trade under net asset value and we have no other uses for cash at that given point in time, we'll make that decision as when we feel it's necessary.

Okay. One last one on Page 6, you laid out all the benefits of the oil price, which we've been talking about for the last 5 weeks. Sometimes it feels like it's in vain. But I guess, the only pushback we get is at some point, will OPEC need to cut production to bring the market in the balance and stop chasing the market share? What's your kind of outlook for OPEC supply decisions? And would it have as much of an impact on the market as it may have 5 years ago before we have this abundance of light sweet crude in the Atlantic?

Well, I think I wouldn't want to say I know exactly what's going on within the realms of OPEC. But I think the signals that they've have been sending to market, both the Saudis and the Kuwaitis, have indicated that at this point in time, they want to maintain market share with their customers, and they're going to use price as the tool to do that. Whether they -- that is effective in achieving their goals and stems the decision to cut production, we'll have to wait and see.

Your next question comes from the line of Amit Mehrotra of Deutsche Bank.

In terms of how you think about your fleet strategy, clearly, Aframax earnings are impressive today and should go higher over the course of the next few months based on seasonality that you talked about. But the long-term fundamentals for tonne-mile demand clearly benefit the outlook for sort of larger vessel categories. And so can you just talk about how you think the company is sort of operationally positioned for some of those sort of secular demand drivers as opposed to maybe just more opportunistic seasonally driven improvement?

I think first off, the -- I wouldn't necessarily agree with you on the Aframax side of the equation. I think Aframax is our regional players and therefore, don't necessarily participate in the longer-haul crude movements but...

Yes, that's what I'm saying, right? I mean essentially, the larger vessel categories are more benefiting from sort of the demand drivers. And so that kind of is what I was alluding to.

Yes. I think what you will see happen, as Suezmax and VLCCs continue to see demand for longer-haul movement as more oil moves from the Atlantic to Pacific, what that does is take out the competition for this regional Aframax movements in the Mediterranean as well as the U.S. Gulf and other areas, which will lead to Aframax improvements on the basis of lack of segment competition, if you will.

Okay. And just on the product side, we've seen sort of MR rates pick up pretty nicely over the last several months. And can you just sort of talk about what your outlook is on that side of the market, whether you think sort of the trend will continue to go higher.

The MRs aren't really Teekay Tankers' core business. We have 2 spot trading assets that we've put into a commercial pool to trade. But I think generally speaking, the MR story will continue to benefit from oil exports or product exports out of the U.S. Gulf heading into Latin America. In the short term, I think one of the headwinds that you'll see in the MR sector is the new building program that is due to deliver in '14, '15 and into early 2016, which could put a cap on their growth and potential earnings.

Your next question comes from Michael Webber of Wells Fargo.

Just a modeling question and then I wanted to talk on the -- touch base on the OSPs you mentioned on Slide 6 again. But with regards to the 2 most recent charter-ins, I believe the term is 6 months to, I think, 33. I'm curious as to what the rate structure is like on those options that are embedded there, whether there's actual step-up in the rate? And then how long is that option period? Basically, kind of figure out how much flexibility you guys have in that embedded tranche.

I think the longer one, 33-month deal has a 12-month option and the rates pick up, I believe, to around $21,000 per day. And on the shorter one, we have another 6-month option on those and the rates tick up, if I recall, right into the $20,000-a-day range.

Got you, that's helpful. And just kind of to piggyback on the earlier question around the lowered OSPs and trading patterns. You mentioned that we continue to see lower OSPs. We're going to see a change in traditional trading patterns, and then you have mentioned in your remarks that the bulk of the crude kind of moving from the AG to China as they did lower the OSP in September and October. If you continue to see that happen, can you give a bit more color about what other changes in those trading patterns we could see besides just more crude moving out of the AG East? And then kind of related to that, I guess I'll save my thoughts. Maybe just any additional change in trading patterns related to those OSPs besides just the AG East?

Well, I think the AG East will really -- you'll see benefit across both primarily in VLCC movements, but also the Suezmaxes will continue to enjoy the benefits of those trades. But as you have more of these sort of staying out east to move those barrels, what I think we'll see is a little bit less competition in the Atlantic for the Suezmaxes to benefit from and if they pick up West African barrels. We've seen more movements going into the U.S. as the Brent WTI spread has narrowed. I think as that stays down, West African crude remains attractive to U.S. refineries, which will predominantly benefit the Suezmaxes. And as a result, the Aframaxes will have free run to trade in the regions that they benefit from.

Got you. And then just to kind of follow-up on that and I guess your comments to Jon earlier. And I know you don't want to speak on behalf of OPEC, but we would assume that there's not enough they can do in terms of cutting production because it really matters. If they don't chase share, the kind of ongoing flow on the AG East and that kind of dynamic should persist for quite a while. The -- it's like coming at the market as it being non-AG based. Over the long term, I guess if you kind of look at that dynamic and we can be in agreement with you guys, what sort of longer-term impact you think that actually has on utilization mix across the fleet? And then maybe which asset class do you specifically want to be most heavily weighted towards?

I think when we started looking at longer term, it's a much bigger macroeconomic question in terms of global economic growth, not just based on oil price. I think as you continue to see the oil price drop and if it stays low for extended periods, I think you've got to look at your higher cost-producing areas, which North American heavy oil production is some of the more expensive production that may get cut as well as some of these tight oil plays, which to our mind, would actually benefit tanker rates even though you see production cuts. Because you'll have more demand coming to North America to replace those areas that they cut back on.

Your next question comes from Shawn Collins of Bank of America.

There's a lot of talk out there about U.S. shale oil production. Theoretically, if the U.S. had the ability to export crude -- I know it's impossible to predict, but theoretically, what new trade patterns do you think might emerge? Can you just give us a few examples? And net-net, would you imagine this would be a positive?

I think anytime you have a large producing area like the U.S. exporting oil, it is going to be positive for tankers because it's -- it'll export to further afield. So generally speaking, across all segments, I would say that U.S. export or the U.S. export question would benefit all sectors, not just Aframax in particular. Although based on the loading constraints, I think the immediate beneficiary would be Aframaxes because of the shallow draft restrictions you get in the U.S. Gulf. But that could translate into reverse lightering opportunities onto Suezmaxes or VLCCs. So I think as I said, it could be beneficial across all segments. I think as you look further afield, if U.S. crude exports do get approved in a large way, I think by the time we get to that decision point, we're looking at Panama Canal being an opportunity that could benefit movements towards Asia. You can get a fully laden Aframax and a light loaded Suezmax through the Panama Canal by 2016. So that will make a more attractive option to go east. I think Europe would also be a beneficiary of light sweet as an alternative to buying West African barrels.

Okay, great. That's helpful. And then as a second question, with the recent lower, dramatically lower oil prices and the resulting new arbitrage activity, can you talk about a few of the new trading patterns that you've observed or participated in?

Yes, I think we've seen a fair amount of stockpiling is one of the benefits of that arbitrage. Traders have moved a fair amount of barrels from West Africa into Soldotna bay for onshore storage in South Africa. We're seeing cross movements, barrels going from West Africa -- sorry, into the U.S. Gulf, into the U.S. AC [ph], which we hadn't seen for a long period of time. There's various developments we're seeing globally that's benefiting from the drop in price.

[Operator Instructions] Your next question comes from the line of John Reardon of Merriman Capital.

I have a question about the dividend. I've been a TNK person for a while now. And Vince, you'll probably remember in the old days, the dividend was variable based on the quarterly performance and then when we kind of went into the Death Valley days, it was decided to cut it to a more regular rate. And now things are picking up again. Is there any thought -- and I noticed you've kind of made a mention about $0.19 in distributable cash flow, up from $0.10 or so a year ago. Is there any thoughts that in a couple of quarters, we might go back to a performance-based dividend? That's question #1. Question #2 is, correct me if I'm wrong, but it seems that some of the European banks that have a lot of shipping loans have been playing extend and pretend. And a lot of the companies out there that, they loan the money to aren't as say, in the same shape you folks are. And are you noticing that you're picking up some business by customers who don't want to run the risk of having their cargoes tied up in some kind of maritime legal proceeding because some financial institution is seizing somebody's equipment? That's my second question.

Okay. Well, I guess, first on the dividend. We made a strategic decision a couple of years ago, as you know, to go to a fixed dividend of $0.12 per annum. And we did it mainly because we felt that it was better for us to retain additional operating cash flow to reinvest into the, what we expect to be, a stronger tanker market, and that's turning out to be the case right now. So the additional cash flow that we're generating in the near term is being used to reduce debt and further strengthen our balance sheet, which in turn allows us to reinvest into the stronger market. So in short, in the near term, we don't have any plans to change our dividend policy. And I don't think -- I think TNK isn't really trading on the basis of a dividend yield anymore. It's more of based on our earnings power and a play on the recovery of the tanker market. But of course, longer term, that is something we obviously will revisit. In the longer term, should we be in a position where we have excess cash flow, then of course, we'll look at ways of what's the best use of that capital at that time.

Yes, I think taking your second question, John, I think with regards to European banks, where the biggest exposure is for a lot of those banks is primarily in the container sector where they mainly, the German banks have gone extremely long and have been caught out in that business. On the tankers side, we haven't seen an awful lot of distressed assets being shown. There are 1 or 2 out there, but nothing significant in terms of -- on a fleet basis. But to your sort of part b of your second question around how do customers view that sort of operational risks, not to mention the credit risks, having just recently been a customer, I know that the oil companies look very, very seriously at their operational exposure when dealing with companies that have questionable financial solvency and banking. So it's an opportunity really for companies like TNK, who have got 40 years of strong customer relationships and trust, that we maintain a strong balance sheet. We operate good quality assets that don't cause operational problems. It gives us an advantage, and we can grow our business and our relationships on that basis with those companies.

And there are no further questions at this time. I would like to turn the call back over to Mr. Mackay for closing remarks.

Well, thank you very much for joining us today and hope you all have a good festive season as Christmas approaches. Thanks very much.

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.