Welcome to Teekay Tankers Ltd’s Fourth Quarter and Fiscal 2016 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. And now for opening remarks and introductions, I would like to turn the call over to Mr. Kevin Mackay, Teekay Tankers Ltd’s, Chief Executive Officer. Please go ahead, sir.

Before Mr. Mackay begins, I would like to direct all participants to our website at teekaytankers.com, where you'll find a copy of the fourth quarter 2016 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 -- in the forward-looking statements is contained in the fourth quarter 2016 earnings release and earnings presentation available on our website. I will now turn the call over to Mr. Mackay to begin.

Thank you, [Scott]. Hello, everyone, and thank you very much for joining us today. With me here in Vancouver are Vince Lok, Teekay Tankers' Chief Financial Officer; and Christian Waldegrave, Head of Strategy & Research at Teekay Corporation. During today’s call, I will be taking you through Teekay Tankers’ fourth quarter 2016 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 $5.1 million or $0.03 per share in the fourth quarter of 2016 compared to adjusted net loss of $1.5 million or $0.01 per share in the third quarter of 2016. We generated free cash flow of $34.2 million during the quarter compared with $26.6 million in the third quarter of 2016. Our fourth quarter results were positively impacted by the seasonal strength in the tanker market and increased oil exports from Nigeria, Libya and the Baltic Sea which I will touch on in more detail later in the presentation. In accordance with our variable dividend policy, Teekay Tankers declared a dividend of $0.03 per share for the fourth quarter of 2016 representing the minimum quarterly dividend. The dividend will be paid on March 10, 2017 to all shareholders of record as of March 06, 2017. As we have mentioned before, one of our priorities is to continue to strengthen our balance sheet, which creates shareholder value by increasing underlying net asset value. The combination of free cash flow generated during the quarter, recent vessel sales and other actions have allowed us to reduce our financial leverage to 47% on a net debt to booked capitalization basis. Lastly, given our view of the softer 2017 Tanker market, we secured three term charters, earned period of 12 months at an average rate…

Thank you. [Operator Instructions] We’ll go to Jon Chappell of Evercore ISI.

Thank you, good morning guys.

Good morning, Jon.

Kevin, you had mentioned on slide eight that you had already spoken a little bit about re-engaging strategic levers but just wanted to dig a little deeper on that. It seems that what you have done with the Suezmax and the MR vessel sales was smart from a strategic perspective obviously the MR and the fleet kind of longer term in the Suezmax through to older ships of that vintage. As you look across the rest of the fleet 3, 1999 built Aframaxes, a couple of other 2002, 2003, I know it’s difficult to kind of sell at the [Indiscernible] part of the market or at least from the sentiment that it [Indiscernible] but is there a two tiered market developing for those ships, and how do you kind of think about their longevity in your fleet right now?

Yes, I think the fleet portfolio make up something that we constantly monitor at all points in the cycle. And as you saw we did feel that the MRs didn’t belong in our program and the older Suezmax, it was a point in their lifecycle where we felt the cost benefit of maintaining those weren’t fit. If you look at our current fleet, we do have some older Aframaxes that we continue to look at, where two of those are actually trading in the U.S. Gulf at the moment, where there isn’t a two tier market for older versus newer. And we can utilize those ships very well in our lightering program. And as you know we are getting above average rates for those contracts and that utilization. In the Far East, I think you do have slight discrimination on some of the older units at a day it is harder to keep positioning those. So really when we look at what we are going to do going forward, it’s a function of where we think the regional markets are going to be, where we think we are best positioned based on our contract volume and in areas where we might be able to take advantage of an older unit and but if we see that the upcoming cost for things like special surveys or intermediate survey docking Dallas water treatment implementations, those will factor into our decision whether we keep those older assets in the program or not.

Okay, that makes sense. And then you lay out a pretty compelling kind of multiyear view here that you are being challenged by headwinds, next you are really setting up well for recovery, how do you kind of look beyond the next 12 months. It seems that chartering out at this point maybe the lower part of the cycle and chartering in may provide a significant opportunity, however given the 2017 disparity in the outlook that you have been very detrimental to near term earnings. So you kind of looking beyond a 12-month timeframe, we are just thinking about the other operational levers.

I think what you’ve seen us do in the spot or the fixed rate charter cover, we’ve gone for periods of 12 to 18 months which really we see as the sweet spot starting from last summer in terms of where to find that cover to get us through the weaker period. We haven’t gone long on TC cover for longer term, because that would take us out of what we think would be a recovery market in 2018 and certainly 2019. So I think as we look at the program going forward, those 12 to 18 months TCs are still available , less so on the 18 months side, but again I don’t think we want to be putting our fixed rate cover that far out where we’ve missed the upside in the market.

Right. Okay, that makes sense. And final one, it’s two parts, but hopefully it’s still quick. Teh proceeds from the Suezmax sales that completed in the first quarter that will complete the first quarter, how much of that is slated for debt repayment and then part two is, I think there is still somewhat of a misperception about pretty significant debt amortization in 2017 which I know that you’ve since remedied but like I said there still might be a misconception about it, can you just kind of walk through the debt amortization schedule for the next 12 to 24 months?

Sure. Hi, Jon. As a reminder, these vessels that we just sold recently, the Ganges and Yamuna, they were part of the old 2017 revolver that was in place, so all of the proceeds from those two vessel sales will go towards retiring that remaining facility that matures in November 2017. And that will take care of the remaining amount of that facility. And in terms of the new facility that we put in place January 2016, our average sort of debt repayment is about $120 million a year, that’s sort of the run rate for 2017. It goes down a little bit in 2018 to about $110 million.

Got it.

And that facility as well as other smaller facilities, so that’s an aggregate for TNK.

Okay. Great. Thanks then, thanks Kevin.

Thanks, Jon.

[Operator Instructions] We’ll go next to Gregory Lewis of Credit Suisse.

Yes, thank you and good morning, gentlemen.

Good morning.

Morning.

Kevin, when you -- in some of your prepared comments you talked about, yes, OPEC is cutting, but your fleet seems to be just given the size of your vessels may be a little more inflated. As we’ve seen the OPEC cuts start to filter in the market, has that driven any dislocations or increased volumes from other basin sort of mitigating the lower volumes from the Middle East?

Yes. I think, primarily, I think Christian can clarify. I think the vast majority of the production cuts that OPEC announced are coming from three Middle Eastern countries. So that is having a dampening effect on larger class of vessels sort of AG East. Those barrels are obviously being replaced by longer haul out of West Africa and Brazil and also the U.S. Gulf now. We’re seeing a lot more production coming out of the U.S. Gulf, the first cargo I think just recently go fix from the U.S. to India. So I think Asian buyers are looking to diversify their sources giving the cuts that are primarily coming out of the AG.

Okay. And then just – if we sort of look back at history when OPEC decides to change their production volumes, i.e. take down the volumes. What sort of impact is that usually have or does it have any impact on the product tanker markets? And I guess what I'm wondering is if we’re seeing less crude oil flow out of the Middle East could we see the potential over the next six to 12 months that we’re seeing more products flow out of the Middle East and since that's a higher-margin barrel for the producers?

I think from a TNK perspective, our long view on our LR2 program. We felt, we didn't have a lot of confidence in the near term prospects for the product tanker trade, so that’s why we’ve gone for the higher-margin crude business and use the flexibility of that tonnage to transition over to pure Aframax trading on the crude side, but I think as a general commentary on the market maybe Christian would be able to add to that.

Yes. I think what you’re seeing on the product side as well as we obviously got very high inventory levels in different parts of the world because over the past couple of years we’re obviously been making good margins with the low crude oil price. Now that the crude price has come up and that’s affecting refining margins. So I actually think the product market is actually going to be sort of negatively impacted by that in the next 12 months which again as Kevin explained is why we have moved those ships over the dirty market and see more opportunities on the crude side rather than the products where I think you will see people drilling down on inventory through the course of 2017 rather than taking in look to crude and refining it because their margins are bit narrower.

Okay, guys. Thank you very much for the time.

Thanks, Gregory.

We’ll go next to Spiro Dounis of UBS Securities.

Hey, Kevin, hey Vince, thanks for taking the question. Kevin, just wanted to go back to some that you mentioned earlier just on the different ways you can capitalized on an improving market. And I guess one of things that maybe wasn’t mention was just around vessel acquisitions or placing new build orders. Are those levers that you pull and where they stack up relative to the other option you mentioned?

Yes. I think certainly we take a portfolio approach to how we manage the fleet, so whether it’s second-hand purchases for vessel acquisitions, new builds, we’re constantly watching those markets on an ongoing basis. Currently, there's a fairly widespread between the new build price and second-hand values which have come off quite sharply. But that will obviously change over time, but I think our long view is that both in the Suezmax and the Aframax/LR2 fleets there is a need for fleet replenishment and there is about third of the fleet is going to be turning 15 years or beyond that by 2020. So, certainly we’re going to have to look to the new building market at some point. It just the question of the pricing differentials versus buying on the water assets

Got it. That’s helpful. And second one, just around the ship-to-ship transfer business, it sounds that activity there is really starting to pick up in the U.S. Gulf and you mentioned that Western Canadian select cargo that I guess is now on its way to India which is pretty shocking. I mean, what actually stopping you from deploying more Aframaxes into that trade to capture that premium rate? Is there any sort of vetting requirements that needs to happen or could you really put lot more your fleet in there right now?

First of all, I’d like iterate that I’m really pleased with the way the acquisition is gone. I think we timed it well and it provided a great alternative outlet to seek fixed-rate cover for our Aframax fleet. And it’s also – it allowed Teekay Tankers’ to really re-establish itself in the Atlantic specifically in the U.S. Caribbean region. At a point in time when U.S. exports were expected to grow. So I’m really pleased with the way we've integrated that business. I think we’re getting benefits from that we’ll continue to get benefits as we go forward. The vetting regime for the U.S. Gulf is the same as it is anywhere else in the world. It's the specialized knowledge of how to put ships together is where I think we have an advantage over others. It’s not a market that people can break into easily. But in terms of moving our fleets from one region to another we certainly look at it in terms of maximizing our revenue potential, but we’ve also look at it again portfolio basis and we have long-term customers that we’ve had relationships for close to half a century now where we need to keep presence in the Asian market and those customer support us with contract they give us, so it will be a balance of meeting our long-term customer objectives as well as maximizing revenue in any given spot market.

Okay. And just to clarify, I guess I’d be writing assuming that in the event that ship to ship transfer market did actually pick up or heat up from here with relative attractiveness was that much better, you could pretty quick fashion move those vessels in, or am I reading that right?

Well, we have vessels all over the Atlantic. We have a presence in the North Sea which if we feel that the market over the near term will be less than U.S. Gulf or demand increases such that we need to move them, we’d certainly be able to do that in short order.

Appreciate the color. Thank Kevin.

Thanks.

We’ll go next to Noah Parquette of JP Morgan.

Thanks. I want to ask how do you guys think about the risks of new orders. You are pushing back on recovery, you’ve seen more talk from some of your competitors putting in orders from your ships and like you said it the ratio of second hand ships, the new prices below the long-term average, but it’s nothing like dry bulk and plus new build ship has advantages of you avoid this marked of weakness. So what you think of the risk of new build orders in 2018 and 2019, derailing this idea that the recovery will be shallow?

I think, now if you refer to our slide and it is on page six, we’ve listed a few factors there which we believe will contribute to the dampening order book. Your new build capacity is a big item when we consider the long-term prospects for the order book and it's already come off 30% from its earlier decades highs and we anticipate with the consolidation is going on in that market. We’ll probably see another possibly 10% to 15% of capacity being reduced in the near term. So that is a big factor. There’s also other fleets that have order books that they may look to replenish projects coming online that will also eat smaller available capacity. I think also can join to that is the lack of availability of capital financing, obviously for the public company the capital markets have been relatively closed. But also the rationalization in the bank market is they are making harder and harder to secure debt for everyone other than the top-tier players. and I don’t think you’ll see the large players in the market going out and over ordering the extent where it kills the future market.

Okay. And I wanted to get your thoughts on the idea that, and we’re all use to sort of mid-cycle or normalized historical rates distributed from vessel classes, but with the fall in new build prices so far, do you think that holds that number down over the next few years?

I don't think so. I don't think it has to what the new build price does to spot rates. I don't think there's a direct correlation there. I think it’s much more fundamentally about the demand for oil and the number ships are out there not how they were priced.

Okay. And then just a follow-up on Jonathan’s question about scrapping. On slide six you guys talk about fleet getting older by 2020, and that interesting the abstract but specifically you guys have about a 30 of your ships turning 15 years older by that timeframe. How you think about your CapEx requirements and how you think about your scrapping needs, and maybe how is that different than other owners out there?

Well, I think every owner is independent and we’ll look at their fleets in respect to what their company objectives are for Teekay Tankers, ships get older every year and so we continually have to look at what we do with the older asset, where we can redeploy them and when we go into the market to replenish. So I think as I’ve said earlier we have some old Aframax units that in some parts the world we think we can begin squeeze out some good revenue, but I think also the benefits that we have is the ability to contract our own fleet, but not remove our presence from the market and not lose that connection with our customers and not lose the contracts that we’ve built over the years because we have pools. We have the ability to in charter. We have our technical and commercial management which allows us to – in some have a lot of levers that we pull at different points in the cycles to make sure that we manage this portfolio as it ages.

All right. Thanks.

We’ll go next to John Humphreys of Bank of America.

Good morning, gentlemen. I just want to touch on the strategy around fix coverage, you mentioned you’re about 40% and were at 15% last year. If you could sort of talk to where you see that going over 2017-2018 with your expectations for strengthening market if we should sort of see that East back down and its going to be somehow linear fashion or its going to be a little bit one year?

Yes. I think we’ve been really focused over the course of the end of 2016 and ensuring that we update our projections at where we think 2017 is going to go. And that’s why you saw us start to take a lot more cover at the – in the third, fourth and fourth quarter of last year. I think we're – we’re sweet spot, 40% is a comfortable number to be at, certainly a lot more comfortable than we were 12 months ago. I think going forward it’s a function of really where the time charter market and where the time charter rates live versus our forward view of the market. And I think you might see us slowing down a little bit in terms of seeking additional cover. We’re also bearing in mind that the expectation that U.S. Gulf volumes pick up and our lightering business is a lucrative addition to the portfolio that we can move more assets into the program. So it's weighing up where we see the benefit of the time charter cover versus helping grow our franchise in the US Gulf versus where we see the spot market further out into the 2018. So I think we’ll sort of to assemble that up it will be very opportunistic from here on out.

And so opportunities you’re going to expecting it to not to creep from here that you’d expected to just sort of be a peak and drift downward?

Well, I never said never I think, if somebody offers us a good rate that we think is worth looking in that fixed rate income well above market levels then certainly we might add a few but those opportunities don’t arise or we feel the numbers being offered aren’t worth the comparative spot market exposure then you would us tail off.

Great. And then just one more, you’ve touch on it with vessels moving from the clean and to the dirty trade that you had down yourself. If you give me just sort of relative terms in how much this is being done to a scale where it’s really moving rates and that supply increase could negatively impact the rates you’re able to achieve or is that on a much smaller scale where it’s not really moving market rates?

Well, for Teekay Tankers we’ve got 7 LR2 vessels in our program, two which are on time charter cover. So the five that were in the spot market, they were the ones that we’ve moved over. So in terms of market impact I don’t think us alone would have a significant impact on either crude or product rates where such a small number of ships moving over.

Right. But I mean, looking at peers and others doing this, I mean is this sort of trend that we need to be watching that that this could move if more people in the global fleet do what TK did?

I think in 2016, we probably did see somewhere between 20 and 30 ships moved over from the clean trades to the dirty trade on a global basis. And yet the Afframax, the cude Afframax still outperform LR2, and so think it's been – the move is been justified. Going forward, I’m not sure there are many more owners that will see up, just given that there are lot of owners that are dedicated to those clear trades and want to keep a ship clean. And so, I’m not show the impact. I’m not sure if you see a large number of ships continue to dirty up through the course of 2017 I don’t see its being a huge factor going forward.

Great. Appreciate the data, that’s it. Thank you.

Thanks, John.

We’ll go next to Magnus Fyhr of Seaport Global.

Thank you. Just question on the lightering business is, with the U.S. export picking up, can you provide any, kind you quantify the results for the fourth quarter how much distributed through the lightering business?

Hi, Magnus. Yes, we’re able to if you compare it to the fourth quarter of last year we essentially doubled our full-service lightering volumes, so there's roughly over four ship equivalents equal to both 390 ship days in full service lightering, and that might increase a little a bit more during the course of 2017 as we ramp up some of the recent contracts that we secured. So, from a sort of EBITDA perspective for full service full-service lightering for the fourth quarter was about 2.5 million. In the support services side, I think our overall target for the year for EBITDA is probably in the area about 4 million to 5 million. We had probably a weaker than expected results in the fourth quarter due to some shorter-term factors and we hope that that will start picking up probably sometime in the second quarter.

Okay. So, I mean, the guidance that you gave, I think 65 million, 70 million on an annual basis, I guess, revenues, is that, are you on track to do that or with the lightering support a little bit off or its kind of 50 million, 60 million per quarter, are you track on that now or is that something you reach first quarter, second quarter?

I think if you look at on EBITDA basis, if you look at for the sort of on a full year basis, we still on track to generate over 10 million of EBITDA which is sort of more less in line with what we had expected. I think on the balance the full-service lightering is probably performing better than we expected whereas support lightering services is still ramping up. So hopefully that will – the support lightering side will catch up. But as Kevin said I think we’re very pleased overall with the acquisition. It was well-timed and it’s contributing to know more fixed rate revenue for TNK at a time when the spot market is weaker.

Right. But just let me clarify, your EBITDA for fourth was around 7 million, 2.5 from the full service lightering and 4.5 from the support, it looks 7 million, you said the full year as 10 million or is that per quarter?

Sorry, just to clarify the full-service lightering was about 2.5 for the fourth quarter and the support services I mentioned for full year is about 4 million to 5 million, so roughly call it a 1 million for full year basis. Yes, and total was 3.5.

And then for 2017 you’re looking 10 million for the combined?

I think for 2017 we’re targeting something probably in the region of 10 million to 15 million on combined basis.

Okay. Thank you. Also you’re talking about moving or you move ship in to the dirty trade, I mean if the LR2 market picks up what’s the costs and timing to get one ship back into the clean trade?

All that depends on where you find your vessel trading in the region, if you are in an area where you can get access to some good condensate cargoes that could be a relatively short transition over and fairly reasonable on the cost side. If you have to position the vessel out of a region it can take you several months. So its hard and fast rule.

Okay. Fair enough. All right. Thank you. That’s it from me.

Thanks.

With no further questions at this time Mr. Mackay, I’d like to turn the conference back to you for additional or closing remarks, sir?

Okay. Thanks very much for joining us today and talk to next quarter. Good bye.

This concludes today’s call. Thank you for your participation. You may now disconnect.