Good day and welcome to Teekay Tankers Limited Second Quarter 2019 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. Kevin Mackay, Teekay Tankers Ltd’s Chief Executive Officer. Please go ahead, sir.

Before Kevin begins, I’d like to direct all participants to our website, www.teekaytankers.com, where you’ll find a copy of our second quarter 2019 earnings presentation. Kevin 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 second quarter 2019 earnings release and earnings presentation available on our website. I will now turn the call over to Kevin to begin.

Thank you, Lee. Hello, everyone, and thank you very much for joining us today for Teekay Tankers second quarter 2019 earnings conference call. With me here in Vancouver, I have Stewart Andrade, Teekay Tankers’ Chief Financial Officer and Christian Waldegrave, Director of Research at Teekay Tankers. Beginning with our recent highlights on Slide 3 of the presentation, Teekay Tankers generated total adjusted EBITDA of $36 million during the second quarter up from $17 million in the second quarter of 2018. We reported the adjusted net loss of $12 million or $0.05 per share in the second quarter up from an adjusted net loss of $29 million or $0.11 per share in the second quarter of 2018. Our improved quarterly results year-on-year points to the improved underlying fundamentals in the market this year. However, they were impacted by seasonal factors as well as some near term headwinds which I will touch on in more detail in the next slide. Continued strong growth of US crude exports has helped bolster our full service lightering’s business and drove our average Aframax crude tankers spot rates to over $20,000 per day during the quarter. While spot tanker rates during the second quarter were significantly higher compared to the same period of the prior year. Rates in third quarter thus far have been affected by seasonal summer weakness. However supply and demand fundamentals are cycling towards a firming tanker market in the latter part of 2019 and into 2020. I’ll cover our market outlook in more detail later in the presentation. Turning to Slide 4, we look at recent developments in the spot tanker market. As shown by the chart on the left. Last quarter saw our strongest Q2 earnings since 2016 with average Aframax’s rates being particularly strong and reasons for which I’ll highlight…

[Operator Instructions] we’ll take our first question from John Chappell of Evercore.

I want to start with Slide 5 on the lightering I think, it’s really interesting the $4,000 number that you noted and you showed here on the slide, couple of questions on this. So with the pipeline capacity building out I’m trying to understand the competitive landscape and the opportunity for Teekay as far as lightering is concerned. Is there enough capacity in your fleet or in the broader lightering fleet to meet the new pipeline capacity? And then also part two, is there any consolidation opportunities within that segment? It’s a little bit more under the radar than we’re used to in international shipping.

I think if you look at the volumes we’re seeing in the lightering space. It’s a combination of both import and export volumes that we see. Over the last year, obviously due to the OPEC customer seeing the import volumes reduced slightly in our - our balance between the two has driven more towards higher percentage being export. With the pipeline capacity coming on obviously that portion of the business on the reverse lightering is expected to grow. What we’re looking at is, as we balance our overall Aframax portfolio, at the moment we’re probably weighted 50-50 between Eastern markets and Western markets. But as we see more volume coming out of the US Gulf and the Premium that we get out of the lightering’s business. You’ll probably see a start to position more ships towards the Atlantic and specifically the US Gulf to try and support that market. We also have the added lever to pull that you have seen us do this year as well as in previous year where we can supplement our fleet by in chartering third party vessels and we can do that, either by putting them directly into lightering trade or by exchanging the ships that we pull out of another market so we maintain a presence in those other markets while bolstering our Teekay presence in the US Gulf.

With that ability, you don’t think there’s any bottleneck’s potentially from the lightering side to kind of maximize the exports from the US, [indiscernible] those pipelines come out.

Well I think the, like any pipeline project they will come out of different times and some may get delayed bit certainly open up the bottlenecks that have been existing recently. I think production wise earlier in the year we saw a buildup of inventory around the cushing area a lot of that was due to pipeline capacity not being there, I think as that plays out we should start to see a lot more of the oil move. I think in terms of shipping bottlenecks obviously as more exports come out as more ships transits in and out of port. The infrastructure in the US Gulf river system is fairly congested and that may lead to further logistical delays which leads into tanker supply, which is good for us.

Okay and I’m sorry, I cut you off. You might have been answering the potential consolidation opportunities in the lightering business.

Yes, sure answerably. It’s not a big market. It’s a very niche market with only a couple of players in it and while we have good corporation around maximizing the utilization of our fleets at this point, I don’t see that being taken any further.

Okay. Final one maybe pull Christian in, if I may. Reading the press release there were two kind of supply demand things set out to me. One was the big ramp in the IEA which we’ve kind of been talking about that as well and how do you think about the refinery runs increased sequentially second half, first half amid kind of what you guys talked about a minus sign with falling demand and then I’ll add my second one now and then I’ll turn it over to you. The order book being at 97 levels is obviously incredibly appealing. However you also mentioned the first half delivery scheduled being the greatest I think since 2011 for six month period. So how do you think about the timing of absorbing that into kind of the demand environment that we’re looking at?

Hi John. Taking your first one on the refinery run. I think what we saw in the first half of the year and especially Q2; I think it spills over a little bit in steady part of Q3 with some very heavy refinery maintenance. But we also saw some pretty low refining margins during Q2 especially in Asia around April and May time and I think that did lead to very low refinery throughput which is set through the lower tanker rate that we’re now seeing in the early part of Q3. But I think there are some encouraging signs actually the second half of the year refining margins in Asia have recovered just the end of July we’ve accumulated a two-year high, so we certainly expect refinery runs in Asia to start ramping up and that period of maintenance is coming to an end as well, so we feel fairly confident that refinery throughput is going to be significantly higher in the second half of the year versus the first half of the year and that should provide actual tanker demand. So I decided we -- in the prepared remarks we do feel that the fundamentals of the demand side will improve and we haven’t seen that kind of IMO [ph] 2020 [indiscernible] which we think will still come in the second half of the year because refineries will have start going at fairly high utilization levels in order to produce sufficient low sulfur diesel. With regards to your second point on the order book. Yes, I think what we’ve had is kind of year or two halves, like the first half of the year was definitely very high fee growth with all of the order book delivering in the first half of the year. [Indiscernible] very little tanker scrapping as well and I think that’s also contributing to some of the lower rates that we’re seeing right now. It takes time to absorb that capacity once it comes into the fleet. But the good news looking forward is that for the next two years, the shipyards are booked up for the next two years and the tanker order book is very low as you pointed out. We would also expect the bit more scrapping to emerge. I think it’s unrealistic that end of this there’s going to be no ships scraps at all. Some ships as they go through four special the owners will decide probably to take those ships out. And as a result, we’ve thought fleet growth over the next couple of years is going to be 2% per year for the next years so that again should facilitate tanker market recovery.

Okay, great. Thanks for your thoughts Christian. Thanks Kevin.

Thank you. We’ll take our next question from Randy Giveans of Jefferies.

Two quick questions from me, you mentioned that debt repayment obviously will support the share price so, how do you kind of prioritize this in terms of use of free cash going forward relative to vessel acquisition, through share repurchases no dividends or kind of maybe 2020 story. But in the interim debt pay down like 100% use of free cash going forward.

Hi Randy. For 2019 debt repayments will be our focus and I think as we repaid some of that incremental debt that we took on and some of our liquidity initiatives over the last two years moving into 2020 we have more flexibility with our capital allocation and I think then we’ll look for, we’ll look at different opportunities to allocate that depending on where our shares are trading and what we see is our dividend capacity at that time. So I think into 2020, we’ll start to look at different options aside from debt repayments.

Okay and then kind of looking at your fleet. You have maybe 10 to 12 vessels or so over 15 years of age. Are you thinking of possibly selling some of those to further accelerate that strategy of de-levering the balance sheet?

I think I answered this on the previous quarter. We don’t want to be selling tankers at the bottom of the market but certainly as the market picks up and asset value start to increase. We will be looking at our fleet composition and looking to take advantage of the higher asset prices by selling off some of those disposed units that don’t fit the portfolio. so yes, it’s part of the strategy.

All right and then one specific question for your IMO strategy. I would say no scrubbers on order. Do you plan on burning MGO next year? Will you switch to some of the DSO [indiscernible] despite some possible compatibility concerns and then with that, when do you plan on cleaning out your tanks to switch from your kind of current HSFO to that MGO [indiscernible] SFO?

That’s a good question. We over the last, really two years have - really been gearing up to face this IMO implementation on January 1. I think in terms of what kind of deals we burn, we purchased fuel in 70 different locations around the world last year. So we’ve really had to approach this with flexibility in mind so what we’re looking to do is stem both the low sulfur fuel oils that are out there as well as MGO depending on availability in various locations. We’ve made tank modifications to accommodate that and also in our bunker supply contracting. We’re looking to make sure that we have access to both grades. In terms of the compatibility on the low sulfur fuels that’s where the tank modifications have come in and we’re fairly comfortable now in terms of our readiness to adopt those new fuel types without effects in the operation of ships. Sorry and what was your - the second half part of your question?

It’s kind of the timing of cleaning out your tanks to switch from HSFO to the LSFO with the new fuel?

Yes, will depend on the class of ship obviously where Suezmax is running on much longer voyages we’re going to have to start to put on the lower sulfur grades earlier. Then maybe the Aframax’s that we can push closer towards the back end of the year. But you’re probably looking at stemming the bunkers in the late Q3, early Q4 period. As a start for those ships they’re doing long West Africa and US Gulf to China runs.

Great. All right. Thanks for the color.

Thank you. We’ll take our next question from Ken Hoexter of Bank of America.

Just wanted to follow-up I guess real quick one on the time charters limit are expiring. Should we just presume, you really think those vessels and shrinking the fleet as we move through the rest of this year as well?

We tend to look at our time charter in portfolio opportunities [indiscernible] so if the owners of those ships are willing to extend at reasonable levels where we think we can make a margin we’ll certainly entertain and not necessarily just default to a release of the vessels because of the expiry. We’re always looking for opportunities and if we’ve got a good relationship with a good operating vessel. We obviously start having talks with the owners prior to the end of the charters. But if we can come to terms that we think are economically advantageous Suez [ph], then yes certainly you’ll see those ships roll off.

Okay, helpful and then maybe just your thoughts on the timing for the scrubbing benefit to pricing obviously you know that, vessels are going to start getting laid up for the installation on the market. I know you’ve got no plans as you’ve said but when do you start to see that is, is that kind of more third quarter, fourth quarter timing or do you not think it really hits until the demand for new fuel and into the beginning of 2020?

Well we certainly haven’t seen a lot of vessels being taken out so far this year which I think speaks to some of our enthusiasm for where the market will start to pick up later in the year because most owners that we’ve spoke to have indicated it, they will have the scrubbers onboard and ready for January 1. So there’s an awful lot of ships that need to go into dry dock across the VLCC Suezmax, Aframax fleets. So you could see a significant impact in the 2% range of fleet supply that gets taken out between now and Christmas in order for those scrubbers to get fitted which certainly help the supply demand balance that we’re looking at.

Is there enough yard capacity from your view to get that done?

I think the yard capacity is certainly tightening. We as you can see on our supporting documentation, we’ve had a fairly busy dry docking this year. And although the early part of the year securing dry dock capacity has been relatively easy. I think it’s going to get more challenging as we get into the later part of the year. So we’ve sort of front run that and made sure that our, through our relationships and our contracts with the yards that we are confident our ships are going to get in.

Helpful and then just last one for Kevin or Christian. But where does your outlook go wrong. I guess when you think about the excess supply that’s still out there. I think John was talking about this earlier but given the lack of retirements. What do you view as shifting? What could shift that I guess positive rate inflection that you anticipate?

I don’t think you can really speak to one thing that’s going to drive it one way or the other. I think historically in the tanker market it’s always been a combination of events or of headwinds or tailwinds that have either boosted or dragged on the market. As Christian pointed out in his previous answer, I think we’ve got we’re finding margins that are improving. You’ve got IMO demand that needs to kick in. there’s a lot of positive factors that are going to contribute, but certainly if owners decide not to scrap and try and trade a vessel into its 21st, 22nd year then that could adjust the balance and I think that’s why you’ve seen us in our presentation look at both the positives and the negatives and we look at our utilization figure and adjust them slightly downwards. But I think we still are confident that the way the majority of drivers in the industry are moving. The utilization rate should pick up as we move through this year and into next year and that should be positive for rates.

Great. Appreciate the time. Thanks again.

Thank you at this time we have no further questions. I’ll turn it back to Kevin Mackay for closing remarks.

Thank you for joining us today and we look forward to seeing you in October at our Investor Day.