Good day, ladies and gentlemen. Welcome to the Teekay Tankers Ltd's First Quarter 2022 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] Thank you. As a reminder, this call is being recorded. Now for opening remarks and introductions, I would like to turn the call over to the company. Please go ahead.

Before we begin, I would like to direct all participants to our website at www.teekaytankers.com where you will find a copy of the first quarter 2022 earnings presentation. Kevin and Stewart 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 2022 earnings release and earnings presentation available on our website. I will now turn the call over to Kevin Mackay, Teekay Tankers' President and CEO to begin.

Thank you, Christian. Hello, everyone, and thank you very much for joining us today for Teekay Tankers first quarter 2022 earnings conference call. Joining me on the call today are Stewart Andrade, Teekay Tankers' CFO and Christian Waldegrave, our Director of Research. Moving to our recent highlights on Slide 3 of the presentation. Teekay Tankers generated total adjusted EBITDA of approximately $17.5 million in the first quarter of 2022, an increase from $9.7 million in the fourth quarter of 2021. We reported an adjusted net loss of $14 million or $0.41 per share during the first quarter, an improvement from an adjusted net loss of $25 million or $0.74 per share in the prior quarter. Our results improved quarter-over-quarter were primarily due to higher spot tanker rates. We have maintained a focus on financial strength, supported by our recent attractive refinancings and vessel sales that have taken advantage of its firm asset market as Stewart will discuss later in the presentation. In the freight market, after a slow start to the year we saw a notable spike in spot tanker rates late in the first quarter driven primarily by the impact of the Russia-Ukraine conflict. The increase was most pronounced in the midsize tanker segment in which we operate, given disruptions to oil trading patterns, which increased ton-mile demand. Rates continue to rally into the second quarter with nearly all of our vessels trading in the spot market, we are well positioned to generate strong cash flow in a strengthening market. Finally, as part of ongoing fleet management, in 2022 we have completed the sale of three vessels built in 2004 and 2005 for approximately $44 million. This includes one 2005 built Aframax sold for approximately $15 million and two vessel sales that were previously announced. Turning to Slide 4.…

Thanks, Kevin. Turning to slide eight, we highlight the company's healthy financial foundation. In March and April, we completed our previously announced low cost sale leaseback refinancings of 13 vessels. And during the year we have also completed the sale of three 2004 through 2005 built vessels, taking advantage of firm asset prices. Including the increase in liquidity from these transactions, our pro forma liquidity as of March 31 was $231 million. Importantly, the sale leaseback refinancings also include purchase options that we can exercise throughout the lease terms. In some cases, starting an inception and in other cases after two years. As mentioned when we originally announced these transactions, we secured attractive terms on these new sale leasebacks compared to those of the expensive sale-leasebacks we were able to unwind last year. This reflects Teekay Tankers stronger financial position, as well as the strength of the tanker market as indicated by higher asset values. In addition to increasing our liquidity, this financing activity also extended our debt repayment profile appreciably, such that we now have no significant debt maturities through 2026, while net debt to cap was 42% as of March 31. With 46 vessels or about 90% of the fleet trading in the spot market, Teekay Tankers has high operating leverage and we are exceptionally well positioned to take advantage of strengthening rates to generate significant cash flow, while in turn -- which will in turn enable us to further reduce our debt, creating value for shareholders. With that, I will turn the call over to Kevin to conclude.

Thanks, Steward. Driven most notably by the war in Ukraine and the expanding number of sanctions and supply chain shifts resulting from it, midsized tankers have recently seen a return of significant rate volatility which has driven a strong quarter-to-date spot performance. It’s difficult to predict just how long these factors will remain so prominent in the market. But increased freight volatility is likely to continue at least until the geopolitical tensions recede and supply chain settle into a new normal. Operating almost completely in the spot market puts us in a good position to generate significant cash flows when rates are strong, and we will continue to position our fleet to best maximize these opportunities as they arise. Looking forward, with a very low order book in the coming years and minimal shipyard capacity available to change that fact before 2025, we feel quite positive about the outlook for our market and Teekay Tankers prospects in it. With that, operator, we are now available to take questions.

Thank you. [Operator Instructions] We'll take our first question from Jon Chappell with Evercore ISI. Please go ahead.

Thank you. Good afternoon or good morning or good afternoon, I guess depending on where you are Kevin. Stewart, starting with you, hopefully a pretty easy one, you've done a lot of the heavy lifting on the balance sheet over the last 2.5 years, mostly through difficult periods. Based on your 2Q to-date bookings and most people's views of the market going forward, you are on the verge of generating significant operating cash flow. You mentioned some of the flexibility around the leases. Would finance lease pay down still be the number one priority for uses of cash or do you start to pivot to something else, whether that's growth or capital returns.

Hi, Jon. Good question. It's been a tough tanker market for the last four to six quarters and definitely our focus in the near-term is going to be on paying down debt and strengthening the bank balance sheet further. We think ultimately that puts us in a position where we can take advantage of opportunities which will allow us to over the long-term have the best returns for our shareholders. So I would expect definitely in the short term that we will be focused on continuing to pay down debt and strengthen the balance sheet.

And still a focus on leases as opposed to bank debt?

Going forward, I don't think that we will be -- given the current market conditions and where we are with our liquidity levels, I don't expect that we will be taking on or doing any more leases at the moment, we'll continue to monitor the market. In terms of refinancing is going forward, I think we'll take a look at the relative balance between those two in terms of the terms of -- the terms we can achieve and our requirements for capital. So I think those are probably both avenues for financing that we will explore when we need to refinance things in the future, but at the moment, we don't have any plans for doing anything further.

Okay that makes sense. Second question, a bit of a two-parter, maybe pull in Christian and Kevin, obviously the Afras have done incredibly well, Suez has done well relative to VLCCs, but the product tanker market has been just consistently outperforming the crude market and these diesel shortages that are going from problems to potentially really dangerous, don't seem to have a near-term remedy. Christian, can you maybe talk about the impact that the diesel dislocations having on the broader markets and most directly to you in terms of your LR2s and Afras. And then Kevin, any aspirations or plans to take some of your LR2s and clean them up, because maybe there is a longer tail to some of these diesel issues?

Yeah. Hi, Jon. Yes, as you said, I think the situation in the product market is obviously very tight right now, especially on the diesel side. Inventories are extremely low. You'll have seen the margins are at record highs and that’s kind of a result of a couple of factors. I guess one is that, demand has recovered quite a bit since the start of the pandemic, especially for diesel. And as I said, inventories have been drawn down quite low. There is a bit of a regional mismatch in that as well in the Western Hemisphere, the refineries are operating at very high throughput and that's been probably exacerbated a little bit by the fact that in the last couple of years we've seen some refinery closures in the Atlantic, predominantly in Europe. So now the demand has come back, those refineries that are having to work really hard to meet demand. There's a little bit more spec capacity in the east, so probably going forward we would look towards Asia and India and the Middle East to supply the volumes in the Atlantic market, and I think that's what's really driven the ton miles in terms of the products having to move much longer haul, particularly on the diesel side into the Atlantic. And then we're obviously getting towards summer now, so it's going to be the travel season. And I think with - coming out the pandemic's there's lots of parts of the world where the restrictions have been lifted. So now you're starting to see the gasoline margins increase as well and jet fuel as well. So I think the whole product side is going to be very tight going forward. Refinery throughput is going to have to increase, where I tend to meet that demand. And that's going to continue to drive the demand for the product tankers and in particular the LR2s. So it does look like there is going to be some legs on the product side there. I would love to hand it over to Kevin, maybe to talk about our plans on the LR2s and what we're doing with the fleet there.

It's a really good question, Jon, and something that the chartering team and I have been looking at in the last week or two. At the moment we have two ships that are fully dedicated to clean. And at the moment the bulk of the other LR2s are trading dirty happens to be in the Atlantic, which really is in a prime position to convert. It's much easier to pick up condensate crudes in Asia to facilitate that changeover from crude to clean without having to incur some additional costs for chemical washing and things like that. So the one thing we don't want to do is chase markets. So we've got a balance positioning ships into the Far East to get cleaned up. And if other LR2s owners are thinking the same way, we could be missing out on opportunities on the crude side in the Atlantic. So it's something we are looking at, if we can get the right combination of cargoes to do it swiftly, I think you'll probably see us clean up another few ships. But it has to be that balance between which market do you think is going to sustain and how long does it take you to get into that market fully. So it's something that we're actively working on daily now.

Okay. Very thoughtful. Thanks, Kevin, Stewart and Christian.

Thanks, Jon.

We'll take our next question from Magnus Fyhr with HC Wainwright. Please go ahead.

Yes. Hi, you just answered my questions on the clean versus dirty, but with both -- with exposure both to Suezmaxes and Aframaxs do you -- do you have a preference in either segment there or I mean, where are you most bullish now as far as the crude side?

If you look at the way the markets have performed over the last few weeks, obviously, the Aframax spiked very well and has held its ground in the Far East as well as in parts of Europe, less so in the US Gulf and Transatlantic. Suezmax have been less resilient, if you will, and despite that we saw has come off across most of the regions that the Suezmaxes are in that currently. So our preference today based on return is obviously Aframaxs, but I think we're seeing so much dislocation and disruption to trade patterns but it is really hard to call how this -- these spikes and this volatility is going to play out between the two segments over the coming weeks. So I think it's too early to dive in and say Aframaxs are going to outperform because as we know when Suezmaxes do take off they tend to go -- tend to spike higher. So I think we've got good coverage in both segments. And at this point, we are just making sure that we position both of our fleets Aframax, Suezmax and if we convert LT2s to try and maximize our revenue generation from whatever spikes the market offers us.

Okay. And do you see any changes from your clients traders about securing ships for the second half of the year? How are they looking at the market currently?

Yeah. The short-term sort of three, six, twelve month time charter market has definitely picked up in terms of customer interest levels, certainly on the clean side, LR2s are somewhat of a hot commodity at the moment. But again, it's more of that shorter term period they're talking about at the moment, we haven't seen anybody stretch out yet in terms of mid-term two, three year type deals. But certainly inquiry across all the segments has picked up in the last couple of weeks.

Okay. And given that the short-term charter really don't give you any protection or not much protection, would you have to wait to see those kinds of two, three year charters developing before you look into securing some ships?

I think our views on market, Magnus, we believe that volatility is here for a while, caused by the disruptions with Russia's invasion. I think longer term we're positive on the market, given where fleet supply is. So I don't think you'll see us rush to lock in mid-term, longer-term charters. I think we're positioning the fleet to be more fully exposed to the spot market. And I think we want to try and enjoy some of the volatility and maximize our earnings to that route before we start thinking about locking in at this point.

Good. That’s what I want to hear. Thanks.

Thanks.

We'll take our next question from Ken Hoexter with Bank of America. Please go ahead.

Great. Good morning, Kevin, Steward and Christian. So just -- I guess, just looking at earnings all the way down the bottom line, right, six negative quarters of earnings, but you posted positive EBITDA. What's your breakeven now? And maybe just an update on the cost side of the equation, obviously, you gave us your thoughts on what's going on the -- on market rates, but maybe just your thoughts on cost.

So I’ll take the first part of the question.

Steward, you want to grad that?

So, Ken, taking the first part of your question first. Our free cash flow breakeven, including dry docking is about $15,000 per day. So as long as we're about $15,000 a day on average through the fleet then we are in a position where we were able to pay down -- to pay down debt. I'm sorry, could you repeat the second part of your question, please?

Yeah, just -- well, the breakeven was the first one and the second one was just maybe your thoughts on cost, right. So whether it's vessel OpEx or you thoughts on the cost side, just so we can think about if there is any anything extra you can do as rates start to scale here?

Yeah, I think the cost that you've seen flowing through the income statement in the last couple of quarters and through Q1 are going to be relatively similar going forward. So on OpEx, I would say that our run rate will be about $39 million a quarter, G&A in the $10.5 million to $11 million per quarter, so -- and interest in that sort of low $7 million range. So we're not expecting anything materially different over there through the remainder of the year on that front.

Helpful. And Kevin, just to clarify, you said earlier you still want to stay spot, you're not at rates yet where you want to start rolling in and locking in charters, right. I just want make sure I caught your thought process there.

That's correct. Yeah.

Okay. And then do you think -- you've done some sales in the past, your thoughts on any additional sales with -- at spot rates, is there a certain level, is there may be recognition of value that the market is not recognizing with where valuation is today that you'd say, okay, well, I can do that if it makes more sense for the equity holders to show them where the market values are?

I think we look at sale and purchase deals on a standalone basis and each deal is determined in terms of what's the best value we can generate for shareholders. Obviously, asset prices are high, and you've seen us take advantage of that selling some of the older ships that we had that were due for dry docking and we've been eliminated that expansion and monetize those assets. So what we've got left in the fleet. I think at the moment given the volatility that we anticipate over the next few months, we certainly want to try and keep ourselves exposed to that. So we're not actively looking to sell any additional ships at this point. But we always keep an eye on where asset values are going relative to where we think the forward spot curve is going to be and we make those decisions as and when we see value to be generated.

Yeah. And the -- you talked earlier about -- this is my last one, just on the Russia-Ukraine shifting impacts of length of hauls. Is there -- given your history, is there a -- I guess, is this just -- once this comes to a conclusion, how quickly things normalized based on your history or obviously it depends on what the world looks like. What's your thought on historical look at length of impact to rates?

I don't think anybody can predict how long this is going to take or what the other side of this is going to look like. I’ll leave that to greater minds than mine. We just have to keep looking at how things are changing day by day and adapting our trading fleet to maximize our revenue stream as and when opportunities arise.

Appreciate the thoughts. Thanks, Kevin. Thanks, Steward.

Thanks, Ken.

We'll take our next question from Chris Robertson with Jefferies. Please go ahead.

Hi. Good morning and thanks for taking my questions.

Hi, Chris. Q - Ken Hoexter

Just to follow up on Ken's questions related to OpEx and expenses. Can you talk about what if any cost pressures you are seeing this year, especially as it relates to rising oil prices and crew transfers?

Yes. I'd -- certainly there are inflationary pressures, which are are I guess coming to bear for everybody in all industries and all companies. Currently we haven't seen those really flow through into our OpEx expenses in any material way. We'll have to continue to monitor that and see how things change, as you've mentioned transportation, which certainly could end up increasing cost to some extent, it’s depending on how inflation goes. And then over the long term, obviously, we have crew wages, which are our most -- the most significant portion of our OpEx expenses and that's a bit of a longer-term picture, but we'll have to see if inflationary pressures have any impact there. But overall, I guess in comparison to how we see the market developing over the next few years, given the outstanding supply side picture for tankers, we're quite comfortable on that front, we're not too concerned about it, but certainly there could be some impact, but we haven't seen that start to flow through yet. You also mentioned oil prices, obviously bunker prices are high, and that's flowing through not our OpEx, but our voyage economics and that is part of the picture of where our spot rates are, obviously, we're having -- experiencing periods of volatility that one where we've enjoyed some much stronger rates in Q2 in our fixed-to-date figures and notwithstanding the high oil prices. So hopefully the continued volatility allows us to have good returns on that front.

Okay. Yeah, fair enough. And then the higher oil prices aren't flowing through into higher lubricant costs and things like that?

At some point, they will. A lot of our -- we have a lube, oil contracts and things in place. So over time, inflationary pressures will start to come in, but if you look at lube oils. I don't have the exact percentage in front of me, but if you look at lube oils as a percentage of our overall OpEx and the impact an inflation may have on that, it wouldn't be anything material to our results certainly.

Okay, great. My second question is totally unrelated. But on the 13 vessels scheduled for dry docking this year, can you kind of walk us through the CapEx expense side of that?

Sure. Yeah. So in Q2, we're expecting about $10 million related to both dry-dock -- the numbers I'll give you are both dry-dock and BWTS, ballast water treatment system installations. So in Q2, expecting about $10 million, in Q3 -- sorry, that was four vessels for $10 million, in Q3 six vessels and expecting about $12.5 million and then in Q4 one vessel and about $3 million. I should note that depending on the exact timing of dry-docks sometimes those dates shift around a little bit, but that's approximately what we're expecting to see overall, so about $25 million for the remaining three quarters of the year.

All right. Yeah. I appreciate that color. Thank you for the time.

You're welcome.

At this time we have no further questions in the queue. I would like to turn the conference back over to the company for any additional or closing remarks.

Thank you for joining us all today and we look forward to speaking you in three months time at our next quarterly earnings call. Thanks for calling in.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation, you may now disconnect.