Welcome to the Teekay Tankers Limited Fourth Quarter 2023 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 the company. Please go ahead.

Before we begin, I would like to direct all participants to our website at www.teekay.com, where you'll find a copy of the fourth quarter and annual 2023 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 fourth quarter and annual 2023 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, Ed. Hello, everyone, and thank you very much for joining us today for Teekay Tankers' fourth quarter and annual 2023 earnings conference call. Joining me on the call is Stewart Andrade, Teekay Tankers' CFO. Moving to our recent highlights on Slide 3 of the presentation, Teekay Tankers reported adjusted net income of $99.5 million or $2.91 per share an increased from last quarter's levels of $76.6 million or $2.24 per share respectively. The company's 2023 adjusted net income of $500.5 million or $14.65 per share was more than double our strong 2022 earnings and established a new record for Teekay Tankers highest ever annual net income. Amid historically strong spot rates, the significant value of our high operating leverage is clear. As a reminder, for every $5,000 increase in tanker rates above our free cash flow breakeven of $16,000 per day, we expect to generate approximately $2.50 of annual free cash flow per share. We will provide further information of this later in the presentation. In January, we gave notice to repurchase the remaining eight vessels on sale leaseback arrangements for $137 million. Once complete, this repurchase will bring the total number of vessels repurchased since March 2023 to 27 vessels for a total of $501 million reducing our total debt outstanding to zero and decreasing our cash breakeven rates. In line with our fixed quarterly dividend policy, we have declared a cash dividend of $0.25 per share for the fourth quarter of 2023. In the market, 2023 turned out to be the best year for midsize tanker spot rates in TNK's history due to a combination of strong oil demand growth, longer voyage distances and low fleet growth. Rates have remained firm at the start of 2024 with seasonal and geopolitical factors adding to an already tight…

Thanks, Kevin. Turning to slide 8, we outlined some of Teekay Tankers' key accomplishments in 2023. As noted earlier in the presentation, financially 2023 was a record-breaking year with the company generating just over $0.5 billion of adjusted net income and over $575 million of free cash flow. These strong results allowed us to transform our balance sheet, repurchasing 19 vessels from sale-leaseback arrangements and refinancing them with a new $350 million revolving credit facility, which provides us with greater financial flexibility. In addition, TNK ended the year with a net cash position of $226 million. As a reminder, after the repurchase of our final eight vessels in sale leaseback arrangements, we expect to be completely debt free by the end of the first quarter. 2023 was also a year of strong operational performance with 99.8% fleet availability and zero lost time injuries. A metric that we don't often touch on during these quarterly investor calls, but which is extremely important for the safety of our crews and the reliability of our operations. Commercially, we continue to manage our lucrative time charter portfolio by extending in charters at rates well below the current spot market, enabling us to profit significantly from the spread. With all of these accomplishments in 2023, the successful execution of our strategy has created significant value for our shareholders through a combination of returning capital via dividends and the appreciation of our share price. Since the beginning of 2023, we have generated total shareholder return of 109%, which further builds on the significant shareholder value Teekay Tankers created in 2022. Turning to Slide 9, we highlight the potential for TNK to continue creating significant shareholder value in 2024, a year that we expect to be another strong tanker market. With 98% of our 51 vessel fleet operating in a strong spot tanker market that is supported by robust tanker supply and demand fundamentals, and driven further by the various factors we have talked about today, we feel confident about our ability to continue creating shareholder value. As a demonstration, if we use the trailing 12-month average of TNK's realized spot rates and project that forward, our annualized free cash flow would be approximately $16.30 per share or free cash flow yield of approximately 28%. With this kind of operating leverage, strong prospects for midsize tankers moving forward and a growing cash position, we're making progress in building Teekay Tankers' strategic optionality for future fleet reinvestment. I will now turn the call back to Kevin to conclude.

Thanks Stewart. In summary, as we experienced in 2023, the fundamentals of our business continue to be highly supportive for what could be a protracted period of midsized tanker market strength. Most notably, a very positive tanker supply outlook grounded by a negligible multiyear newbuild delivery schedule. Oil demand continues to grow past the post-pandemic rebound. Beyond the fundamentals, a range of factors are introducing complexity and inefficiency into the market, tightening the supply and demand balance still further. Overall, we believe that our midsize tanker focus and spot market strategy places Teekay Tankers in an ideal position to continue capturing upside and realizing shareholder value moving forward. With that operator, we're now available to take questions.

[Operator Instructions]. We will take our first question from Jon Chappell with Evercore.

Thank you. Good morning, Stewart and Kevin. First question is simply what's next. You pointed out a great outlook for the industry. Your operating leverage is immense. You'll be debt free in a matter of weeks. What comes next that the deleveraging is done?

Yes. Jon, it's a good question. And I think it's really more of the same. I think we've been clear on over the last few quarters and explaining what our focus is. Our strategy is to continue to both build the strong cash position to reinvest in our fleet and to reinvest in our business and B, to reward shareholders through some of the capital allocation tools that we laid out in our capital allocation plan. So, I think just because we've crossed the, or we will cross the milestone of being debt-free, the strategy will remain the same.

It seems like since the special dividend, I think nine months ago now, there's been no real acceleration in the capital allocation. I don't think there's been much in the terms of buyback, despite trading at a pretty big discount to most estimates of NAV. Do you think that that's something that accelerates now in 2024 as you wait for the opportunity to reinvest in the fleet?

It's definitely something that as I said is in our tool bag. nine months ago, when we rolled out our capital allocation plan, it was based on a holistic view of our needs as well as what shareholders are looking for. And, I wouldn't read into the fact that we may not have used one or two of the tools so far. We put them in there for a specific reason, and the discussion that we have at management level and with the board is always a holistic one around where we're going, where can we add the best value, and what should we do with the money we're generating. So, I think I wouldn't read into the fact that we haven't used anything so far as something that indicates that we won't be using them in the future.

Just one more quick one. I mean, selling older assets makes a ton of sense, especially at these levels and you're continuing to do that. Should we maybe think about renewing the fleet through sale and then just creating this massive buffer for when the cycle inevitably turns and then being opportunistic at some point in the medium to distant future?

I think there's a lot of ways you can look at it. And we're not agnostic. Sorry, we are agnostic to where we can bring the most value to shareholders over time. So, in terms of what we're looking at, whether it's small acquisitions, large acquisitions, fleet dispositions, exiting individual ship assets as we did last quarter. Those are all in the discussion that we have both management and Board level.

We will take our next question from Omar Nokta with Jefferies.

Thank you. Hi, Kevin. Hi, Stewart. Thanks for taking my question. I do have a couple and definitely continuing the theme of John's question. Stewart, you mentioned in your opening comments about you're getting to the point now where you have optionality for future fleet reinvestment and you've been selling the older vessels, makes sense. You haven't been replacing them with modern ones. So just wanted to check kind of and how you're sort of thinking about the planned perhaps planned retooling of Teekay Tankers. Is it given the fact that asset values have started to really run away, are we sort of, are you thinking that maybe you close the book on reinvestment in this upcycle? And is the plan basically you build a war chest and be prepared for investments when the market eventually rolls over? That's one sort of one question I have and then maybe the second part of that is perhaps is tankers where you want to be long-term, or are you thinking of diverting down the line?

Thanks for the very good questions. So maybe taking the first one first. So, we've been selling some vessels, a couple of vessels, our 2004 built, which were about to turn 20 years old and were drydock due. So that's sort of just a normal part of moving those vessels on. In terms of looking at reinvestment, I guess, there's a couple of ways to look at it. Asset prices are quite high. We also have a view that the tanker market is going to be very robust over the next few years. So, part of the consideration is always what are you paying for those assets, how much cash flow can you generate from them over the next few years and you're potentially paying them down to a level that you'd be comfortable at. So just like time charters in and out are always looked at, we're also looking at S&P. So, I don't think that we've closed the book on the opportunity to buy vessels. So, it's not that we haven't closed the book and we said, well, we'll just come back when asset values come down. So, it's something that we're always evaluating. There's, with our growing financial strength, we look at all sorts of opportunities, including the potential to acquire fleets, M&A everything. So, we are, as Kevin likes to say, we are agnostic over the approach that we would take, and we look at all those things as opportunities to reinvest in the fleet. So, we are committed to reinvestment and we will, if we can do it sooner and there's opportunities that we think will create value for shareholders, then we'll go ahead and do that. If we have to be more patient and wait, then we'll do that. So, it's so our eyes are always open and we're looking for opportunities. In terms of the second part of your question about other segments, we're a tanker company. We've been in tankers since we were formed in 2007, and that is where our focus is. If we end up in a situation where we have a lot of capital to deploy and tankers and there isn't the window isn't open for tankers, but there's other opportunities in other segments, then of course, as a company, we would consider wherever we can create shareholder value. But we are a tanker company and that's what we've been focused on. And at the moment, there's no intention to pivot away from that.

I just was wondering if perhaps maybe the reason why we haven't seen the reinvestment is perhaps thinking a bit more strategically outside of tankers. And I guess at what point do you think as you highlighted at the end of the quarter you'll pay off the capital leases, the cash is going to start to really accrue fairly rapidly in the next few quarters assuming obviously the market remains afloat. And as you highlighted, do you think it can last couple two years or three years? Is there a point at which point you start to think while the cash is building too much, we need to now move this? Is that have you thought about that? And is there sort of like a cash balance trigger that really starts to make you think, okay, we have to put this capital to work?

I don't think that there's, I don't think there is any trigger. First of all, let's say that I don't think there is a number or a trigger. And when we put in the capital allocation our capital allocation approach, which was a sustainable quarterly dividend, which given our transformed balance sheet, we thought we would be able to continue to pay for the long-term and then the flexibility to pay special dividends when deemed appropriate. We did that for that exact reason. So, we could be flexible and we could make large returns of capital or small returns of capital depending on the position of the company and how we saw our prospects going forward. So, the situation that we're in now is we as you said, we're generating a lot of cash flow, which at the end of the day is equity value for shareholders. And as we've seen in the last year, quite a bit of that equity value has been has come through in terms of our share price. And we've got we had over 100% total shareholder return during 2023. During 2022, it was even larger than that. So, we feel like that equity value has been realized in terms of our share price. But then the question becomes, well, what do we do with that cash flow or that equity value and how do we best deploy that to create value for our shareholders? And that's the conversations that we have. Should we return a certain amount to shareholders via direct capital return? Or do we think we'll create more value by having that financial strength that we can reinvest at the right time to create even more value? So that's really the basis of the conversations that we have. And as you rightfully note, as if this market stays strong for the next two years, TNK will be in a much different position than we are today. And I would expect the conversations that we have around the capital allocation would be informed by that changing nature of our balance sheet. And again, we will use the same criteria, which is how do we create value for our shareholders, but the answers might be different as we move forward.

That is a great situation to be in, nonetheless. So yes, I appreciate those comments. And If I could just ask one quick one just on the market. Kevin, you were sort of highlighting the Trans Mountain pipeline and just want to get a sense from you, does this you mentioned the 30, 35 Aframax loadings. Is this a brand-new trade pattern that can start to evolve? Or is there already a market for Aframaxes in that region? And where do those cargos you think end up going?

Yes. It's a good question. At the moment, you have approximately one Aframax lifting a week. So, it really is a significant uplift in export capacity. There's various markets that that crude can move into. It can move down to the U.S. West Coast. It can move down to Panama to be put on VLCCs or co-loaded to send to a further over to Asia. It may even be put through the Panama Canal. At this point in time, we don't know. All we know is that the operator is indicating that the pipeline will open and have oil flow at some point in second quarter of this year. But in terms of the destinations of those cargoes, we'll have to wait and see how the trading or the oil trading environment picks up on that oil and where they can probably make the best bar engine. So, the only sure thing is that you can only load an Aframax out of Vancouver. You can't take a Suezmax or a VLCC in there. So, from a demand perspective, it's a really exciting area that we're really keen to keep an eye on. And it could bode well with our capacity that we have currently in the U.S. Gulf and with our Suezmax fleet also trading around that area, it could move a really good dynamic for the midsize tanker space overall.

We will take our next question from Ken Hoexter with Bank of America.

Good morning. Kevin and Stewart. It's amazing that this discussion so far in terms of finally getting rid of all that that debt and you're going to be debt free in a few weeks. It's just such an exciting turn. I want to talk about the market though. We haven't talked much about the market. It seemed like rates right now are about $60,000 a day or kind of trended, I guess, even in the back half of last quarter for both Afra, Suez and you're kind of averaging 50,000. I think the stock move this morning is kind of showing a little bit of that disappointment in where rates are in the first quarter to date and then even where you averaged in the fourth quarter. Maybe run through, was that maybe some more moves of clean versus dirty? I don't know [Audio Gap] for the market through the quarter, if that makes sense.

Yes, I can't speak to the TNK share price movement today or but in terms of the market, I think I would characterize it as being a slightly less robust fourth quarter than what we had the year prior, but still a historical level. TNK's performance in the fourth quarter was hampered slightly by some of our positioning at the end of Q3 with our Suezmax fleet, where we bunch up some ships and ended up having to take rates that were significantly lower at the back end of the third quarter than what we've seen since then. And that impacted our results for the fourth quarter. But as you can see from our first quarter to date numbers, averaging $50,000 across both segments, they're extremely healthy numbers. They're back up to close to 2022 early 2023 levels. And I think that is a function of the fact that the market is strong, demand is strong and ton-mile is being expanded by all of those issues that I highlighted in the presentation. So, I think our view is the market should stay strong. There's obviously going to be volatility. You mentioned $60,000 a day. The LR2s have been at that level, but they're slowly coming off. The Aframaxes in the U.S. Gulf have been $80,000 a day at points during the first quarter and have come off since then. Other areas, the Far East is still holding fairly strong. So, I think we're going to see while the fundamentals are strong, you're still going to see volatility. So, capturing that and making sure that our fleet deployment is in the right areas at the right time to capture that volatility is going to be important to maintain the kind of returns that we had last year. And I'm confident that looking at what we've been doing thus far in the first quarter, we should continue to perform well quarter-over-quarter. And I don't really focus on an individual quarter because as I said, a lot depends on where the fleet is ends up being positioned based on the voyages that we fix. But over a series of quarters, I'd expect us to be robust in terms of our performance.

Yes. I mean, it's a great run through, Kevin. And I'm not arguing the robust. It certainly is robust. I mean, that's obviously what's generating the cash flow. I'm just arguing or trying to understand why such a consistent difference or underperformance relative to kind of Clarkson averages, which would be kind of the average of all the lanes. And I think I got it now from the end of third quarter that impacted fourth quarter. But was there more of that as you entered the first quarter? Or are you seeing then the next level of bookings improve from where you were? Just trying to understand if there's going to be an acceleration or you mentioned a couple of pullbacks versus other regions that are really strong. So, is that just a more a factor of where your vessels are?

I think it's a factor of a broker's assessment of the market looks purely at a singular voyage. And when you're trading a fleet of 50 ships, some ships sit in demurrage, some ships are held up waiting to go through canals. A lot of operational factors come in that impacts your final returns. There's also the timing. It's not a straight average that you're getting that a broker calculates based on daily rates. It's fixing a certain amount of your fleet at a certain point in time in that quarter and that has an impact. Sometimes as I've said in the back end of third quarter, not a very good impact. Other times, the impact is really positive. So, I wouldn't look at broker assessments and then judge every ship owner’s performance necessarily against that on an individual quarter.

And then I guess two quick Stewart questions. One, can you talk about the new breakeven level as you get past this final debt paydown, maybe just how we should think about that? And then secondly, you mentioned it's not the right time to buy yet. You want to keep looking at the market. Do you go back to the special dividend policy or do you enhance the buyback? Do you have like a favorite move in the interim if you're starting to build the cash that you were just talking previously about?

Yeah. Thanks, Ken. In terms of the breakeven level, so once we repurchase these final vessels, expect the breakeven level to be between $15,500 and $16,000 a day, depending on a few factors, but that's about where it is. So above that level, we would generate free cash flow, positive free cash flow. And just to be clear, that's an all in number includes CapEx, maintenance CapEx and everything else. So that's a fully baked number. In terms of capital allocation, when we announced the capital allocation policy three quarters ago, we did characterize the special dividends as something that we would use periodically to return more capital to shareholders. We certainly haven't changed that. So, it's not really a matter of going back to it. I guess, it's in place there and it's what it's we're using it the way that we had intended to use it. And we are going to we'll continue to have discussions around when and how to use special dividend. So, at the moment, I would say that if there is capital allocation in addition to our fixed quarterly that it's more likely to be in the form of special dividends than buybacks. The buyback program was put in place mainly to deal with if we thought there were sustained long-term dislocations in the market, which was affecting our share price, so we could act opportunistically. But I would say that as we did in 2023, special dividends are more likely use of returning capital in the near-term.

We will take our next question from Eirik Haavaldsen with Pareto Securities.

So just a follow-up. I was just curious because did I understand you correctly when you said that you don't really have a limit as to how big your cash cost per share could really grow here because, of course, you're already at very decent levels and at current markets, that's growing rapidly. So, you don't see swollen cash coffers as and there's no limit basically to where we can be.

So, we don't have a number in mind that says once we reach this number that we would feel compelled to do something with that capital. Again, it's looking at the opportunities in the market, the need for fleet reinvestment, our view on when those opportunities might arise, how much capital we would need to take advantage of those, and then making a decision around our overall capital allocation. So, where we stand today, we think that we will continue to build balance sheet strength, and we will balance that off against returning capital to shareholders via our capital allocation policy that we've outlined. And we can't really look into the crystal ball and say, well, in 12 months from now, what will our decision be around capital allocation. But where we are today is that we're in the same place roughly that we when we announced our capital allocation nine months ago, which is our primary focus will continue to be on building financial strength, so we can make reinvestments in the fleet, balance that off against returning capital directly to shareholders. And when we if and when we get to a stage that we think that's not the appropriate capital allocation policy and we should do something different, which could be investing that capital, it could be returning it to shareholders, whatever it is. Then if we get to that stage, we will definitely communicate that to the market and we'll go from there.

But I think previously you said that newbuild prices weren't really attractive or these lead times were not really compelling. So, does that change at all over the past six months?

As I mentioned earlier, I mean, the new building prices are quite high. And as I said, I think one of the things we need to balance that off against and I think probably all ship owners are is the view of the market over the next few years and the strong cash flows that we could produce over that period and putting the context of or putting the cost of vessels in that context. There's also M&A potential opportunities, there's time charter opportunities. There's a number of things or ways that we could deploy that capital and those are things that we're always looking at and analyzing. So, there's nothing specific to [indiscernible]. There's no Nothing.

But finally, then, when you mentioned M&A and you, I mean, you do highlight shareholder value creation here in a number of times. But in terms of M&A, do you look at your price NAV? Do you feel your share prices is fairly reflecting where the underlying values are at the moment? Just curious.

Yes. So, we've traded our shares have traded in a range over the last 52 weeks. Obviously, they've we started the year at the beginning of 2023 at $28 a share. We traded up to over $64 a share. So, it moves in a range. Sometimes we probably thought that, that range was more reflective of the underlying value of the company than others. But I guess our focus is on running the company as best we can, creating shareholder value and trying to illuminate our strategy and hoping that, that is reflected adequately in the share price. If we think that there is a dislocation that we can that gives us an opportunity to buy back shares, we have that available to us, which we can use. But again, our focus is on long-term value creation more so than short-term share price movements.

At this time, I would like to turn the call back over to the company.

Thank you for joining us today, and we'll speak to you next quarter.

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