Welcome to Teekay Tankers Ltd. Second Quarter 2024 Earnings 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 will find a copy of the second quarter 2024 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 second quarter 2024 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' Second Quarter 2024 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 has another strong quarterly result, generating total adjusted EBITDA of $124 million, down from $151 million we generated last quarter. The company reported adjusted net income of $107 million or $3.11 per share, a decrease from $132 million or $3.96 per share in the first quarter of 2024. With our fleet of midsized tankers, trading almost entirely in the strong spot market, Teekay Tankers' high operating leverage enabled us to continue generating significant earnings and free cash flow. As a reminder, for every $5,000 increase in tanker rates above our free cash flow breakeven of $15,000 per day, we expect to generate approximately $2.36 of annual free cash flow per share. Stewart will provide further information on our ability to generate value for shareholders later in the presentation. In line with our capital allocation plan, we have declared a fixed quarterly cash dividend of $0.25 per share for the second quarter of 2024. Midsized tanker spot rates remained strong during the second quarter. Start-up and ongoing increase of exports from the Trans Mountain pipeline expansion has been an important source of additional Aframax demand and have helped support rates during the second quarter. I'll give more detail on TMX later in the presentation. Looking ahead, tanker supply and demand fundamentals continue to look positive and point towards multiyear strength in the tanker market. Since our last earnings call, the company sold two of our older ships for a combined fund price of nearly $65 million…

Turning to Slide 7. We highlight how well Teekay Tankers is positioned to continue creating significant shareholder value in this period of firm spot tanker rates. With 96% of our 52-vessel fleet deployed in the spot market, we continue to generate a significant amount of free cash flow. It is worth taking a moment to put this into context. While our share price has approximately tripled over the last 2 years, at Teekay Tankers' current share price, our free cash flow yield is expected to be approximately 20% if freight rates remain at the levels achieved in the last 12 months. With tanker market fundamentals pointing toward an extended period of strength, we are well placed to continue benefiting from the company's high operating leverage that sees our free cash flow yield increased by approximately 3.6% for each $5,000 per day increase in spot rates above our free cash flow breakeven. I will now turn the call back to Kevin to conclude.

Thanks, Stewart. In summary, the fundamentals which have driven midsized tanker outperformance in the past 2 years remains clear and intact. While we expect normal spot rate volatility and seasonality, we are optimistic about the prospects for continued strength in the tanker market. Meanwhile, Teekay Tankers remains in a great position to continue generating significant free cash flow and building value for our shareholders. With that, operator, we're now available to take questions.

[Operator Instructions]. We'll go first to Omar Nokta with Jefferies.

Thank you. Hi, Kevin and Stewart. I've got a couple of questions from my side. I guess, first, congrats by the way, on the first -- on your first acquisition in some time. I think it's been at least 6 years to 7 years, perhaps not longer, since the Teekay Tankers has acquired a ship. So just on that front, obviously, you've been very patient throughout the years in terms of deploying that capital. But when we think about going from here, how should we think about given where you are financially, how much cash you have on the balance sheet, the opportunity, as you just highlighted for the market outlook. Are you looking to be a bit more aggressive in terms of acquisitions or more perhaps methodical?

Omar, yes, good question. I think I'll tackle it from a couple of angles. First of all, I think it's important to recognize that. It's been a while since we've been in a position to be able to deploy capital and have a balanced capital allocation plan. So, we're extremely happy with where our fleet is today and to have the ability to look at different options in how we deploy the capital. We're in a business that's cyclical, it's industrial and over time, our fleet ages. So, we do recognize, and I think it's important for our investors to recognize that we have to keep reinvesting in our fleet. Having said that, I think it's important that we do the timing right. And while there is a need to deploy a significant amount of capital towards fleet renewal, given where asset prices are, we feel that at this point in time, it will be more prudent to be more selective in how we go about renewing our fleet. So, what you've seen us do in the past few quarters and the last few years is to sell down some of our older assets and crystallize some of the value out of the elevated asset prices that we're seeing in the market today. And then more recently, taking some of that capital and redeploying it into more modern efficient ships that give us longevity on our fleet and continue the exposure to the spot market that we believe, is going to remain strong, as I pointed out in the presentation. So yes, we will deploy capital towards fleet renewal, but I think it will be done, and I think it's important for investors to understand in this environment, it will be done in a measured and prudent manner. It won't be a wholesale fleet renewal on a mass scale at this point in time.

Understood, Kevin. And I guess does that mean clearly, as you sold those 205, it looks like those proceeds matched up a bit nicely in terms of acquiring the modern ship of the 21 built. Are you willing to shrink the fleet, I guess, perhaps moving forward, given you already have a critical master I guess, it sounds like you're willing to shrink the fleet to modernize? Is that right?

Yes. We're not beholden to a specific fleet size, I think I mentioned on the call last quarter that scale is obviously important. It gives us the ability to deploy assets in different markets and capture the volatility that's inherent in tanker trading. But at the same time, we're not fixated on the number of ships we have. And when we're in an environment where asset prices are elevated, it's important that we keep our eye on value. And if we can sell off some of the older units, you have a limited lifespan left, we'll look at doing that. But on the other hand, we're also generating an awful lot of free cash flow from those older assets. So, it's a question of doing the math and seeing which one provides us the best value. But we're not scared to sell. And at this point, you've seen us also deploy some of that capital to renew.

Yes. Got it. Great. And then just a final one from me. The Aframax 1-year charter that you announced today, $49,750 pretty solid and basically what you captured last year on the spot market for the full year, which was a record year. And so, I don't know if you've disclosed the vessel specifically that is earning that charter. But is this -- was this for the acquisition of the '21 built Aframax? And then is derisking the investments what drove the -- this -- the entry into this charter? Or was it just simply too good of a deal to pass up? Anything you're willing to share on that?

Yes. We look at our fleet as a portfolio. So, it doesn't matter which specific ship gets put out or deployed. We look at the opportunity set that's in front of us. And in this case, we felt that for locking in $50,000 a day basically for the next 12 months, it was a good hedge. So, we decided to deploy our ship to that business. But it's still $50,000 a day that's coming in, that's guaranteed over the next 12 months. It doesn't really appoint to any specific ship. It's just -- it's more of how we look at the portfolio.

And just real quick, would say, we've all done, I guess, in terms of what you guys have been able to accomplish over the past several years, you've been very methodical, I guess. -- and been very, very patient. You finally got the debt to where you wanted it to be, which has obviously gone. Introduced a dividend last year and now you're acquiring ships. So, it's a very, very nice development. I will turn it over, thank you.

We'll go next to Ken Hexter with Bank of America.

This is Adam Rusckowski [ph] on for Ken Hexter. Thank you for taking my question. I just wanted to talk about the LR2 ships shifting to the clean trade. We heard one of your competitors, well, on the product side, peers, talk about seeing this as more of a temporary impact. So, the question is, how do you see the sustainability of this trend and some of the tightness that it's creating on the Aframax side?

Yes, it's a good question. And I think I'd refer back to comments we've made in the past that our view is the LR2 vessel is a fungible asset. It can move between crude and clean, depending on earnings. And that's certainly how we look at those ships, and that's how we've been deploying them. We, in recent months, as the LR2 market has remained strong. We've deployed more than half of our LR2s into that trade rather than fixing crude oil. And I think other owners will look at the same. I think the interesting thing for the immediate term is that the -- we're sort of at the shoulder of the product tanker sector and going forward, that market should see some pickup, but some strength -- whether that's a temporary phenomenon of ships moving over in the immediate term. I don't think so. But over a longer period of time, yes, they are fungible assets that come and go between the 2 trades.

Helpful. And then on the Trans Mountain pipeline, given what you've seen on the voyages of some of these early movements, has this at all shifted your outlook on the ton-mile impact more long-term or over the next year or so? And how are you thinking of that given what you've seen so far?

Yes. I think with the Transmantan pipeline last quarter when we reported, we said that it could create demand for up to 25 to 30 Aframaxes depending on where they're going. I think what we've seen in the first couple of months is we're not quite up to full capacity yet. We're loading about 20 Aframaxes per month, whereas the full capacity is 30 to 35 Aframaxes or approximately 1 per day. And in terms of where they're going, it's moved around a little bit. I think the first four months in June, we saw most of the ships go down to the U.S. West Coast or to the Pacific area lightering zone. In July, we saw more ships going direct to Asia, and that's obviously more of a ton mile driver if they go long haul to Asia. In truth, I think it's going to take several weeks and months for the sort of trade patterns to fully develop. So, we certainly think there's more to come from TMX in terms of driving Aframax demand. But I think for the first couple of months here, it's been a nice start, and it's definitely added demand for Aframaxes in the Pacific.

This does conclude the question-and-answer session. I would like to turn the call back over to the company for any closing remarks.

Thank you for joining us today, and we look forward to speaking to you next quarter. Thank you.

This does conclude today's conference call. Thank you for your participation. You may now disconnect.