Teekay Tankers Ltd (TNK) 2007 Q4 法說會逐字稿

Welcome to Teekay Tankers Fourth Quarter Year-End 2007 Earnings Release Conference Call. (Operator Instructions) Now for opening remarks and introductions I would like to turn the call over to Mr. Bjorn Moller, Teekay Tankers' President and Chief Executive Officer and Mr. Vince Lok, Teekay Tankers' Chief Financial Officer. Please go ahead, sir.

Before Mr. Moller begins I would like to direct all participants to our website at www.teekaytankers.com where you will find a copy of the Fourth Quarter 2007 Earnings Presentation. Mr. Moller and Mr. Lok 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 those 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 our earnings release and the earnings release presentation available on our website.

I'll now turn it over to Mr. Moller to begin.

Thank you, Dave, and welcome ladies and gentlemen. I am very pleased to report to you on the results of our first quarter as a publicly listed Company and apart from being joined by Vince Lok I'm also joined today by Peter Evensen.

Turning to the presentation and to slide three and reviewing the fourth quarter highlights on December 13th Teekay Tankers commenced trading on the New York Stock Exchange after pricing our offering at $19.50 per share, which was at the top end of the filing range. The offering was completed on December 18th, including the Green Shoe, which was exercised in full. We're pleased to report that the Company generated 2.87 million of cash available for distribution and, as a result, declared a cash dividend of $0.115 per share for this fourteen day period. Cash distribution is payable on February 29th to all stockholders of record on February 15th.

Turning next to slide four, I thought I would take this opportunity to briefly discuss our business strategy. Our objective is to increase dividends per share by executing on the following strategies. We will tactilely manage our mix of spot and charter contracts to ensure the optimal risk reward balance. Teekay's experience operating through cycles in the tanker spot market will help us maximize our dividends on a per share basis.

We've already taken our first step in actively managing the Teekay Tankers Fleet, as evidenced by our recent time charter of the Everest Spirit, which has been signed under a one-year time charter at $31,400 a day. This charter will ensure that we continue to have a balanced fleet mix when the time charter of the Karratha Spirit expires in May this year. Our spot-charter vessels will participate in the Teekay pool which will allow us to maximize cash flow by benefiting from Teekay's reputation for quality service and the scale of the pool, which should result in high utilization and earnings for our vessels. And finally, we intend to accretively acquire additional vessels with a goal of increasing our dividends.

Turning next to slide five I'll briefly describe our fleet mix, which we believe provides an optimal business model for our investors. Teekay will opportunistically manage our fleet mix to provide upside in strong tanker markets and protection in a declining rate environment. Our initial fleet consists of 9 double-hull Aframax tankers with an average age of eight years. Four of these vessels will trade in the spot market through the Teekay Pool and the remaining vessels are employed on short-term charters ranging from three months to three years in lengths at TCE rates of between $28,750 and $35,000 per day.

Turning next to slide six, I'll briefly describe the benefits of our chartering strategy, which is to sign to optimize our dividend payout. Without employing any ships on fixed-rate charters, our cash flow breakeven is $12,800 a day and our dividends would match those indicated by the red line on this chart. However, our chartering strategy reduces the breakeven for our spot fleet to below zero dollars, which means that with the current fleet mix we can pay a dividend in any rate environment. Our actual dividend potential is depicted by the blue line, which combines both our spot and time charter ships.

Our four-spot charters provide us with significant upside. As you can see, if daily charter rates averaged $40,000 we would pay a dividend of approximately $2.95 a share or a 16.2% yield based off of yesterday's closing price. And, if rates dropped to $20,000 a day, we'd still be able to pay a $1.55 a share on 8.5% yield of $18.23 share price. At an average daily rate of $30,000, which is roughly what we could fix the entire fleet out at on time charter today, we would be able to pay a dividend of $2.25 per share or 12.3% yield based off yesterday's closing price. So far in the first quarter of 2008 the Teekay pool has approximately 75% of its spot Aframax days fixed at an average TCE of $37,000 per day.

Turning next to slide seven, similar to our previous carve-outs, Teekay Tankers has significant growth opportunities, which will allow us to achieve our business objective of increasing dividends per share. Firstly, Teekay is obligated to offer us 4 Suezmax tankers within 18 months after our IPO. Second, Teekay owns 35 other tankers, which would be suitable for us to acquire; and thirdly, there over 1500 crude oil tankers in the world and over 450 product tankers and tanker ownership is highly fragmented presenting a great opportunity for Teekay Tankers to consolidate the market.

I will now briefly discuss the tanker market fundamentals and how we see the tanker market shaping up for the rest of 2008. Turning to slide eight, we can see the positive outlook for tanker demand fundamentals. GDP growth and oil demand growth are mainly being driven by energy intensive non-OACD countries which so far show few signs of a slowdown despite high oil prices. The IEA's latest estimate of 1.9% oil demand growth in 2008 represents the highest growth rate since 2004.

In addition to benefiting from overall ton-miles demand growth, medium sized tankers can expect to also benefit from non-OPEC supply growth mainly in the former Soviet Union and Brazil. And the plans to start up of 1.4 million barrels per day of new refinery capacity in Asia this year is expected to create additional long-haul ton mile demand both from the inbound crude movements to supply the refineries and the out-bound product exports. With the average ton-mile factor on the rise in this manner we project tanker demand growth somewhere in the region of 5% this year.

Turning to the tanker supply side, the table on slide nine shows projected fleet growth numbers for each of the main crude tanker size segments. Net fleet growth is projected to be between 3 and 5% for the three segments. This assumes that only the ships-- only the number of ships in the confirmed removals column leave the fleet. This figure comprises ships reported sold for conversion but not yet removed from the fleet, plus tankers mandated for phase-out in 2008 under IMO rules. However in our view there is good reason to expect additional removals and thus lower net fleet growth in 2008.

In particular, the oil spill in Korea from a single hull VLCC late last year has led key countries and leading charters in the region to announce accelerated bands on the use of single-hull ships, in some cases as early as from the end of this year. With scrap metal prices now above $600 a ton we would expect to see increased voluntary scrapping. There are also anecdotal reports of slippage in the delivery time of new buildings under construction in new yards, mainly in China. So, all in all, based on these projections for tanker demand and supply, we expect the tanker market to remain finely balanced again this year and subject to usual seasonality.

In closing, Teekay Tankers is a growth vehicle for Teekay's conventional tanker business and it will benefit from Teekay's scale and sponsorship and we're very excited about Teekay Tankers' future.

Operator, I'm now available to take questions.

(Operator Instructions). Your first question comes from Jonathan Chappell of JPMorgan, please go ahead.

There's a lot of discrepancies between the Aframax markets throughout the first quarter. When we think about the geographic exposure of the TNK spot fleet, should we just use the standard 50% Atlantic base and 50% Pacific base in that the Teekay pool typically represents or is there a more of a focus in one particular region with these vessels?

You should use the rule of thumb in that the ships of pool and with the rest of the Teekay spot Aframaxes, so they're going to generate exactly the same average TCE as the Aframax spot tankers.

And the Teekay pool is still basically 50% Mid-East to Far-East and 50% Caribs.?

I think that's still good. We'll keep an eye on it that may any major changes but of course over time there's adjustments. We'll keep an eye on it. If it changes we'll let you know but use that for now.

Okay. Are there any plans in the works right now for re-chartering the Kanata Spirit and the Falster Spirit as they roll off later this year and whether those would be kind of shorter term in nature like the Everest or maybe longer term like the Eric?

Yeah, we I guess haven't broached the subject yet with the customers in question. Whether there are other-- whether they're interested or whether there are other opportunities out there. We'll look at it. There coming off at-- off some pretty good numbers and rates. The spot tanker market right now is probably high 20's, low 30's in most regions, although a little bit firmer than that in the Caribbean. So we'll take a look at how the year shapes up, what OPEC is doing and so on. We intend to maintain a mix and it will be optimized along the way. So I would say there are no firm plans, but we're keeping an eye open.

Okay, last two quick ones with the timing of the Suez drop downs or any other acquisition opportunities, is that really dependent upon the performance of the Teekay Tanker stock and the ability to use that as a currency or do you think that the-- at least the Suezmaxes might be dropped down pretty much irregardless of what equity issuances can be done?

We do intend to-- we've indicated, of course, and I'm stating what you already know that we will drop ships down, 4 ships within eighteen months as a commitment but I think it's likely that we will grow this year. That's certainly the plan and so I guess obviously short of-- unless something untoward should happen, I will expect that we will grow this year.

And, Jon, as you know, we a $150 million of liquidity at Teekay Tankers so we don't necessarily have to issue equity for drop downs.

Right and I guess there's the drop-downs would come with, Suezmax would come with their own financing and, in fact, would help re-liquefy Teekay Tankers because they have a maybe a higher level of advanced rate than the typical debt level we're targeting in Teekay Tankers, so it actually-- there's plenty of room.

Okay, then the last one just for you, Vince, I know we only had a 14 day stub period, but we were still pretty good distance off on the OpEx and the G&A numbers for that period. Are there any run rates or guidance level that you're giving for 2008 on both of those line items?

On operating expenses I think the-- well you saw in the 14 days in the fourth quarter is a pretty good indication the run-rate for 2008 budget. On the G&A it was a little bit higher because we had to accrue some corporate expenses like audit expenses over a shorter period so I would expect the G&A run rate to be a little bit lower going forward.

(Operator Instructions) Your next question comes from [Ken Hexter] of Merrill Lynch.

On the new time charter, were you approached? Are you out seeking to time charter that one? I just wanted to understand why kind of the flip from having, obviously a majority spot now going into a majority time charter, although I do recognize the other vessel comes off in May? I just want to understand how we can look forward and understand your plan for practicing that mix between, or balance between, the time charger and pooling?

That's not an art. It's a science and there is a reasonable amount of liquidity in time charter but it isn't like there are tens of transactions every day, so you obviously with our contact network and with Teekay's reputation we get approached regularly and we kind of manage tactically both at Teekay Tankers and the Teekay Corp. level, when is a good time to take some coverage and which customers would you like to do that with, where do the rates vary? Some people are more quality oriented than others so it really is difficult to be very precise, but with the run off of a couple of vessels later this year, this seemed a good opportunity to make sure we had a good foundation of attractive charters.

I'm just wondering because you said the rates obviously come off from the low 30's into the high 20's and yet you're kind of talking about capacity being up only 3 to %5, while demand should be up about 5%, which would indicate then that pricing should continue to climb. Is that what your thoughts are on pricing as we move through the year?

I think so. I guess we see the volatility that's associated with a tightly balanced market. The Caribbean Aframax market was at $10,000 a day about a week ago and now it's at $45,000 a day and rising. So the short-term weather phenomenon so there's volatility all the time. We view '08, as I indicated in my opening comments, as being a tight year for the market, but we also have taken an approach of offering the stability on the down side to Teekay Tankers shareholders so we have executed on that strategy. But we're still optimistic for the spot market this year.

All right and then one kind of larger picture question, but when you take a look at the order book, is there-- you notice that there have been some vessels that have been delayed and obviously now with the credit concerns we could see continual-- continued pressure on ability to get financing from any of those vessel orders. But how many of those on the order book are at say Greenfield Yards in China that maybe the Yards themselves might have trouble getting up and running and building some of that book? Do you have concept of what percentage of the book is at that kind of Greenfield level?

Right. I guess that the main issues are around China and I guess China is projected if you go say into next year and 2010, they're ramping up their involvement. So nine and ten China's market shares probably going to be around 30% and of that 30% probably 40 to 50% is Greenfield's. So you could have 10 to 15% of the incoming capacity at yard instead of struggling. Does that make sense?

Absolutely, absolutely it's a great overview. Thanks a lot for the time. Appreciated it.

[Peggy Krissilo] of [Iradium Capital]-- I'm sorry, Iradium.

A couple of questions that I want to follow up on Ken's question just on the Greenfields-- so is half of them, half of the 30% of the book or half of the Chinese Yards are struggling? Can you expand on that?

I think what will happen--

Are the yards built yet?

Well, some of them are not built and there are some that there's serious question about whether there could be like an adverse event where they never got built, which of course wouldn't be adverse for the market. That would be great for the market, whereas other yards are clearly building the ships but it's taking longer. You could have a six to twelve month delay so I'd say I wouldn't want to count on the fact that a lot of these ships won't get delivered eventually but that could happen. Particularly the Suezmax market is one sector where the Chinese took a lot of orders and so I think that's where you could see more slippage. We're building 4 vessels-- sorry, Teekay Corporation is building 4 vessels in China and despite our significant focus and a large team, we're seeing a little bit of delay, not as much as some of the other yards because this is an established yard we're building at. But we're seeing first hand that it's around in productivity and so on.

Is it also delays on some of the parts you need and that kind of thing?

Not so much that, it's more kind of quality control on steel work and things like that where we're being very strict and so that's taking the yard longer to build.

And was that when you say it's established yard, had they built Suezmaxes before or have they built other?

Yep, they definitely have and I mean there are some bottlenecks in the system like main engines and generators and so on, so it's not only the steel work. It's probably supply chain as well. There's a global shortage of main engines, for example, so that's causing some delays as well.

Okay and then also I wanted to go back to Jonathan's question, which about-- you said about the financing on those 4 Suezmaxes, I didn't understand that. Vince said that the $150 million in liquidity but then you said something in particular.

Yeah, it-- on those Suezmaxes we already have prearranged financing up to 60%, prearranged financing on those [GUS] loops. So if they were to be dropped down to Teekay Tankers that and if Teekay Tankers were to issue equity at our target equity ratio of 70%, 75% equity, 25% debt, then that would actually create an increase in the liquidity for Teekay Tankers because we've only drawn 25% of that debt.  I think that's what Bjorn was referring to.  

  Oh okay.  You weren't insinuating that you could put more debt on those Suezmax's?  

  Well, I think if we have already 60% of prearranged debt on those ships for the remaining 40% Teekay Tankers could draw on its existing revolvers to finance that.  

  And then you would be financing it all debt.  

  Yes but it just gives us flexibility vis-à-vis timing of going into the market.  We don't necessarily have to match the market entry with the drop down timing.  

  Okay got it.  

  We have the flexibility but it is still the intention to manage Teekay Tankers with a low degree of debt.  

  Although wouldn't it not be-- you know, if you financed it all with debt I guess you would do that at Teekay, not at TNK because then if you went and you raised equity it would actually probably be diluted if you had already dropped them down with all debt right?  I mean the cheapest financing is debt.

That would only be if we paid out all of the cash flow on based on 100% debt financing. Probably we'll ultimately do a follow-on offering for it.

Okay and then another-- the last question was on your operating expenses. I mean I know you guys have been talking for a long time about increases in crew costs. Everybody has been talking about bunker fuel. Can you go through for me-- it just it seemed like it came all at once in the fourth quarter, those expenses just took a big jump up so can you explain more of the details of exactly kind of what went up and why so suddenly?

Yes most of the crew costs went up in the effective August 2007. Crew costs make up roughly 50% of total operating expenses and, as you know, there's general rising pressures on the crew costs and those went up about roughly 10% effective August and so that makes a big part of it. Another big part of it is repair costs and just spare parts costs and things like that in general have gone up as well.

So are the crews on some kind of one-year contract, like in August are we probably going to bump up a lot again?

No they are employees of Teekay on a permanent basis but we have to benchmark all the time against the market because it is a-- there is a-- we have a large cadre of long serving people but we do also have, of course, growth in the Company and we need to attract people and we have there are some people more transient so people will move around as the wages change in different companies so we have to continue to benchmark and it's I think basically we have kind of caught up now but if the overall market were to change again, Teekay has no choice but to keep up.

So what do we use for operating expense per day, Vince?

What you saw in the fourth quarter, it's roughly about $7,200 to $7,300 per day, per ship per day.

And that's at TNK, so it was higher at Teekay, is that right?

No it's roughly the same for the Aframaxes for Teekay. Teekay has got other types of vessels, of course.

Right okay.

[Darren Guchicha] of Morgan Stanley.

It's Darren Guchicha. I wanted to ask one question with regard to your revolver and how much debt to fleet value that holds. Are there any covenants with regard to that because I know that you sort of talked about maybe taking on more debt in order to do drop downs?

Well, the existing revolver we have right now is a 10-year facility. There's no principal repayments for 5 years. That allows us to draw up to 55% of asset value on the existing revolver and we currently we have about 25% of that drawn or 25% of asset value and the Suezmaxes that I mentioned earlier, the 4 Suezmaxes that allows us to draw up to 60% of asset value roughly.

Okay and changing topic, one of the other-- this sort of Chinese yard story has been something that's been playing through the market a little bit. I think some of your competitors have been talking about it. I think one of the issues is is the export-import bank there has guaranteed some of the new buildings and not others and I'm just kind of curious what you're hearing on that issue and if whether you've got any guarantees in terms of your deposits.

We have full guarantees on all our construction. I am not privy to the information on every yard but I-- we're hearing some of the same anecdotes but we have-- we found the guarantee.

There are no further questions at this time. I'll turn the conference back to Mr. Moller.

Well, thank you very much for joining us for this inaugural conference call and we look forward to keeping you updated on the progress of Teekay Tankers. Have a wonderful day.

Ladies and gentlemen, this concludes the conference call for today. You may now disconnect your line and have a great day.