Teekay Tankers Ltd (TNK) 2008 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Teekay Tankers Ltd. fourth-quarter 2008 earnings release 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 will turn the call over to Mr. Bjorn Moller, Teekay Tankers' President and Chief Executive 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 2008 earnings presentation. Mr. Moller 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 earnings release and earnings presentation available on our website.

I will now turn the call over to Mr. Moller to begin.

Thank you, Kent, and good morning, everyone. Thank you for joining us on today's call. I'm pleased to report on Teekay Tankers' fourth-quarter 2008 results, which were delayed due to a later-than-normal start to our year-end audit following our now-completed accounting restatement process.

Our team continues to work diligently to catch up on our normal reporting schedule, and we anticipate being back on track by the time we report our second-quarter 2009 earnings, expected in August.

With me from Teekay Tankers here in Vancouver is Vince Lok, Chief Financial Officer. And Peter Evensen, Executive Vice President, joins us from Connecticut.

Turning to the presentation and to slide 3, I will review some of our recent highlights, starting with the fourth quarter of 2008. I'm pleased to report that the Company generated cash available for distribution of $18.8 million, allowing us to declare a fourth-quarter dividend of $0.72 per share. This brought our total dividend in 2008, a very strong year for spot tanker rates, to $3.39 per share, far exceeding our projections at the start of last year.

For the quarter, we earned $13 million or $0.52 per share in net income, and this excludes an unrealized loss of $13.8 million or $0.55 per share on an interest rate swap. Continuing into 2009, yesterday we declared a dividend of $0.59 per share for the first quarter. Despite a drop in spot tanker rates compared to the fourth quarter, we were still able to pay an attractive dividend based on our substantial fixed-rate cover at strong rates.

Over the past two quarters, we entered into favorable fixed-rate time charters for three additional vessels in our fleet, which means more of our 2009 cash flows are locked in at rates well above today's spot market.

Turning to slide 4, it's no secret that the outlook for the taker market is challenging for the rest of 2009. And it is at times like these that Teekay Tankers' relationship with its sponsor, Teekay Corporation, is proving particularly variable.

First, Teekay Tankers' spot market vessels enjoy the benefits of scale through our participation in the Teekay-run Gemini Suezmax pool and the Teekay Aframax pool. Pool earnings from these large fleets of uniform-size vessels have consistently been at the high end of the market range.

The Gemini pool consists of 42 vessels and represents approximately 13% of the world's Suezmax fleet. In addition to Teekay, the Gemini pool members include leading names in the tanker industry, with vessels contributed from Frontline, Nordic American Tanker, HMM and Koenig. Our spot Aframax vessels trade in the Teekay Aframax pool. Currently, this pool consists of 30 vessels and represents a 5% global market share.

Second, we also benefit from Teekay Corporation's extensive customer relationships, which have been instrumental in securing several time charter contracts for Teekay Tankers during a period where such contracts were hard to come by. Recent examples include our three-year time charters with StatoilHydro and Valero for two Aframax tankers, the Kyeema Spirit and the Kareela Spirit. These vessels were chartered at healthy fixed rates of $31,000 and $28,825 per day, respectively. We've also recently secured a nine-month extension for the Everest Spirit at $26,500 a day. All of these charter rates exceed current Aframax spot rates.

On slide 5, we show the updated picture of our current fleet employment profile, including our recent time charters. Through active management of our fleet, we now have seven of our 11 vessels, or 62% of our revenue days, operating under fixed-rate employment for the balance of 2009. Just four of our vessels are currently trading in the spot market and are part of the Teekay pools. As some of our time charters begin to roll off at the end of this year, the percentage of fixed-rate coverage will gradually decline to 41% of revenue days in 2010 and 27% in 2011.

On slide 6, we have illustrated how our charter mix is expected to outperform the pure spot market this year. The graph shows the average TCE rates we have generated with our fixed-rate and spot vessels over the last few quarters, with Suezmaxes shown on the left and Aframaxes on the right.

Reflecting the market trend, our spot TCE rates, shown with the red line, were very strong in the fourth quarter and held up reasonably well into the first quarter. During that time, we were active locking up forward fixed-rate time charter cover for our fleet. With the recent sharp decline in the taker market, spot rates are now well below the approximately $30,000 a day we are expecting to earn on our fixed-rate vessels for the rest of the year, shown by the blue line.

Our fixed-rate cover effectively sets a floor under our earnings and ensures that we can continue to pay out an attractive dividend, as we show on the next slide. So turning to slide 7, the table indicates our estimated dividend payout for the second quarter of 2009 at various spot TCE rates, taking into account the support provided by our fixed-rate charters.

If you look at the top left on the table, our current fixed-rate cover means that even in the improbable scenario where spot tanker rates fell to zero, Teekay Tankers could still generate enough cash flow to pay out a quarterly dividend of approximately $0.10 per share. I don't know of any other tanker shipping company that can make that claim.

With 50% of our spot days booked for the second quarter, average realized spot TCE rates are approximately $25,000 a day for Suezmax and $15,000 a day for Aframax. Assuming these rates continue for the rest of the quarter, we would expect to pay out a quarterly dividend of $0.30 to $0.35 per share. This figure does not include the annual settlement of the profit share on the Ganges Spirit time charter, which takes place in the second quarter and which we expect will contribute an additional $0.10 to $0.12 a share to our Q2 dividend.

Slide 8 shows our debt repayment schedule for the next five years. In addition to our fixed-rate coverage that I just described, the stability of our dividend is enhanced by the favorable terms and conditions of our debt facilities.

As you can see, our quarterly principal repayments are less than $1 million a quarter. We have a low average cost of debt and we have no financial ratio or hull covenants concerns. The Company has sufficient liquidity, with over $78 million of cash and undrawn revolver capacity as at March 31, 2009. And because we only pay out what we generate in net cash flow, the amount of our liquidity remains roughly the same each quarter.

Turning to slide 9, we have highlighted some of the fundamentals we see impacting the tanker market in 2009 and 2010. Rates are currently very weak, and we expect to see challenging market conditions for the rest of 2009. The most severe economic downturn in 60 years has led to shrinking global oil demand and heavy OPEC cutbacks, which have translated into reduced tanker demand and lower rates.

In the short term, the play on oil price contango has led to a reported 100 million barrels of oil currently being stored on vessels, which has helped tighten fleet availability on the margin. On the supply side, the tanker fleet has grown, with new deliveries exceeding a relatively low level of scrapping in the year to date.

However, at today's low spot rates, we would expect scrapping to rise substantially in the coming months. Delays in newbuilding deliveries from greenfield yards could partially mitigate near-term fleet growth, particularly for Suezmax, where 35% of the order book is with new shipyards.

Looking into 2010, the effect of global economic stimulus packages in major economies, coupled with lower energy prices, should lead to a rebound in oil demand growth next year. And just as there's been a large negative ton-mile effect from OPEC cuts over the past year, any reinstatement of OPEC output to meet returning oil demand would be very accretive to tanker ton-mile demand. In addition, tanker supply growth is expected to be dampened next year by the IMO-mandated single-hull tanker phaseout, coupled with potential newbuilding cancellations due to many orders placed at peak prices being out of the money and not yet financed.

These market dynamics match up very well with Teekay Tankers' charter mix, with our high fixed-rate cover during a weak 2009 and a gradually increasing spot exposure from 2010.

Finally, turning to slide 10, we wanted to highlight the compelling value that Teekay Tankers represents to investors, especially when compared with Nordic American Tanker, or NAT, a leading full-payout dividend tanker company with a similar fleet profile.

As you can see from the table, Teekay Tankers is trading at a current yield of 20%, almost double the 11% yield of NAT based on each company's first-quarter dividend. We believe Teekay Tankers' relative value is further enhanced by the substantial portion of our fleet operating under fixed-rate time charters, 64% versus NAT's 8%, and the stable cash flows and low dividend breakevens this provides us.

In fact, our charter profile gives us a dividend breakeven TCE rate below zero, while NAT, according to its publicly disclosed information, must earn a TCE rate of approximately $10,000 a day to pay a dividend. Put another way, if the spot tanker market were to drop all the way down to $10,000 a day, Teekay Tankers would still generate an estimated 8% dividend yield, while NAT's yield would fall to zero.

In closing, while the tanker market fundamentals are currently pointing to a weak spot market over the next two to three quarters, our current fleet mix between fixed and spot charters is expected to still enable us to pay an attractive dividend during this period. Our gradually increasing spot market exposure in 2010 and 2011 should position us well to take advantage of a potential recovery as the tanker market fundamentals improve.

Thank you for listening in this morning, and operator, I am happy to take questions now.

(Operator Instructions). Jon Chappell, JPMorgan.

Two questions this morning, but before I ask them, I would just recommend that maybe you fax slide 10 to Jim Cramer, see if you can put that on CNBC.

I wanted to talk about your growth strategy and outlook, especially as asset prices have been falling. How do the lower asset prices, and I know we don't have any real market view on them because of the illiquidity in the market, but how do they impact TNK's ability to grow, especially as it relates to the potential drop-downs from the Teekay parent?

Well, I think the issue is clearly to taking a measured approach to that. I think tanker values have fallen quite a lot, and I think there are some attractive buying opportunities out there. And I guess it is a matter of having a currency that makes those acquisitions accretive. So that is something we look at on an ongoing basis, Jon. Let's just say Teekay Tankers has the option to acquire two Suezmaxes from Teekay Corporation, so that provides some potential growth there.

Does the fact that maybe market values have dropped below the book value on those two Suezmaxes, is that going to impact Teekay's decision-making at all into potentially dropping those down?

Are you referring to Teekay Tankers or Teekay Corporation?

Well, it is going to be Teekay Corporation's, I guess, decision to drop them down. Is there any impact of having the market value potentially below the book value on those assets?

I think the issue is that Teekay Tankers is entitled to the offer, two vessels by Teekay Corporation. So that's really, I guess, the main guide.

And would you think 50-50 financing, debt and equity, would that be the primary way to do it in this market?

Well, I guess the vessels that would come from Teekay would already come with prefinancing, very attractive debt financing, I think (multiple speakers) those vessels that would be provided. So I think financing is not an issue.

Okay. And then the last thing, just a detailed model question, I saw on your table in the presentation that we should forecast another $2 million of drydocking as we try to arrive at our dividend forecast. Is that $2 million quarterly run rate something we should be using through '09 and also through 2010?

Yes, Jon. This is Vince. That is a good guide for 2009, $2 million per quarter.

And next year, will it be the same amount, or was there a heavy amount of drydocking this year where we could maybe take that number down in 2010?

In 2010, I would expect about the same. We have four vessels drydocking in both years.

Chris Wetherbee, Merrill Lynch.

I guess if I could just hit on the time charter coverage, when you look at your mix right now, is there any sense that you might want to go above the current mix of time charter coverage on your vessels? I know you have seven out there on contracts. Would you go any higher than that, given the current -- or the potential weakness in the market?

I think that would be an actively managed decision. With spot rates trending quite weak recently, the amount of customers out looking to cover a forward -- in a forward cover at rates well above that has dried up somewhat. So I guess we will be opportunistic. But Teekay Corporation's customer relationships certainly would open a lot of doors that would not generally be available to others. I would not expect that we can do a lot more time charter that would be attractive in the near term. But if we see anything, we will certainly consider it. So it is a sort of week-to-week decision.

So I guess the same would go for potential expansions of the charters that you have rolling off towards the end of the year. I guess that is a market-based decision as you see where the rates are relative to what the demand looks like at that point.

That's right. And I think it is certainly too early at this point for both sides of the table to look at extension, when contracts still have nine months to run. But I would point out that I think I want to emphasize the greater traction that the seven time charter vessels provides. These charters are very deeply in the money. And so I think it speaks to the tactical fleet management and it really provides the ability to outperform other yield vehicles in this downturn.

Absolutely. And I guess as you -- on the order book side, you mentioned some delivery delays. I guess if you could just comment a little bit further, what are you guys seeing in the market relative to the schedule of deliveries and what type of delays we are seeing, and to the extent that you expect that to kind of accelerate as you move through the rest of this year?

I guess the sort of anecdotal reports indicate that a lot of greenfield jobs are running between six and 12 months behind schedule. And so that I think we are not optimistic that there will be any cancellations of vessels that were due to deliver in 2009, even if they're six to 12 months delayed, because the construction is well underway.

So that gives us a short-term benefit in that there's less fleet growth in '09. The cancellations are more likely to come into play with ships that were due to be delivered in 2010, because they haven't advanced very far, and the financing for those types of vessels is really difficult to come by, certainly for some owners. And the small shipyards in China in particular and to some extent in Korea, they're very unproductive and they are vulnerable to any cancellations. There have been some bankruptcies of shipyards already.

And so we see so far 4% of the tanker order book has been canceled, according to reports, we have been able to garner. So we think that is going to go up. So I think we will see -- and, I mean, the other thing to just dwell on briefly is the tanker ordering has completely dried up for the last nine months. Practically no tankers have been ordered. So I think we're beginning to sort of sow the seeds for the recovery already.

And then just on the scrap side, anything that you are seeing there? Obviously, there has been some issues from an environmental perspective with some areas in the world for scrapping. But just want to get a sense of kind of what you are seeing on scrapping on the tanker side.

I think it is surprising how few tankers have been scrapped, when you consider that spot VLCC rates are basically zero at the moment. But I read into that the fact that it is only two months ago that we still had a very strong tanker market. We had a record 2008.

So I feel that the psychology hasn't really set in yet. And people who have maybe another year left until the IMO phaseout in 2010, they might give it another month or two or three while they figure out what is going on. But in the meantime, the ships are sitting idle. They are probably marginalized because of the weak demand. So they are not trading. But I expect to see the scrapping pick up substantially later this year.

Okay. That certainly makes sense from our perspective as well. Thanks very much for the time.

(Operator Instructions). Martin Roher, MSR Capital Management.

I wonder if you can expand a little bit on an earlier question. Teekay has had a proven history of making acquisitions which have been accretive for your shareholders. Do you expect this environment will create the opportunity to do some meaningful acquisitions in 2009?

Well, I guess, wearing my Teekay Tankers hat, we're looking specifically at the incremental vessel acquisition opportunities out there. And the first order of business, probably the vessels that Teekay Tankers is obligated to offer us. We're going to be publishing Teekay Corp.'s earnings in early June, and I guess we will have a conference call where we speak to that.

But I guess, wearing my Teekay Corporation hat for a second, essentially I think we would probably take the view that 2009, we ride it out and just take a very conservative approach. We want to improve the Corporation's credit profile and be prudent. And I think there will be good deals even next year and the year after. So we would say, keep the powder dry.

If I can ask one other question, on one of your slides, you mentioned that the IMO single-hull phaseout for next year is going to affect 16% of the tanker fleet. Is that the expected percentage in 2010 or currently? I thought it was a lower number in 2010.

Well, 60% of the existing fleet is non-double hull. I guess there's some nuances in the IMO regulations. Essentially, 2010 is the drop-dead for non-double-hull tankers. But then there are some opportunities for some vessels under some flags and in some non-IMO countries to maybe exonerate ships to trade on. But that is practically impossible to do on any main trade route, because you have major oil companies involved. You have port state authorities. And if any one member of that chain is adhering to the IMO regulations, then the ships cannot trade.

So they might get used for storage. And there is also big CapEx expenses coming up on some of these older vessels, which will certainly push them to the scrapyard. So it is an indicative number, but I think it is a significant positive dynamic for tanker supply in next year.

Thank you very much, and thank you for the presentation.

Mr. Moller, there are no further questions at this time. Please continue.

Okay, well, thank you for joining us. And we appreciate your support and interest, and we will talk to you next quarter. Have a great day.

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