Teekay Tankers Ltd (TNK) 2009 Q4 法說會逐字稿

Good afternoon ladies and gentlemen, and welcome to Teekay Tankers' fourth quarter and fiscal 2009 earnings conference call. During the call all participants will be in a listen-only mode. Following question -- following the presentation you will be invited to participate in a question and answer session. (Operator Instructions). As a reminder, this call is being recorded.

Now for the opening remarks and introductions, I'd like to turn the call over to Mr. Bjorn Moller, Teekay Tankers' President and Chief Executive Officer. Please go ahead sir.

Thank you very much. Kent, would you like to kick us off?

Before Mr. Moller begins, I would like to direct all participants to our website at www.TeekayTankers.com where you'll find a copy of the fourth quarter and fiscal 2009 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 differ materially from those in the forward-looking statements is contained in the fourth quarter and fiscal 2009 earnings release and earnings presentation available on our website.

I'll now turn the call over to Mr. Moller to begin.

Hello everyone, thank you very much for joining us.

It's been some time since Teekay Tankers last hosted an investor conference call. But going forward we plan to host quarterly earnings calls.

With me from Teekay Tankers here in Vancouver are Vince Lok, Chief Financial Officer; Peter Evensen, Executive Vice President; and [Brian Fortier], Controller.

This morning we are reporting on Teekay Tankers' fourth quarter and fiscal 2009 results. I'll begin on slide three of the presentation with our recent financial highlights.

I am pleased to report that the company recently declared a quarterly dividend for Q4 of $0.26 per share, up from $0.15 in the prior quarter. That dividend is payable on March 15, 2010. This brought our total dividend for 2009 to $1.40 a share, and this attractive payout figure, relative to a weak tanker market, was made possible by our fixed rate charter coverage, which I will discuss a little later in the presentation.

For the quarter we earned adjusted net income of $4.5 million or $0.14 a share, and for fiscal 2009 we earned adjusted net income of $27.7 million or $0.97 per share.

In order to help provide our shareholders with greater visibility around the potential level of 2010 dividends, this morning we will be providing you with what I hope will be helpful additional information on how to calculate Teekay Tankers' 2010 dividends. I'll refer to this later in the presentation, but let me preview this topic by providing the following two rules of thumb.

Rule number one, even if we conservatively assume that 2010 spot rates were to remain at the weak levels realized by our spot fleet in Q4 '09 of $15,000 per day for Aframax and $20,000 per day for Suezmax, Teekay Tankers would still expect to pay an annual dividend of approximately $0.90 per share.

Rule number two, for each $5,000 a day increase in average spot rates, our annual dividend increases by $0.30 per share.

For the sake of good order, I would like to stress that these rates are for illustrative purposes only and should not be construed as guidance. However, they do show our shareholders that we can pay an attractive dividend in even a low spot market, and we can pay an exceptional dividend in a high spot market.

On the top chart on slide four we highlight the long downward slide in tanker rates that began with the economic downturn in the summer of 2008 and reached bottom at multi-year lows in Q3 '09.

In late Q4 and continuing into the early part of the current quarter, we saw a recovery in rates due to a combination of improving economic fundamentals, seasonal factors, and tanker supply dynamics. Rates have since dropped back somewhat, but remain above Q3 levels.

Looking at Suezmax time charter rates and asset prices on the graph on this slide, these have recently bottomed out and stabilized, potentially signifying an expectation of an upward turn in the market. If you looked at the same information for Aframaxes, the picture would be similar.

On slide five we are introducing a chart that models 2010 world tanker fleet utilization scenarios. Spot tanker rates are closely correlated with fleet utilization, so it is critical to understand the key drivers of that utilization.

This is a busy slide, so I'll walk you through it. The blue bar on the left shows that the estimated global tanker fleet utilization in 2009 was 84%, which, as we have seen firsthand, yielded a weak tanker market overall for the year.

The second blue bar from the left indicates our base case for 2010 fleet utilization. Back in November of last year when we first used this chart on a Teekay Corporation investor call, that base case, shown on this slide in the table under the column called old base case, showed tanker demand growth of 5% being offset by supply growth of 5%.

In the column marked new base case, we've now updated assumptions based on recent developments. For example, on the demand side, since last November the IMF has raised its forecast for GDP growth from 3.1% to 3.9%. Also OPEC has increased its market share for world oil supply.

On the tanker supply side, we have reduced the number of tanker new building cancellations in the new base case from 5 million tonnes to 2.5 million tonnes, because after a flurry of cancellations one year ago, we've seen few recent tanker cancellations.

On the other hand, we've maintained our assumption for single-hull tanker removals of 23 million tonnes because year-to-date removals are in fact on track to achieve this figure.

The net effect of these changes is a new base case utilization of 85%, suggesting a slight improvement in the rate environment in 2010, but from a low base.

The slide also describes what we call the 2010 recovery case. What we illustrate in the recovery case is the potential anatomy of a tanker market recovery. The green bars show the impact of fleet utilization on -- of the outcomes in the right-hand column in our table.

The figures generally speak for themselves, but I would like to make a couple of points. We have added a new green and red bar on the right-hand side relating to floating storage. Currently approximately 4% of the world tanker fleet is being used for floating oil storage, driven by oil price contango.

The red bar shows the effect if floating storage were reduced to 2% of the world fleet. And conversely, the green bar shows the effect of storage activity growing to 6% of the world fleet.

Current contango pricing points to a likely drop in floating storage, so in the near term we are more likely to move down into the red area than up into the green area.

Secondly we have addressed a factor which has not received wide coverage so far, namely, the declining efficiency of the first-generation double-hull tankers. Double hulls first began delivering in meaningful numbers in the early 1990s. This year there are some 40 million tonnes of double-hull tankers that are 15 years or older.

While the Teekay pools in which we participate with our spot tonnage have a modern fleet overall, they do also have some first-generation double hulls. The pools are witnessing firsthand that charterers are scrutinizing these ships to a far greater extent than just one year ago, when tonnage availability was tight. In most cases charterers are now giving preference to younger vessels if available.

As a result, first-generation double hulls are experiencing increased idle time between cargoes and are spending much longer time in repair yards in order to meet stricter quality requirements, including substantial steel renewal. We believe this dynamic will further stratify the world tanker fleet, raising the demand for modern tonnage.

In our model on this slide we have assumed an additional 10% inefficiency in this fleet segment this year.

If all of the factors in the recovery case come to bear, we could see 2010 utilization rise from a base case figure of 85% to some 90%. 90% effectively represents full fleet utilization and would lead to a tight tanker market.

While it's improbable that all of these factors will materialize, it is more than likely that some of them will. For example, yesterday an update from Energy Intelligence Group reported estimated year on year oil demand growth of 2.5% in February, a figure at the upper end of our recovery case assumption.

Turning to slide six, we show the updated picture of our current fleet employment profile. With the recent challenging times in the tanker market, our relationship with our sponsor, Teekay Corporation, is continuing to prove highly valuable. Firstly, our spot traded vessels enjoy the benefits of scale through our participation in market-leading, Teekay-run Suezmax and Aframax pools. Pool earnings from these large fleets of uniform-sized vessels have consistently been at the high-end of the market range.

Secondly, we benefit from Teekay Corporation's many close customer relationships, which have provided us with access to a number of time charter contracts for Teekay Tankers vessels during times where such contracts were hard to come by. Most recently we charted out one of our Suezmax tankers with a fixed rate minimum, coupled with a profit sharing arrangement that allows us to participate in the upside while having a floor under our earnings on this vessel.

Our active tactical management of our fleet stood us in great stead last year. The timely decisions made last year resulted in us having the majority of our fleet working under profitable, in-the-money fixed rate charters during a weak tanker market.

With a likelihood of continued volatility in 2010, we continue to be well positioned with seven of our 12 vessels, or 55% of our total 2010 revenue days, operating under fixed rate employment at rates that are generally well above today's market. The remaining five vessels in our fleet are currently trading in the spot market as part of the Teekay pools.

I would like to now refer to the issue of how to calculate Teekay Tankers 2010 dividend. Our dividend policy is simple -- to pay out our net operating cash flow, after adjusting for dry dockings and debt principal repayments. This keeps our liquidity levels relatively constant.

On slide seven we describe how our 2010 fixed rate revenues entirely cover our costs and reserve requirements. This means that all of our spot revenues can be paid out to shareholders.

If you look at the per-share column on the right-hand side of this slide, you can see that our 2010 locked-in, fixed rate revenues amount to $1.95 per share. Deducting our expenses and reserve items leaves us with a distributable cash flow floor, before any revenue recognition from our spot fleet, of $0.01 per share.

Using again as illustration only the earlier example of average spot rates of $15,000 and $20,000 per day for Aframax and Suezmax, respectively, the spot fleet would contribute $0.89 per share, leading to a derived dividend figure for 2010 of $0.90 per share.

I should point out to those of you that looked at this presentation on your screen a little earlier, there is a gremlin that's crept in. Under the total column, the revenue contribution from the spot fleet should read $28.4 million. An earlier version had a different number.

On slide eight we have shown the dividend matrix that you have seen in our past earnings releases, except for the fact that this matrix covers the full year 2010. The figures in the matrix already factor in the contribution from our existing fixed-rate fleet, so by simply deciding which assumptions to use for Aframax and Suezmax spot rates, respectively, you can read the corresponding 2010 dividend.

You'll see on the matrix that we have highlighted the $0.90 per share box that matches up with the rate assumptions on the axes that we used in -- for illustrative purposes on the previous slide.

On slide nine we illustrate the significant operating leverage from our spot traded fleet using the same parameters from the matrix on slide eight, but now expressing the information in a chart format.

Based on our current fleet size and employment mix, each $5,000 per day increase in average spot rates increases our annual dividend by $0.30 per share. Next to the vertical axis, we've shown the dividend yield that corresponds to various levels of dividend payments using our current share price.

Unlike the illustrative slides I've just walked you through, the matrix on slide 10 provides our actual Q1 2010 guidance on dividends.

For the quarter to date we have booked 70% of our Aframax and Suezmax revenue days at $19,000 and $29,500 per day, respectively. For the remainder of the quarter, average rates are likely to come in lower than these figures, due to weaker current market conditions. Nevertheless, as you can see from the matrix, we are likely in line for other reasonably attractive dividend payments for Q1.

On slide 11 we highlight the point that Teekay Tankers' capital structure enhances returns to shareholders. Our financial structure includes the use of a certain proportion of favorable debt. As a result, dividends are higher than if we were purely equity financed, because at around 3% our cost of debt is much lower than our cost of equity, our debt structure requires minimal principal repayments before 2015, and we have no financial ratio or hull covenant concerns.

At the height of the financial markets meltdown in 2008/2009, debt was out of fashion. Today our capital structure is again adding shareholder value by enabling greater dividend payments compared with having to issue more shares in order to be fully equity financed.

To sum up the key takeaways from today's presentation, on slide 12, our flexible debt structure provides value, all of our 2010 costs are already covered by our fixed rate business alone, so we can pay out all of our spot revenues in dividends. Rates are off Q3 bottom, but we expect continued volatility.

And using relatively pessimistic assumptions, our 2010 dividend would be $0.90 per share, with the added possibility of a much higher dividend if spot tanker rates stage a meaningful recovery.

Thank you for listening in today, and we look forward to hosting you on our future quarterly calls. Before I open it up to questions, I would like to invite you to visit Teekay Tankers' new and improved website at www.TeekayTankers.com.

Operator, I am now available to take questions.

(Operator Instructions). Mike Weber, Deutsche Bank.

Just a couple of quick questions. You guys dropped down three tankers into one of the -- another daughter company, aside from Teekay Tankers. Just announced today. I was just curious, how do you think about drop-downs for Teekay Tankers for 2010? I know you can't get into specifics, but if we were just to think about I guess macro level fleet growth? And then kind of off of that, I know you like to structure the daughter companies basically by length of contract and cash flow visibility. Where is the cut-off from a charter perspective between a vessel that would be dropped down into Teekay LNG versus Teekay Tankers?

Peter, why don't you take a stab at that?

Sure. Teekay Tankers is really focused in on zero- to three-year contracts. So when there is a contract that is more than three years, that's more of a bond like instrument, so that isn't appropriate for Teekay Tankers, because Teekay Tankers wants to be exposed to the positive dynamics of the tanker market. While we manage it between zero and three years, that's to take out the cyclical bumps. And as you heard, we are cautious on 2010, so we've fixed more of the tonnage, but we think we will have the right cyclical outlook as the market starts to steadily improve as oil demand comes back.

And when we are looking at acquisitions at Teekay Tankers, we are trying to find the right price point in order to make it so that we can increase the distributions per share. And so that's how we define accretion at Teekay Tankers. If we buy an asset, will we be able to increase the distribution? And so that's what we are looking at.

We have bought most of our -- all of our tankers so far from Teekay Corporation, our sponsor, and that's because they come with preferential benefits. We get financial -- financing on them that's better than what we could get in the market, both in terms of absolute margin as well as the terms. We don't get -- have any hull covenants, for example, on several of the vessels -- on all the vessels we've bought and on several that are available to us.

But we are very focused in on the share price, and we don't want to do any dilutive transactions, so we are not going to grow for the sake of growing. We're going to grow in a more intelligent way. And so we are looking very much at what the asset value is, as opposed to the share price. The share price has started to move up again, so that's positive. But we are not going to do a deal that in our mind wouldn't increase the dividends per share.

Sure. Sure. And that makes sense. I guess looking at the charter coverage, you guys have held pretty steady at about 55%. As you look out I guess into the latter part of this year, 2011, 2012, is that a good target going forward? And I guess how aggressively -- you mentioned you're relatively conservative. How much flexibility is there around that number? And how aggressive will you be on splicing the market to maybe increase that coverage a little bit more?

I think it's a trade-off, right? There's a correlation obviously between time charter and spot, so if spot picks up, then you could argue you may get opportunities to do more time charter (multiple speakers) replacement or replenishment at good rates, but you're also having an opportunity cost. So that's the -- where the tactical management comes in, and we are proud of the way we were able to manage that in the last year, having really loaded up on good time charters. And it's giving us optionality that this is winding down in an orderly way.

And we can then choose to replenish, as we've done on two vessels in the last three or four months at Teekay Tankers, at lower rates, admittedly, sequentially, but also against a weak tanker market. So we can play that tactically, and I think we have been successful, and that's in the DNA of the company. So we will continue to manage that very carefully.

Great. So if I think about this going forward, and you guys are in a pretty nice position now where your cash costs are covered by your chartered-out fleet, is that just -- is that more of a coincidence at this point? Or looking forward should we be thinking about charter coverage in terms of -- maybe not as a hard and fast rule, but maybe something along the lines that would cover your fixed costs to really provide the leverage to the upside with the spot component?

Right. And it's, again, a risk/reward (multiple speakers) and it's coincidental that it just happens to match. But if we felt very nervous about the market, then that would be nice to have as much of that covered off as possible. But I think we view that we have good balance, and we see upside in the market, and we have lots of upside. So we don't want to completely give up the upside, that's for sure.

No, no. It's a good problem to have.

But it isn't just about our view on the market. We always want to be in a position to be able to pay a competitive dividend to our shareholders. And so we sometimes take a little coverage because we think it's prudent so that we can always pay a competitive dividend. And as Bjorn said, we now have set up the company so that for 2010 even in a depressed market we would pay $0.90 a share. But we haven't taken -- we haven't fixed everything so that our shareholders get the positive if we get the recovery case as we outlined.

Okay. No, that makes sense. I appreciate the time guys.

Jon Chappell, JPMorgan.

I just want to follow up on the growth question again. How do you think about the capital structure as it sits right now? And if there were other growth opportunities for you, whether they are drop-downs or from third parties, would you want to try to over-equitize any drop-downs or any fleet additions to help with the balance of the debt versus equity?

I think what we did last year was, we felt that we had a little bit too much debt and not enough equity. So we did a transaction in which we over-equitized the company. But in doing so we brought the -- we actually bought a vessel from Teekay Corporation, and we issued more equity than what we had, so we increased the liquidity up.

And we wouldn't do that kind of deal again. We are comfortable with the amount of equity we have and the amount of debt. So while going forward people are using a little less debt and more equity, we wouldn't do that deal. That deal was admittedly over-equitizing, but you have to look at it in combination with the fact that we bought two Suezmax tankers for cash earlier, so (multiple speakers) [if you] look at those two transactions together, we think we've brought ourselves back into balance.

(multiple speakers) That was part of the issue with -- the financial markets weren't conducive for issuing equity in the second half of '08 and into '09. But -- so we wouldn't do a transaction as we did in June, where we just did it all equity.

We like our debt profile. I think it's pretty unique among the shipping companies because we have low-priced debt, we don't have to pay it back for several years, and so it's -- for us it's a real benefit to have that.

And if we buy certain vessels from Teekay, it comes with that valuable financing. So -- but we would -- if we do a transaction -- and I am not saying that we would, because we are focused much more on maximizing the dividends per share -- it would be a combination of debt and equity rather than all equity.

What type of leverage, 60/40? 70/30? Completely dependent upon the market? (multiple speakers)

(multiple speakers) I won't get [drawn into exactly] what it would be, but we would make sure that it would be probably closer to 50/50.

Okay. Like you said, there's nothing probably eminent right now. You do have $124 million of undrawn firepower on your facility. If something bigger were to come along, or if there is an opportunity for maybe a three- or four-ship acquisition that was perfect for the TNK structure, what's your comfort level with the ability to get a new facility above and beyond what you already have on your existing one?

You're referring to third-party acquisitions as opposed to drop-downs?

Yes.

Yes, the -- we are comfortable we can get financing on an acquisition. We have been able to do that, as you've seen, even during 2009, which -- during a more difficult bank market. So we are fairly comfortable we'll be able to finance any acquisitions.

And then finally, Vince, one more for you. What's the dry docking schedule for 2010? Number of ships? Timing as far as quarters are concerned? And then the total cost?

Yes, we have a bit of a lumpiness in the dry docking schedule. We have four vessels dry docking in 2010, whereas we have zero scheduled for 2011 (multiple speakers) and you may have noticed that we decided to smooth out that lumpiness in the dry dock reserve over the eight quarters, for the two years, as opposed to just only 2010.

So we have two vessels scheduled for dry docking in the second quarter of 2010, and then another two in the fourth quarter 2010. Total cost of that is about $10 million for those dry dockings. So that's why we are reserving $1.25 million per quarter. And we do have some other vessel upgrades for about $300,000 per quarter. So a total reserve of $1.55 million per quarter.

Got it. All right. Thanks Vince. Thanks Peter.

Ken Hoexter, Bank of America Merrill Lynch.

If I could just step back on the expansion question for a second, I just wanted -- it seems like there are a lot of investors in the market right now, or ship owners who are getting more active in expanding their fleets. What is your take on the market right now? What are your thoughts on that potential for expansion?

I think we are happy where we are situated right now. We are not in the position where we have to do anything, and so we are much more focused in on not just buying at 100 cents, but we are looking at special opportunities, because we think Teekay, with having raised money and having cash and having a good brand name out with the charterers, is in a position to be able to buy things at a competitive price rather than at a full price.

So we are waiting a little bit as it relates to third-party acquisitions.

Where do you believe we are in the market right now? Do you think we are still going to see some downside based on the capacity that has still yet to come onto the market?

Well, we certainly feel that we are not out of the woods. The world economy is not necessarily headed in the exact direction everybody would like it to, and we do have a large order book of tankers. So I think we are definitely of a view it's maybe more risky to act too quickly than to act too late. I don't think the window will close for opportunities to do interesting deals. That will not close for some time.

It would be a high-class problem if suddenly we had a big turnaround in the market, and we do see upside, and we are happy with our operating leverage. But I would say, we like a balanced approach, and I think that for the rest of this year we will be balanced.

But you're still being constructive thinking that maybe we are near a bottom but yet it's still -- there is no need to rush in right now?

Right. We might be bumping along the bottom, but it's not about to take off, in our view.

Yes. And you could be bumping for a while is what you think?

That's right.

Just -- a lot of questions already, but maybe just one other one on the -- I guess what's your thoughts on the storage hitting the market right now? Is that also going to continue to put pressure on rates? Are you seeing that continue over the next few months, stuff that was used for contango coming back?

We are seeing the pricing -- the underlying pricing justification having eroded recently. So I guess we're not likely to see more deals. The question is about the unwinding of existing deals. I guess that may be a matter of sentiment on traders, whether they think this is the short-lived flattening of the curve, or whether they believe that they had better unload.

Teekay Corporation operates a pool of large product tankers, so-called LR2s, and at this time I think the entire fleet of nine Aframaxes or LR2s are tied up in floating storage, in addition to some Suezmaxes that we delivered. So we are seeing I think some unwinding of the Suezmax storage that we have, but our LR2s at the parent level are still all engaged in storage. So there's still a lot of storage. But there is an overhang if you have an unwinding -- a rapid unwinding on that.

Yes. Let me just come back to a couple of questions ago on the split between charterers and on the spot rate. What would you want to see in the market to say, you know what, when those charters start to expire, we are not going to renew them now because we think the spot is actually maybe a better place to be, kind of back at the time of the IPO. So what -- I just want to understand. I know you wouldn't give an exact answer, but what do you look for in order to make that shift?

Well, I think we've been happy that we were able to conclude a charter that included a fixed rate floor with an upside. That's very valuable to us. And so we would certainly look at deals like that, even if the floor moved down a little bit, because the upside is still significant.

In terms of locking off or locking away upside, I think if you're asking me what time charter rate numbers we would be looking at, I would say Aframax rates -- we would want to see rates in the high teens to $20,000 a day, and we would on that basis keep rolling over a portion of our fleet. But if it went much below that, we would probably not charter out.

Oh, so you are thinking more on the downside as opposed to on -- if things start to move up a little bit?

Well, if things move up, then we would obviously allow charters to run off (multiple speakers)

Yes. No, that's what I was looking at. Yes. Okay. So if they (multiple speakers) okay.

All right. That's helpful, I appreciate the time. Thanks.

Duncan Paine, private investor.

My question relates to the -- your comment about the 15-year-old double hulls, the first gen, and how they are not attractive -- so attractive as the newer ones. I noticed that two of your ships are 1995, two of them in the Teekay pool. Have you accommodated the age of those in your thinking about how attractive they are going to be to charterers in the pool?

Well, it's a dynamic that we have. We have a fleet mix which overall is a modern fleet, but the reality is that a couple of our vessels are of that age category. However, again, that's where the sponsorship relationship becomes very important, because Teekay Corporation has a long-established operational record and has very close relationships and has first primary access to cargoes in various regions that would allow us to schedule our ships efficiently, even if they are slightly older.

So I think it's a comment that I -- was directed at sort of the macro picture of the fleet, but we do see that the dry dockings on some of these older ships in our fleet become quite big. So there's the cost of running them and there's obviously the utilization. Utilization, I think we are okay in the Teekay pools, but we can't defy the laws of gravity of costs of older ships.

I understand. One more question. With respect to the drop-downs from Teekay, who initially makes that decision as to whether something is going to become available for drop-down? Is that something Teekay decides unilaterally and then comes to you and says, we are thinking of doing this? Or is that something that both parties work together on analyzing as time goes by?

Well, Teekay Tankers is constantly looking at opportunities. And Teekay is -- Teekay Corporation is one of the potential suppliers of vessels against the market. So Teekay Tankers -- and this means myself, the CFO, and Peter Evensen as well. And we continually look for opportunities for Teekay Tankers, and we as part of that have discussions with the other folks at Teekay Corporation about what assets may be in their portfolio that could be of interest to us, as well as what goes on in the market. So it's a dialogue.

If we do go ahead and buy something, we put in place the conflicts committee at Teekay Tankers of the independent Board members, and they will make their own judgment of if the price that we are buying from Teekay Corporation is at fair market value. And that's a very important point that goes. But as management, we look and say, what is the best asset for us to buy? Is it better for us to buy from Teekay Corporation? Or is it better for us to buy from a third party? Then we go ahead and begin a negotiating process.

And of the vessels you now own, how many were drop-downs and how many were from third parties?

We haven't bought any from third parties as yet, because the terms under which we are able to buy vessels from Teekay Corporation, including the beneficial financing, made it superior to buy from Teekay Corporation rather than from a third party.

I understand, thank you very much. (multiple speakers)

There were nine vessels in the IPO. So they (multiple speakers) of course were carved out of Teekay, and then there have been three vessel acquisitions from Teekay Corporation for the reasons Peter mentioned.

Thank you very much.

Matthew Troy, Citi Investment Research.

This is Bascome Majors in for Matt Troy. You talked a little bit about this year's dry dock schedule earlier with four vessels. And you talked a little bit about the overall fleet utilization for the industry. What are you guys looking for with your schedule to off-hire this year for your fleet in particular?

For 2010 it's I would say a higher than -- higher level of dry docking activity. We have a couple of the older ships dry docking, so the total scheduled dry docking days is about 150 days for the year. So again, for 2011 we have zero scheduled.

All right. And there was some lumpiness in the reserve that you guys held back from the dividend last year, and it sounds like from your comments that you're forecasting to try to keep that steady over the next couple of years. Is that correct?

Certainly on the cost of the dry dockings. In terms of the off-hire days, those will still reside in the respective quarters that they occur.

But the point is clearly to make sure that we have some predictability on the costs. So that's a correct observation.

All right guys. The rest of mine have been answered. Thanks.

Duncan Paine, private investor.

I forgot to ask you, what is the company's cash breakeven daily cost on your vessels?

If you look at -- as we've shown on the slides, if you look at the spot vessels, the TCE breakeven is basically zero. So all the spot revenues is -- can be paid out as dividends. I guess if you look at an incremental vessel, that -- before -- including the cost of interest, it's -- the daily operating cost of a ship is roughly about $9,000 per day.

And that's averaged over the entire fleet?

That's correct.

Okay. That's what I was looking for. Thank you very much.

Don Noone, VN Capital Management.

If I recall correctly, you still have an option on a drop-down Suezmax tanker. I think that's good roughly through June of this year. Can you just give us some color on how that compares with a potential third party acquisition out in the market as it stands today?

Yes. That's an option that was granted in order to -- at fair market value. So if Teekay Tankers wants to buy it, it's really just our option in order to buy it at fair market value. So we would compare that -- if we wanted to go forward, we would compare that to a third-party purchase. And if we can negotiate a better price with Teekay Corporation, then we would hit that option. Otherwise, if we can negotiate a better price with a third party, we would go that way.

Right. And I guess the financing that that vessel would come with may be one of the factors you'd consider in comparing it to a third-party acquisition.

That's right.

Is the financing in place similar to the type of financing historically that you'd experience with a drop-down?

That's right. When Teekay Tankers was put together, Teekay Corporation not only financed Teekay Tankers but also the -- some future available assets, and the banks pre-agreed that those -- that that debt could be conveyed with the asset. So that's a real benefit, because we couldn't replicate that kind of financing today in today's market, both in terms of the margin as well as in the basic terms. So that is an added benefit. But we first go and look at which kind of vessel we want and what's the price of that vessel, before we start looking at financing.

Was I correct, you have through June to make a decision on that?

That's right, through the end of June

Okay. Great. Thank you very much.

That's a Suezmax, by the way.

There are no further questions at this time, please go ahead.

Thank you very much for listening in, and I hope you'll visit our new website and enjoy tracking the Teekay Tankers fleet around the world. 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.