Teekay Tankers 2026 Q2 Earnings Call

Thank you, Ed. Hello everyone, thank you very much for joining us today for the Teekay Group's second quarter 2026 earnings conference call. Joining me on the call today for the Q&A session is Brody Speers, Teekay Corporation's and Teekay Tankers' CFO. Ryan Hamilton, our VP of Finance and Corporate Development, and Christian Waldegrave, our Director of Research. Starting on slide three of the presentation, we will cover Teekay Tankers' recent highlights. Teekay Tankers reported GAAP net income of $226 million, or $6.49 per share, and adjusted net income of $194 million, or $5.56 per share in the second quarter, which was 50% better than our results posted last quarter. This quarter also marks the highest ever quarterly adjusted net income for the company, surpassing the previous record set in the first quarter of 2023.

Spot tanker rates during the second quarter were the highest ever as well, averaging $109,200 per day and $74,100 per day for our Suezmax and Aframax LR2 fleets respectively. With our significant spot exposure and a low free cash flow breakeven, we generated approximately $200 million in free cash flow from operations, which along with a vessel sale, has increased our cash position to over $1.2 billion with no debt as of quarter end. We continue to execute on our fleet renewal strategy, which includes acquiring modern vessels while selling our older vessels. In the second quarter, we completed the previously announced transactions, including acquiring two Korean Suezmax new buildings for a total of $190 million, which are expected to be delivered in 2027. We sold one 2009-built Suezmax for $53.5 million, recording a gain on sale of $32.3 million during the quarter.

At the beginning of July, we completed the previously announced VLCC sale for $84.5 million, and we expect to record a gain on sale of approximately $23 million in the third quarter. In addition, I want to highlight that all three Aframaxes acquired at the beginning of the year have been redelivered from their bareboat charters and are now being operating, under Teekay technical and commercial management and trading in the strong spot tanker market. Looking ahead to the third quarter, we have secured spot rates of $104,800 per day and $59,900 per day for our Suezmax and Aframax LR2 fleets, respectively, for approximately 44% spot rates booked. I'll touch on the market more in the next slide. Lastly, Teekay Tankers has declared its regular fixed quarterly dividend of $0.25 per share. Moving to slide four, we look at recent developments in the spot tanker market.

Spot tanker rates in the second quarter of 2026 reached a record high, with Teekay Tankers achieving average mid-size tanker rates of approximately $91,000 per day. This beat the previous record of just over $60,000 per day in the first quarter of 2023 by 50%, highlighting the incredible strength in the spot tanker market. The strength's continued in the Suezmax tanker segments, with rates remaining at near record levels so far in the third quarter. Spot rates have strengthened again in the Aframax sector during July, particularly in the Atlantic, where we're currently seeing rates of over $100,000 per day. Turning to slide five, we highlight several geopolitical events which have caused a series of disruptions to trade flows in recent months.

While these events have not directly impacted the safety or operations of our vessels, they are driving volatility in the oil and tanker markets. The war between the U.S. and Iran has significantly impacted vessel transits and oil flows through the Strait of Hormuz, which I'll cover in more detail on the next slide. More recently, the resumption of attacks by Houthi rebels in the Red Sea is impacting the flow of oil, heading south via the Bab el-Mandab Strait. Should this continue, a safer outlet for Saudi Arabian crude loading from the Red Sea port of Yanbu is through the Suez Canal, which would potentially add to tanker ton mile demand through longer voyage distances. Recent months have also seen an increase in attacks on Russian oil infrastructure, including the targeting of vessels loading from the Caspian Pipeline Consortium, or CPC terminal in the Black Sea.

We are now in an unprecedented situation whereby attacks on vessels are occurring in three separate regions that are vital to the global oil trade. Not only does this represent a severe risk to ships and crews operating in these regions, but it also adds further complexity to global oil trade flows and creates frustrating inefficiencies, which leads to further spot rate volatility Despite the severe disruption to oil markets, to oil exports and attacks on commercial vessels, the crude oil and shipping markets have remained resilient due to a combination of rising exports from other regions, oil inventory drawdowns and lower demand, particularly in Asia. These trends are most clearly demonstrated when looking at the United States and China. U.S. crude oil export reached a record high in June, supported by the release of oil from strategic reserves, which boosted mid-sized tanker demand in the Atlantic.

Meanwhile, Chinese crude oil imports fell to a 10-year low in June due to refinery run cuts and inventory drawdowns, which offered some relief to global oil markets and prevented oil prices from spiraling out of control. How these dynamics play out in the coming months will be key to determining whether the oil market can continue to cope with the loss of oil from key export regions. Turning to slide six, we provide an update on the Strait of Hormuz disruption. As shown by the chart on the left, transit through the vital Strait of Hormuz waterway collapsed in March before undergoing a partial recovery in June after the U.S. and Iran signed a framework agreement aimed at ending hostilities.

Renewed hostilities at the start of July, including attacks on vessels transiting the Strait of Hormuz, have led to a collapse of the agreement and a sharp slowdown in movement through the strait. As mentioned on the previous slide, the oil market has adjusted to the loss of Middle Eastern exports through a combination of Saudi Arabia and the UAE diverting supply to alternative ports, including Yanbu and Fujairah, which lie outside of the Middle East Gulf and rising output from the Atlantic basin. While this doesn't fully cover the loss of supply from the Middle East, a combination of longer voyage distances and increased trading inefficiencies have supported spot tanker rates.

The tanker market has also benefited from vessels being kept off market, either because they are trapped behind the Strait of Hormuz or because they are empty and sitting idle outside of Hormuz waiting for a resolution. Should Asian refiners look to increase supply from the Atlantic basin in light of new disruptions, a large number of tankers will have to ballast again to the Atlantic, which will stretch the fleet and give support to overall tanker demand. In short, the ongoing disruption to trade flows and resulting inefficiencies could benefit spot tanker rates. Turning to slide seven, we look at the medium-term tanker supply and demand outlook. Given recent events in the Middle East and the ongoing war between Russia and Ukraine, it is difficult to predict the future pathway for oil supply and demand.

It is clear that global oil inventories are being depleted due to the reduction in supply from the Middle East, with strategic and commercial inventories in the OECD currently at a 20-year low. The eventual replenishment of these inventories, once market conditions allow, should provide a significant boost to oil and tanker demand. On the fleet supply slide, a high level of new tanker orders in 2026 has expanded the order book, which now stretches into 2030. Scrapping activity remains limited, though pressure is building on the dark fleet of older vessels due to fewer trading markets as sanctions are lifted and as regulatory scrutiny increases. In addition, the tanker fleet continues to age, with the average age of the mid-sized tanker fleet now the oldest in over 30 years.

We believe the eventual removal of these older vessels should help in reducing the impact of rising tanker deliveries in the coming years. Turning to slide eight, we continue to build value and have significant financial strength and optionality. This includes, first, our ability to generate significant free cash flow with a low free cash flow breakeven. With the majority of our vessels trading in the strong spot market, we generated near record free cash flows in the first half of 2026. As an illustrative example, if we annualize our first half 2026 free cash flows, Teekay would generate free cash flows of $684 million, or almost $20 per share by the end of the year. With a free cash flow breakeven of approximately $9,700 per day over the next 12 months, we believe our operating leverage provides a powerful platform for continued cash generation and long-term value creation.