Teekay Tankers Ltd. Reports Fourth Quarter and Annual 2020 Results
Teekay Tankers Ltd. yesterday reported the Company’s results for the quarter and year ended December 31, 2020:
Fourth Quarter of 2020 Compared to Third Quarter of 2020
GAAP net loss and non-GAAP adjusted net loss for the fourth quarter of 2020, compared to the third quarter of 2020, primarily reflect lower average spot tanker rates, the expiration of certain fixed-rate charters, and a higher number of scheduled drydockings during the fourth quarter of 2020, partially offset by lower vessel operating expenses and interest expense in the fourth quarter of 2020. GAAP net loss for the fourth quarter of 2020 was negatively impacted by an $18.1 million freight tax accrual adjustment, of which $10.5 million relates to 2020 (of which $2.1 million relates to the fourth quarter of 2020) and is included in non-GAAP adjusted net loss. In addition, GAAP net loss in the fourth quarter of 2020 also reflects a $20.7 million reduction in write-down of assets compared to the third quarter of 2020.
Fourth Quarter of 2020 Compared to Fourth Quarter of 2019
GAAP net loss and non-GAAP adjusted net loss for the fourth quarter of 2020, compared to the fourth quarter of 2019, were impacted primarily by lower average spot tanker rates and a higher number of scheduled drydockings during the fourth quarter of 2020, as well as the sale of four Suezmax tankers during December 2019 and the first quarter of 2020 and the sale of the non-US portion of the ship-to-ship support services and LNG terminal management business in the second quarter of 2020. These decreases were partially offset by lower vessel operating expenses and interest expense in the fourth quarter of 2020 compared to the same period of the prior year. GAAP net loss for the fourth quarter of 2020 was also negatively impacted by an $18.1 million freight tax accrual adjustment, of which $10.5 million relates to 2020 (of which $2.1 million relates to the fourth quarter of 2020) and is included in non-GAAP adjusted net loss. In addition, GAAP net loss in the fourth quarter of 2020 reflects an $18.7 million increase in write-down of assets compared to the fourth quarter of 2019.
“Crude spot tanker rate weakness persisted into the fourth quarter of 2020 as a result of OPEC+ production cuts resulting from reduced oil demand related to the COVID-19 pandemic and the unwinding of floating storage,” commented Kevin Mackay, Teekay Tankers’ President and Chief Executive Officer. “Despite the pronounced weakness in the fourth quarter and unprecedented challenges faced throughout 2020, Teekay Tankers nevertheless reported one of our best ever annual results.”
“During 2020, we have transformed our balance sheet and have built a resilient financial position,” commented Mr. Mackay. “We have generated $277 million of free cash flow and completed $86 million of asset sales, contributing to a net debt reduction of $419 million, or 45 percent. Our liquidity position has improved by over $220 million, reaching $373 million as of December 31, 2020. In addition, we have also reduced our cost of capital by repurchasing two vessels previously under sale-leaseback financings in October 2020 and declaring purchase options on two additional sale-leaseback vessels for an expected delivery in May 2021.”
“Through the early part of 2021, the tanker spot market continues to be depressed, and the immediate outlook remains uncertain,” commented Mr. Mackay. “Looking ahead, though, we believe that the underlying tanker supply fundamentals remain positive and should result in meaningfully improved tanker market conditions as the global economy and oil demand return to more normal conditions. Based on our forward view, we opportunistically entered into a seven-year in-charter agreement for a newbuilding eco-Aframax at an attractive rate, which we anticipate will deliver into a strong tanker market in the fourth quarter of 2022, enabling us to increase our scale in a less capital-intensive manner.”
Mr. Mackay concluded, “I want to thank our seafarers and onshore colleagues for their continued dedication to provide safe and uninterrupted service to our customers during the COVID-19 pandemic over the past year. It has truly been a collective effort that has embodied the Teekay values of Teamwork and Reliability.”
Summary of Recent Events
In November 2020, Teekay Tankers declared options to purchase two of its Suezmax vessels that are currently on long-term sale-leaseback financings for approximately $57 million, with expected delivery to the Company in May 2021. The Company intends to fund the purchase price with existing liquidity and potentially a new long-term debt facility.
In December 2020, Teekay Tankers entered into a seven-year in-charter agreement (plus extension and purchase options) for one eco-Aframax newbuilding vessel at an attractive rate of $18,700 per day, with expected delivery in late-2022.
In February 2021, Teekay Tankers entered into an agreement to sell two unencumbered 2008-built Aframax tankers for total gross proceeds of $32 million, with expected delivery to the buyer in March 2021.
Crude tanker spot rates declined during the fourth quarter of 2020, due to a combination of lower oil demand as a result of COVID-19, persistent OPEC+ supply cuts, and the return of ships to the spot trading fleet from floating storage.
Renewed lockdowns in many parts of the world due to a second wave of COVID-19 and the emergence of new, more transmissible variants of the virus led to lower oil demand during the fourth quarter of 2020 than was previously expected. In the International Energy Agency (IEA) October 2020 Oil Market Report, global oil demand was projected to be 96.1 million barrels per day (mb/d) for the fourth quarter of 2020. However, in its January 2021 report, this figure was revised down to 94.5 mb/d. On the oil supply side, the OPEC+ group of producers has shown strong discipline in sticking to planned supply cuts in order to rebalance the oil market, with global oil supply in the fourth quarter of 2020 averaging just 92.3 mb/d, more than 8 mb/d below pre-COVID levels. Finally, the amount of fleet capacity tied up in floating storage or idle due to port delays fell by around 13.2 million deadweight tonnes (mdwt), or 25 percent, during the fourth quarter of 2020, adding to available fleet supply. The combination of slower oil demand growth, limited cargo supply, and an increase in fleet supply has been very negative for crude tanker spot rates.
Crude tanker spot rates have remained weak during the first quarter of 2021, and the market faces several headwinds in the near-term. Firstly, despite the start of vaccine programs in many countries, it is expected that the adverse impacts of COVID-19 will continue to dampen oil demand in the coming months. For example, China reintroduced some travel restrictions before the Lunar New Year in response to rising cases, which has led to lower Chinese crude oil imports. Secondly, and in addition to the OPEC+ group cuts already in place, Saudi Arabia has cut oil supply by an additional 1 mb/d in February and March 2021, which is expected to reduce cargo supply. Thirdly, a backwardated oil structure may lead to further inventory drawdowns and the release of more vessels to the spot trading fleet from floating storage in the coming weeks and months.
Looking further ahead, oil demand is expected to rise in the latter part of 2021 in tandem with the rollout of coronavirus vaccination programs. As per the IEA, global oil demand is expected to increase by approximately 5.5 mb/d between the first and fourth quarters of 2021, which should in turn lead to higher refinery throughput. In addition, it is anticipated that global oil inventories will revert to more normalized levels during the course of the year, with crude inventories expected to normalize earlier than product inventories, meaning that a rise in oil demand will likely be met by higher oil supply. As such, it is expected that the OPEC+ group will start to return barrels to the market in the second half of 2021, which in turn is expected to be positive for tanker demand. However, the exact timing of these events is uncertain.
The fleet supply side of the equation continues to look very favorable. Although there has been a slight uptick in newbuild orders in recent months, the orderbook size remains small by historical standards at approximately 8.1 percent of the existing fleet size. With newbuild prices starting to rise, ongoing uncertainty over vessel technology, and a restrictive financial landscape, the Company expects the overall level of newbuild tanker orders to remain low. In addition, tanker scrapping is expected to pick up in 2021, due to a combination of weaker freight rates, higher scrap prices, and increasing regulatory pressure on older vessels. As a result, tanker fleet growth is expected to remain low during both 2021 and 2022.
In summary, the tanker market faces a challenging few months due to the impact of COVID-19 on oil demand, as well as ongoing OPEC+ supply cuts. However, tanker demand is expected to improve later in 2021 as vaccine programs are implemented worldwide, at which time the OPEC+ group is expected to return oil supply to the market. Low tanker fleet growth should further help facilitate an improvement in the tanker market, particularly if tanker scrapping increases over the coming months.Full Report
Source: Teekay Tankers