Teekay Tankers Ltd. Reports Third Quarter 2020 Results
Teekay Tankers Ltd. today reported the Company’s results for the quarter ended September 30, 2020:
Third Quarter of 2020 Compared to Second Quarter of 2020
GAAP net loss and non-GAAP adjusted net income for the third quarter of 2020, compared to the second quarter of 2020, primarily reflects lower average spot tanker rates and a higher number of scheduled drydockings during the third quarter of 2020. GAAP net loss in the third quarter of 2020 also included a $45.0 million write-down of assets, while GAAP net income in the second quarter of 2020 included a $15.2 million reduction in freight tax accruals relating to prior periods.
Third Quarter of 2020 Compared to Third Quarter of 2019
GAAP net loss for the third quarter of 2020 increased, while non-GAAP adjusted net income improved compared to the same period of the prior year. These measures were positively impacted primarily by higher revenues from several fixed-rate charters secured during the past year at higher rates and higher average spot tanker rates in the third quarter of 2020, partially offset by the sale of four Suezmax tankers during December 2019 and the first quarter of 2020, as well as 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. GAAP net loss in the third quarter of 2020 also included a $45.0 million write-down of assets.
“Despite weaker spot tanker rates and a heavy drydock schedule during the third quarter of 2020, Teekay Tankers reported an adjusted net income of $3.1 million, or $0.09 per share, as we benefitted from well-timed fixed-rate charters secured over the last several quarters at rates meaningfully above current spot market levels,” commented Kevin Mackay, Teekay Tankers’ President and Chief Executive Officer.
“Following three strong quarters, spot tanker rates came under pressure during the third quarter of 2020 as a result of seasonal weakness, record OPEC+ production cuts resulting from reduced oil demand related to the pandemic, and the unwinding of floating storage. We were able to successfully mitigate the impact of these weaker rates with 22 percent of our fleet on fixed-rate charters during the third quarter at an average rate of $37,600 per day,” commented Mr. Mackay. “This weakness in spot tanker rates has continued into the fourth quarter; however, there is potential for an uplift in spot tanker rates as seasonal winter conditions typically tighten tanker supply as we move through the fourth quarter. At this point, the near-term outlook remains uncertain, but we are pleased that we secured a fifth of our fleet on strong fixed-rate charters and remain encouraged by fleet supply fundamentals which are significantly more favorable relative to prior market cycles.”
“Increasing our financial strength has been one of our strategic priorities, and over the past year, we have transformed our balance sheet,” continued Mr. Mackay. “During this past year, we generated over $400 million in free cash flow and completed over $100 million of asset sales, which have contributed to net debt reduction of approximately $500 million, or 50 percent, as well as strengthened our liquidity position from around $100 million to $470 million at the end of the third quarter of 2020. In addition to delevering our balance sheet, we have also reduced our cost of capital through the recently completed debt refinancing and the voluntary early termination of existing sale-leaseback financings on two of our vessels.”
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 this COVID-19 pandemic over the past several months. With strong fixed-rate charter contracts, low free cash flow break-even, reduced balance sheet leverage, a strong liquidity position, and no debt maturities until 2023, we believe that Teekay Tankers is well-positioned financially to continue creating shareholder value throughout a wide range of near-term market conditions.”
Summary of Recent Events
In October 2020, Teekay Tankers repurchased two of its Aframax vessels that were previously subject to long-term finance leases for a total purchase price of $29.6 million. The purchases were funded with existing cash balances and therefore, the two vessels are currently unencumbered.
In September 2020, Teekay Tankers entered into a one-year time charter-out contract for an Aframax tanker at $18,700 per day, which commenced in early-October 2020.
In August 2020, Teekay Tankers secured a three-year, $67 million term loan to refinance four Suezmax tankers. The net proceeds from the new debt facility, along with existing cash balances, were used to repay approximately $85 million outstanding on the Company’s existing debt facility with respect to these vessels that was scheduled to mature in 2021.
Crude tanker spot rates fell during the third quarter of 2020 due to a combination of seasonal weakness, reduced oil demand due to the impact of COVID-19, and low trade volumes as a result of oil supply cuts by the OPEC+ group of producers. The return of some ships to the spot trading fleet from floating storage further compounded the weakness in rates.
Global oil demand has been gradually recovering since the low point in April 2020, when oil demand plummeted by over 20 million barrels per day (mb/d) due to severe restrictions and lockdowns in the wake of the COVID-19 outbreak. These restrictions, which were at their height in the second quarter of 2020, have eased since the summer, leading to a corresponding increase in oil demand. However, as of October 2020, global oil demand remains several million barrels below pre-pandemic levels and although global crude oil and refined product inventories have been falling since the third quarter of 2020, they remain well above long-term averages.
The OPEC+ group of oil producers, who implemented supply cuts of 9.7 mb/d in May 2020, returned 2 mb/d of supply to the market in August 2020. Although this was a positive step, it still results in crude trade volumes that are well below pre-pandemic levels, which has depressed crude spot tanker rates into the early part of the fourth quarter of 2020.
Typically, spot tanker rates would find some support during the winter months due to the seasonal impacts of higher oil demand and an increase in vessel delays due to poor weather and shorter daylight hours. While these seasonal factors are still expected to be positive for the tanker market, the potential increase in spot rates this winter is expected to be tempered by the underlying imbalance between tanker supply and demand. Mid-size tankers could find some support from an increase in Libyan crude oil production, which is expected to reach 1.0 mb/d during the fourth quarter of 2020, having averaged only 0.1 mb/d during the third quarter of 2020. However, this could be counter-balanced by a potential slowdown in demand due to a resurgence of COVID-19 cases in many regions and the potential for fresh restrictions and lockdowns over the winter months.
Looking ahead, the Company expects that tanker demand will continue to recover during 2021 as oil demand increases and oil inventories are brought back to more normal levels. However, the timing of this recovery remains uncertain and depends to a large extent on how the COVID-19 pandemic evolves over the coming months. The OPEC+ group is scheduled to return a further 2.0 mb/d of oil supply to the market from January 2021 onwards, which would be positive for tanker demand; however, a more definitive determination is expected to be made at the next OPEC meeting on November 30, 2020.
Fleet supply fundamentals continue to look very positive due to a significantly reduced level of newbuild ordering, a diminishing tanker orderbook, and the potential for higher scrapping due to an aging world fleet. As of October 2020, the tanker orderbook totaled 47.5 million deadweight tonnes (mdwt), or just over seven percent of the existing fleet size. When measured as a proportion of the total fleet, this is the lowest orderbook since 1996. The level of newbuild orders remains low, and is expected to remain so due to uncertainty over vessel technology and a more restrictive financial landscape. Although scrapping has been very low this year, scrapping facilities have now returned to full operation, and the level may pick up during periods of potentially weaker spot tanker rates in 2021.
In summary, the tanker market has come off the highs seen during the first half of the year, and the next few months look to be challenging. However, tanker demand should continue to gradually recover through the course of 2021 which, coupled with a positive fleet supply outlook, should help the tanker market begin to rebalance.
The following table highlights the operating performance of the Company’s time-charter vessels and spot vessels trading in revenue sharing arrangements (RSAs), voyage charters and full service lightering, in each case measured in net revenues(i) per revenue day, or time-charter equivalent (TCE) rates, before off-hire bunker expenses and fees associated with vessels exiting the RSAs:
As at September 30, 2020, the Company had total liquidity of $469.8 million (comprised of $120.9 million in cash and cash equivalents and $348.9 million in undrawn capacity from its credit facilities) compared to total liquidity of $467.5 million as at June 30, 2020.Full Report
Source: Teekay Tankers