Teekay Tankers (TNK) Q1 2026 Earnings Transcript

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DATE

Thursday, May 14, 2026 at 11 a.m. ET

CALL PARTICIPANTS

• President & Chief Executive Officer — Kenneth Hvid
• Chief Financial Officer — Brody Speers
• Head of Research — Christian Waldegrave

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TAKEAWAYS

• GAAP Net Income -- $154 million, or $4.42 per share, representing an increase of over $30 million sequentially and more than double year-ago results.
• Adjusted Net Income -- $128 million, or $3.69 per share, more than twice year-ago performance.
• Free Cash Flow from Operations -- Approximately $143 million, which lifted total cash to just under $1 billion with zero debt at quarter end.
• Spot Tanker Rates -- Averaged around $61,000 per day for the midsized fleet, near record highs for the first quarter.
• Fleet Transactions -- Entered agreements to acquire two Korean resale Suezmax newbuildings for $190 million (delivering in 2027), sold one 2009 Suezmax for $53.5 million (with a $32.5 million gain for Q2), and completed two Suezmax sales for combined proceeds of $73 million with $22.7 million in first-quarter gains.
• Cumulative Fleet Renewal Activity (Year-to-Date) -- Five modern vessels acquired or agreed for $332 million; four vessels sold or agreed for $211 million.
• Outcharter Activity -- Chartered one Suezmax at $80,000 per day for 10 to 12 months and one Aframax at $60,000 per day for 12 months.
• Spot Rate Guidance (Q2 Bookings So Far) -- Secured rates of $142,000 (VLCC), $122,000 (Suezmax), and $98,000 (Aframax LR2) per day; about 71% of VLCC spot days and roughly 57% of Suezmax and Aframax LR2 days are booked at these levels.
• Dividends -- Declared a fixed $0.25 quarterly dividend and a special $1.00 per share dividend based on prior-year results.
• Free Cash Flow Breakeven -- Current breakeven has declined to approximately $8,200 per day for the next 12 months.

SUMMARY

Teekay Tankers Ltd. (NYSE:TNK) documented unusually high spot rates and strong income growth, attributing market strength to Middle East disruptions and increased Atlantic Basin exports. Management reaffirmed commitment to disciplined fleet renewal, with recent vessel acquisitions counterbalanced by sales to manage asset age and capital allocation. Significant cash generation and lack of debt enable the company to capitalize on volatile market opportunities while maintaining capacity for further strategic investment. Industry discussion on the earnings call highlighted oil supply disruptions, shifting trade dynamics, potential for longer-term voyage inefficiencies, and an aging global fleet offsetting new builds.

• Christian Waldegrave said, "global oil inventories are being depleted across both commercial and strategic stockpiles," indicating that inventory restocking needs may drive future tanker demand.
• Management acknowledged a high tanker orderbook but stated, "the tanker order book is largely offset by the number of compliant tankers reaching age 20 over the same time frame in which the order book will deliver."
• Brody Speers clarified that 88% of the VLCC operating days for the quarter were already fixed at the guided rate level.
• Teekay Tankers has no plans to become a net seller, with a stated preference to "preserving scale relevance and earnings capacity."
• The executive team expressed willingness to let cash grow in the near term, given the capital-intensive industry and market volatility, with no near-term shift toward accelerated capital returns policy.
• Management flagged that future opportunities for fleet expansion would depend on evolving market dynamics, rather than driving near-term acquisitions above current levels.

INDUSTRY GLOSSARY

• VLCC: Very Large Crude Carrier; a crude oil tanker with a capacity typically between 200,000 and 320,000 deadweight tons, crucial for long-haul crude transportation.
• Suezmax: A class of tanker maximizing dimensions for transiting the Suez Canal, generally around 120,000 to 200,000 deadweight tons.
• Aframax: Medium-size crude oil tankers, usually between 80,000 and 120,000 deadweight tons, heavily used for regional oil transport.
• Outcharter: The practice of leasing a vessel out to another party, generally on a time- or spot-charter basis, to monetize current strong spot market conditions.
• Tonne-mile demand: A shipping industry metric combining volume shipped and distance traveled, used to assess total transportation demand.
• Free Cash Flow Breakeven: The daily vessel earnings rate at which total operating and capital expenses are covered, with any surplus available for capital allocation.
• Dark Fleet: Tankers operating outside international regulation, often serving sanctioned oil trades, typically with advanced vessel age and higher compliance risks.

Full Conference Call Transcript

Starting on slide 3 of the presentation we will cover Teekay Tankers' recent highlights. Teekay Tankers reported GAAP net income of $154 million or $4.42 per share and adjusted net income of $128 million or $3.69 per share in the first quarter, which are over $30 million better than last quarter and 2 to 3x the results posted in the same period of the prior year. Spot tanker rates during the first quarter were near record highs for first quarter, averaging approximately $61 thousand per day across our midsized tanker fleet. With our significant spot exposure and a low free cash flow breakeven, we generated approximately $143 million in free cash flow from operations, which has increased our cash position to just shy of $1 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. I am pleased to announce that we have entered into agreements to acquire 2 Korean resale Suezmax newbuildings for a total of $190 million which are expected to be delivered in 2027. We also sold 1 2009 build Suezmax of $53.5 million, resulting in an expected gain on sale of $32.5 million that will be recorded in Q2 2026. In addition, we have completed the previously announced sales of 2 Suezmax tankers for total proceeds of $73 million and recorded gains of sales of $22.7 million in the first quarter So far this year, we have acquired or agreed to acquire 5 modern vessels for a total commitment of $332 million and have sold or agreed to sell 4 vessels for $211 million. We also took advantage of the strong spot market we opportunistically outchartered 1 Suezmax for $80 thousand per day per day for 10 to 12 months. And this past week, we outchartered 1 Aframax vessel for $60 thousand per day for 12 months. Looking ahead to the second quarter, we expect even better results with tanker rates reaching record levels. So far in the second quarter, we have secured spot rates of $142 thousand $122 thousand and $98 thousand per day for VLCC, Suezmax, and Aframax LR2 fleets, respectively, with approximately 71% of spot days booked for OVLCC and on average, around 57% of spot days booked for Suezmax and Aframax LR2s. Lastly, Teekay Tankers has declared its regular fixed quarterly dividend of $0.25 per share. And in addition, we declared a special dividend of $1.00 per share, which, like prior years, is based on the previous year's financial results. Moving to slide 4, we look at recent developments in the spot market. Spot tanker rates in Q1 were close to record highs for first quarter. Just behind rates seen in the 2023. It is worth noting that spot rates were very firm even before the recent US Iran conflict. Due to a combination of rising seaborne oil trade volumes, tightening of sanctions against Russia, Iran, and Venezuela, and the impact of fleet consolidation in the VLCC sector. In particular, the removal of President Nicolas Maduro of Venezuela by The United States and the subsequent freeing up of Venezuelan crude oil exports to move on compliant tonnage to destinations such as the U.S. Gulf, Europe, and India benefited midsized crude tanker demand in Q1. Midsized spot tanker rates have continued to rise at the start of Q2, due to the impact of recent events in the Middle East reaching record highs of over $120 thousand per day during April, I will talk more about the reasons for these record high rates in the next few slides. Turning to slide 5. We are experiencing an unprecedented oil supply disruption with the effective closure of the Strait of Hormuz. On February 28, The United States and Israel launched a series of attacks against Iran targeting military and government sites. Iran subsequently responded by attacking a range of military and civilian assets across the Middle East region, including vessels transiting the Strait of Hormuz. Since then, The US has also implemented a blockade aimed at preventing ships from entering or leaving Iranian ports, The net result has been a significant drop in vessel traffic through the Strait Of Hormuz, which in turn has led to a sharp decline in Middle East oil production and exports, while Saudi Arabia and The UAE have been able to divert some of their export volumes to ports outside of the Middle East Gulf, namely Yanbu in the Red Sea and Fujairah in the Gulf of Oman, Total crude oil exports from the region have fallen approximately 10 million barrels per day compared to prewar levels. Partially offsetting the supply loss has been a corresponding increase in crude oil export from the Atlantic Basin and the West Coast Of The Americas where exports have increased by approximately 4.5 million barrels per day since the start of the war. This has been most evident in the U.S. Gulf, where crude oil exports reached a record high of 5 million barrels per day in April 2026. Boosted by the release of oil from the U.S. Strategic Petroleum Reserve. While an increase in supply from the Atlantic is nowhere near enough, to offset the loss of exports from the Middle East Gulf,, the resultant increase in voyage distances and associated trading inefficiencies have combined to boost spot tanker rates as detailed on the next slide. Turning to slide 6. We review the trade inefficiencies which have supported tanker rates. First, a number of vessels are trapped and unable to exit the Middle East Gulf, via the Strait Of Hormuz, which has reduced effective fleet supply. And the time of at the time of writing, we count a total of 100 tankers of Aframax size or larger, which are trapped west of Hormuz, of which 59 are VLCCs accounting for around 8% of the non sanctioned fleet. In addition, there are a further 86 vessels of Aframax size or larger, which are currently empty and sitting idle just outside the Strait Of Hormuz or off the West Coast Of India in anticipation of a potential reopening, of which over 50 are VLCCs. Secondly, the rush to find replacement barrels, particularly by Asian refiners which have been most impacted by the loss of Middle East oil, has led to an increase in vessels ballasting long haul from the Pacific Basin to the Atlantic in order to secure cargoes. A large proportion of these vessels are then sailing back to Asia once loaded in order to meet Asian refinery demand. Finally, the increase in vessels loading in the Atlantic and sailing long haul to Asia has not been limited to the VLCC sector. As we have also seen a significant lengthening in laden voyage distances for Aframax and Suezmaxes. As shown by the chart, average Aframax voyage distances for vessels loading in the U.S. Gulf have increased by 30% year on year while a record 69 Suezmaxes loaded from the U.S. Gulf during April. Many of which are fixed for Asian destinations. We have even seen 5 Suezmax cargoes load from the U.S. Gulf and transit to Asia via the Panama Canal. Which is a very unusual trade and highlights the lengths to which refiners in Asia are willing to go in order to make up for the shortfall in Middle East oil supply. Turning to slide 7. Look at the medium term tanker supply and demand outlook. Given the ongoing conflict in the Middle East and the high degree of unpredictability regarding when and how the conflict may be resolved, it is very difficult to assess what will happen to tanker tonne mile demand should the Strait Of Hormuz reopen as it will depend on how quickly vessel transits resume and the pace at which Middle East oil producers can resume exports. What we do know is that global oil inventories are being depleted across both commercial and strategic stockpiles, This could create additional tanker demand once the conflict is resolved as these inventories will have to be replenished. In addition, a push for energy security could lead to some countries building or expanding their strategic reserves in order to safeguard any future disruption. Some countries may also look to diversify their sources of crude oil imports, which could lead to longer voyage distances and, therefore, higher ton mile demand in the medium term. On the fleet supply side, the tanker order book continues to expand due to the relatively high pace of new vessel ordering in the recent months. However, a lack of scrapping means that the tanker fleet is rapidly aging. With the average age of the global tanker fleet currently the highest in over 30 years. As such, the tanker order book is largely offset by the number of compliant tankers reaching age 20 over the same time frame in which the order book will deliver. Not to mention the large dark fleet of tankers, which already has an average age of well over 20 years. In short, while the tanker order book appears large on the surface, these vessels are needed to replace the older fleet of tankers, which are approaching the end of their trading lives in the coming years. Though the timing of when vessels will exit the fleet is uncertain. Turning to Slide 8. We highlight our capability to create long term shareholder value. This includes: first, our ability to generate significant free cash flow with a low free cash flow breakeven. In the last 4 quarters, we have generated $380 million or $11.14 per share in free cash flow or nearly a 30% free cash flow yield based on the closing share price at the end of Q1 25. With our new outcharters and no debt, our current free cash flow breakeven has decreased to approximately $8.2 thousand per day for the next 12 months, which allows us to generate significant cash flows in almost any tanker market.

To emphasize the impact, every $5 thousand per day increase in spot tanker rates above our free our low free cash flow breakeven is expected to produce about $53 million or $1.53 per share of annual free cash flow. Second, we are progressing our fleet renewal by selling older assets in today's high asset price environment and recycling that capital to acquire more modern vessels. In a disciplined manner. This recalibration reduces our average age while maintaining operating leverage to the strong spot market.

Looking back 12 months, we have sold or agreed to sell 11 vessels for $432 million with combined gains of $139 million and acquired or agreed to acquire 8 vessels for $490 million Going forward, we expect to maintain our earnings capacity through this approach of trading in older assets for more modern vessels. Third, we have significant investment capacity, which allows us to incrementally progress our fleet renewal requirements while being patient. For larger transactions in the future at more attractive entry points. The tanker shipping industry is capital intensive and cyclical, and we believe having significant investment capacity allows us to act quickly when the timing is right.

As we look ahead, Teekay has significant operating leverage in this strong market environment and a strong financial footing, which positions the company well to continue renewing our fleet earning cash flow, building intrinsic value and returning capital to shareholders. With that, operator, we are now available to take questions.

Operator: Thank you. We will take our first question from Jon Chappell with Evercore ISI. Please go ahead.

Analyst (Jon Chappell): Thank you. Good morning. Let's start with that last part. I mean, it is something that we have spoken about in several calls, but now that the market's taken this next level higher, so spot, time charter, and asset values, it seems like the investment decision becomes even more complex because there is so many geopolitical factors involved. You bought those 27 Suezmaxes, but does it feel in this period of uncertainty and maybe elevated everything, that we just need to wait a little bit longer before some of the significant investment capacity is implemented.

Kenneth Hvid: Yeah, John. Good morning. I think you hit the nail on the head here. I think that is what every operator, every owner is looking at the moment. I think as we finished last year, we were probably of the mindset that we could enter into a softer year this year or more flat year. And then we had some new events that have certainly, as we have seen, brought us to record rates in Q1 and into Q2 here. And that has had an impact, as always, on where asset prices are trading. So the effect we have seen, as you know, is that we have seen very high secondhand values for prompt delivery.

We are trying to capture that. And so always this balancing of how much is in the price of the secondhand assets. We sold 1 of our of our oldest vessels and captured a record rate on that. And then we saw 1 of opportunity to redeploy into what we think is a is a fairly near term good opportunity of a quality asset with on a ship that we are happy to own for the next 20 years in our fleet. So I think it is a little bit of that blocking and tackling at a higher watermark than we expected we would probably have seen.

But I would say it is probably-- it is more-- it is not a higher watermark as opposed to a lower watermark in terms of our position at Teekay. We knew we had to get on with our fleet renewal. And that is what we are we are starting to do. But as I said in my prepared remarks, we probably going slower on the buying side than we would have hoped to do. Yeah. That makes sense.

Analyst (Jon Chappell): Just my follow-up, I am trying to understand the operational impact. You have on the trade inefficiencies. And although I do not think anybody would, be upset with $98 thousand a day, quarter to date for Aframaxes when you look at your slide 4 and see that parabolic move higher and midsize tanker rates, it feels like maybe higher based on some of the headline rates that we have seen in that particular asset class. So is that a function of timing or maybe some of the quarter to date was booked before? Rates took that next step higher? Is there a lot of excess ballast? Any situation or issues?

Any reason why maybe the absorption of the headline rates is not as high for that particular asset class given some of the inefficiencies that you have spoken to?

Kenneth Hvid: No. As we know, it is always a timing. I think the way we report these numbers is always I think we look at the positioning more as it is back to the next cargo again. So I feel we are not we are definitely not overpromising on the rates that we are doing. But I think that they are reflective of the market that we have seen. I mean, we are globally positioned. I think we have captured our fair share of the fixtures that have been out there when you when you operate on average.

But I do think I do agree that there is a huge variation on the rates that you are seeing in the in the different regions. So some of it is timing and over a short period. You know how that can how that can turn out. But I mean, overall, I think we have we have actually secured our fair share of all the very strong fixtures. So but there is a big range when the market is this volatile. As you know, it is you are dealing with big variations in rates on the day. But also in the different areas that you are in. Okay. Thanks, Kenneth. Thanks. Appreciate it.

Operator: We move next to the line of Omar Nokta with Clarkson Securities.

Analyst (Omar Nokta): Good morning. Yeah. Just have a couple of questions and maybe just the first 1. Following up on Jon's first question and your response in terms of fleet rejuvenation. I guess the thought is from here, given just how expensive things are and uncertainty that the market sort of has, is the plan still to pair up acquisitions with sales as you have done here over the past several quarters? It sounds like definitely not outpacing that in terms of making more acquisitions and sales. Just want to get a sense, is it still a plan to kind of pair them up? Or would you be more of a net seller as you had been you know, in prior years?

Kenneth Hvid: Yeah. I would say there is there is not a plan to be a net seller. I think we are balancing a number of objectives. First of all, we are very keen on preserving scale relevance and earnings capacity. And we think the level we are at now is probably close to the very minimum of exposure we want to have. it is still, as we say, gives us a lot of very meaningful upside given that. Over 80% of the fleet is in the spot market. So we like having that level of exposure given the size of the balance sheet. So no appetite to reduce that.

Of course, in a market that is that is running as hard as it is right now, it is it is very hard to, to find sensibly priced secondhand values for long term holders and operators like ourselves. So I think that is why we went in and took these, which are new buildings, but 1 year out. But the market is very dynamic, and I am I am sure when we when we speak a year from now, there will have been a number of opportunities, and we will be looking at some very different fundamentals and opportunities. So I think we will continue to do what we have been doing over the past 3 years.

We are trying to be opportunistic, do the best deals we can, as we see them. But at the moment, I think we are balancing continuing to create shareholder value. Capture as much of the strong market as we can, and, of course, keeping our eye on positioning the company for the long term and making sure that we set the company up in a way where we continue to create long term shareholder value.

Analyst (Omar Nokta): Thank you, guys. Certainly, that is quite helpful, and thanks for the detail, in that. And then maybe just to 1 simple follow-up just in terms of fleet deployment here in the second quarter in terms of, say, just I guess, in terms of the VLCC, and that is going to be sold and or delivered to the buyers in June. How many days do you expect to have for operating, I guess, during the second quarter before she's sold?

And then I guess, terms of the guidance you have given, you know, the remaining, say, 29% of the period, where she is not fixed are those regular operating days, or will they be more nonearning days related to delivery to the buyers?

Kenneth Hvid: Yeah. Hey. Omar.

Brody Speers: it is Brody. In the second quarter, we expect to have 75 operating days for the VLCC. And then the remaining days will just be unavailable days. We will have delivered the ship by that time. that is the expectation.

Analyst (Omar Nokta): Okay. Thank you. And so the 71% that you referenced, that is 75 days. Sorry.

Brody Speers: Yeah. So the 71 is based on 90 days. it is actually more like 88% of the 75 days has been fixed at that rate level.

Analyst (Omar Nokta): Got it. Understood. Okay. Thanks, Brody, and thanks, Kenneth. I will pass it back.

Operator: Thank you.

Analyst (Ken Hoexter): Our next question comes from the line of Ken Hoexter with Bank of America. Hey, great. Good morning. Kenneth and team. So just commentary on inventories. Not just the rebuild of what you would expect, but maybe some newer areas. Have you put, I do not know, maybe pen to paper on how meaningful or how long that could go out? And would you expect that rebuild cycle maybe not to start as once we see reopening that traders would allow I do not know, pricing to maybe come back to normal. And so that would be maybe a long tail leg as opposed to kind of an immediate move. Maybe just thoughts on that inventory side.

Kenneth Hvid: Thanks for that question. I think I will have Christian give a bit more color on this.

Christian Waldegrave: Yeah. I think our view on this, Kenneth, coming out once the Straits reopen, there definitely will be a need to replenish inventories. The pace at which that is done, I think, will be dependent on market conditions. So to your point, if oil prices are still over $100 a barrel, it may not be an urgency to refill the inventories.

But as and when Middle East production gets back to normal, and we get back to a more normal situation and the oil prices come down, I think there will be a need that will probably kick start the restocking process And I think there will be a need to rebuild the inventories that have been drawn down, but I think some countries also maybe that do not have strategic reserves will be looking at this in terms of energy security and there may be a need to build some strategic reserves over and above where they were pre-crisis levels I think also some countries will look at this, especially in Asia, and think that they are possibly have been over-relying on the Middle East Gulf, region for their oil imports. in the past.

And I think that fear is going to be there going forward. So what if this happens again? So I think you will see more diversification of trade as well, which from a tanker market perspective could lead to longer voyage distances as well. So yeah, I think there will be a tailwind from this in terms of a boost to tanker demand. I think to your point, there is a pace at which will happen will depend a little bit on the market conditions and the oil prices, but it might be a bit more of a longer term rebuild rather than a sudden, you know, rebuild once the straits reopen.

Analyst (Ken Hoexter): You do not think trading patterns go back to normal just to cut the length of haul over time. Do you think this structurally change trading patterns?

Christian Waldegrave: It might. I think that is that remains to be seen, but I think it is a bit like what is happened with Russia. Like, you think that if the Russia situation went back to normal, would Europe want to be so reliant on Russian energy? I think this energy security issue is become is going to be a big driving force once this resolves itself. And in the first instance, I think Asian countries will wanna take a lot of oil from the Middle East Gulf,, right, because it is the shortest distance.

But I think over a longer time period, I think every country is looking at these choke points now and looking at ways to mitigate that risk going forward, which could lead to changing trade patterns.

Analyst (Ken Hoexter): Great. Thanks for that. And then just thoughts on the dividend, right? So declared the special dividend. Thoughts on, I do not know, maybe increased frequency of if the market is not accommodative to buying. Maybe your thoughts on capital allocation in the near term Or how large do you want that cash hoard to start building?

Kenneth Hvid: Yeah. I think we have been pretty consistent over the past 3 years in terms of how we deal with the dividend. So think the question that is, of course, interesting is when do we have enough cash? And as I said in my prepared remarks here, This industry is capital intensive, and we know sometimes opportunities come suddenly, and of course, you can do a lot more with a billion dollars than you can do with half a billion dollars. But I think we are we are probably at the point where yeah, we will we will we can see our cash position grow quite meaningfully over the next quarter as well. That gives us a lot of capacity.

But I think it is a discussion that we will have next year again in terms of any other that sweeps we may want to do on that cash. Meanwhile, the market is so dynamic I think we all feel very good about the strong position we are in, and the incredibly strong balance sheet that we have managed to build over the past 4 years. Great. Thanks a lot for the thoughts and time. Appreciate it.

Operator: Thank you. At this time, there are no further questions. I would like to turn the floor back to the company for any additional or closing remarks.

Kenneth Hvid: Thank you very much for listening in today. We look forward to reporting back to you for the next quarter. In later in the year. So have a great day.

Operator: This concludes today's conference. We thank you for your participation. You may disconnect at this time.

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