Teekay Tankers (TNK) Q3 2025 Earnings Transcript

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Date

Thursday, October 30, 2025 at 11 a.m. ET

Call participants

President & CEO — Kenneth Hvid

Chief Financial Officer — Brody Speers

VP Finance & Corporate Development — Brian Hamilton

Director of Research — Christian Waldegrave

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Takeaways

GAAP Net Income -- $92.1 million, or $2.66 per share for Q3 2025, directly reported as the highest quarterly performance in the past twelve months.

Adjusted Net Income -- $53.3 million, or $1.54 per share (adjusted) in Q3 2025, explicitly separated from GAAP results.

Free Cash Flow -- Approximately $69 million in free cash flow from operations during the third quarter, driven by spot rates exceeding cash flow breakeven levels.

Cash Position -- $775 million in cash on hand at the end of Q3 2025 and no debt, as directly stated in management commentary.

Fleet Renewal Transactions -- One Martin Suezmax acquired and the remaining 50% interest in a VLCC purchased; five vessels sold with combined gross proceeds of $158.5 million in Q3 and Q4 2025 and an estimated book gain of $47.5 million recognized in Q3 and Q4 2025.

Time Charter Activity -- One Suezmax out-chartered at $42,500 per day in Q3 2025 and two Aframax vessels at an average of $33,275 per day, each for twelve to eighteen month periods; two charters commenced with the third to start by November.

Spot Rate Performance -- Fourth quarter-to-date rates secured at $63,745 (VLCC), $50,000 (Suezmax), and $35,200 (Aframax/LR2) per day; 47%-54% of available spot days booked across the fleet for Q4 2025 to date.

Dividend Declaration -- Regular quarterly cash dividend of $0.25 per share announced for Q3 2025.

Spot Market Context -- Spot rates remained above historical averages, supported by record seaborne crude oil trade volumes in September 2025, excluding the 2020 oil price war period.

Fleet Cash Flow Breakeven -- Reduced to $11,300 per day from a prior $13,000 per day free cash flow breakeven in the third quarter, due to new out-charters and elimination of debt.

Summary

Teekay Tankers (NYSE:TNK) reported net income of $92.1 million in Q3 2025, the best performance in the last twelve months and made decisive moves on fleet renewal, acquiring two vessels and selling five for significant gains in Q3 and Q4 2025. The company secured time charters for three vessels at elevated rates and lowered its free cash flow breakeven through disciplined capital deployment. High spot charter rates have been secured for nearly half of Q4 2025, reinforcing cash generation capability. No debt and a strengthened cash balance position the company to pursue further accretive growth and capital returns as articulated in the call.

President & CEO Hvid stated, "our number one priority right now is investing in our core franchise," specifically Aframax and Suezmax segments.

Management underscored continued capital discipline, emphasizing value creation ahead of pursuing valuation or higher payout models, with Hvid saying, "we first focus on value before we focus on valuation. And valuation follows."

Hvid clarified that while the recent U.S.-China port fee agreement benefits the broader industry, Teekay Tankers' exposure remains minimal, indicating no material impact expected on the company from this deal.

Expanded geopolitical sanctions on Russian oil and changes in trade flows were discussed as market drivers potentially increasing demand for compliant tanker fleets.

The global order book stands at approximately 16% of the total fleet, according to recent statements, 20% of the midsized tanker fleet is now twenty years old or older, which management believes will not return to conventional trades even if sanctions are lifted.

Industry glossary

VLCC: Very Large Crude Carrier, a class of tanker typically transporting 2 million barrels of crude oil.

Suezmax: A tanker size class optimized for passage through the Suez Canal, usually carrying 1 million barrels of crude oil or refined products.

Aframax: A midsize tanker type with a generally accepted deadweight tonnage (DWT) between 80,000 and 120,000 tons.

Time charter: A leasing arrangement where a shipowner rents a vessel for a specified period at a fixed daily or monthly rate.

Free cash flow breakeven: The daily rate a shipping company needs to earn to cover all costs and maintain neutral cash flow, including capital outlays and dividends.

Shadow tanker fleet: Vessels engaged in trades that circumvent international regulations or sanctions, typically involved in restricted oil flows.

Order book: The total number of new ships on order with shipyards, expressed as a percentage of the existing fleet.

Full Conference Call Transcript

Kenneth Hvid: Thank you, Ed. Hello, everyone, and thank you very much for joining us today for the Teekay Group's third quarter 2025 Earnings Conference Call. Joining me on the call today for the Q&A session is Brody Speers, Teekay Corporation's and Teekay Tankers' CFO, Brian Hamilton, our VP Finance and Corporate Development, and Christian Waldegrave, our Director of Research. Starting on slide three of the presentation, we will cover Tankers' recent highlights. Teekay Tankers reported the best performance in the last twelve months with GAAP net income of $92.1 million or $2.66 per share and adjusted net income of $53.3 million or $1.54 per share in the third quarter.

Third quarter spot rates remained counter-seasonally strong with rates meaningfully above the historical average for the third quarter. Further, with spot rates well above our free cash flow breakeven levels, the company generated approximately $69 million in free cash flow from operations and at the end of the quarter, had a cash position of $775 million with no debt. Teekay Tankers continues to execute on its fleet strategy fleet renewal strategy delivering on its previously announced transactions. Since the beginning of the third quarter, we have completed the acquisition of one Martin Suezmax and the remaining 50% ownership interest in a VLCC from our joint venture partner.

In addition, the company completed the sales of five of four Suezmax tankers, which delivered to their new owners in the third and fourth quarters. The combined gross proceeds of the five vessel sales is $158.5 million, and we expect an estimated book gain on sales of approximately $47.5 million recorded in the third and fourth quarters. In addition, the strength in the spot market supported the time charter market and the company opportunistically out-chartered one Suezmax vessel for $42,500 per day and two Aframax sized vessels for an average time charter rate of $33,275 per day for periods ranging from twelve to eighteen months.

Two of these charters have already commenced with the remaining charter set to start in November. Looking at our fourth quarter to date, we have secured spot rates of $63,745, $50,000, and $35,200 per day for our VLCC, Suezmax, and Aframax LR2 fleets respectively, approximately 47 to 54% of spot days booked. We believe the tanker market is well positioned for a firm winter market which we will discuss in more detail in the next few slides. Lastly, Teekay Tankers has declared its regular fixed dividend of 25¢ per share. Moving to slide four, we look at recent developments in the spot tanker market.

Spot tanker rates improved during 2025 with rates on a par with strong levels seen over the past three years and well above long-term average levels. An increase in global oil supply due to the unwinding of OPEC plus supply cuts and rising production in the Atlantic Basin led to a sharp increase in global seaborne crude trade volumes during September to the highest level since early 2020. Rates were further boosted by an increase in long-haul crude oil movement between the Atlantic and Pacific basins, particularly in the Suezmax and VLCC segments.

As shown by the chart on the right of the slide, spot tanker rates strengthened further at the start of the fourth quarter with rates in October near the top of the five-year range. Turning to Slide five, we look at the growth in global crude oil production and exports, which is underpinning the recent strength in spot tanker rates. Global oil production has been rising throughout the year due to increases from both OPEC plus and non-OPEC plus sources. In 2023, at the April, but by September had completed the unwind of the first round of cuts totaling 2.2 million barrels per day.

The group is now in the process of unwinding the next round of cuts totaling 1.65 million barrels per day at a rate of 137,000 barrels per day every month over the next year. Oil production has also been boosted by new supply coming online from non-OPEC plus countries, particularly in South America where new production in Brazil and Guyana is in the process of ramping up. The increase has been particularly evident during the third quarter with supply growing by 1.6 million barrels per day compared to Q2 levels.

The net result of the higher oil production has been a sharp increase in seaborne crude oil trade volumes, most notably since September as more Middle East crude has been made available for export following the end of the summer direct crude burn season. In fact, if we exclude the period in early 2020 when Saudi Arabia and Russia flooded the market with oil during the brief oil price war, global seaborne crude oil trade volumes are currently at a record high. With OPEC plus expected to continue to unwind supply cuts in the coming months, we expect global seaborne trade volumes to increase further during the fourth quarter.

Turning to Slide six, we look at some of the near-term oil market fundamentals, which we believe will support spot tanker demand in the coming months. One of the consequences of higher oil production this year has been a decrease in crude oil prices. As shown by the chart on the left of the slide, for countries outside The United States, the weaker US dollar has led to an even steeper drop in real oil prices. Lower oil prices are generally positive for tankers as it spurs oil consumption and lowers bunker fuel prices, which is our largest operating cost. Low oil prices also stimulate demand for stockpiling, both for commercial and strategic purposes.

Given that global oil inventories are below long-term average levels, we believe that there is enough spare capacity to absorb a prolonged period of excess oil supply. Should global oil supply growth continue to exceed demand in the coming months, as many analysts predict, then we could even see a contango oil price structure emerge which could further stimulate tanker demand. Turning to Slide seven, we look at the geopolitical events, which are creating trade inefficiencies and adding further volatility to what is already a firm underlying tanker market. In recent weeks, we have seen a number of announcements with regards to sanctions and port fees, which are serving to create uncertainty and inefficiency in the tanker market.

It is positive that The U.S.-China trade agreement announced earlier today includes a postponement of the announced port and shipping fees by at least a year. As it relates to sanctions, we have seen an escalation of efforts to curb Russia's profits from oil sales via a series of new sanctions by both the EU and The United States, most notably the recent actions to sanction Rosneft and Lukoil who together control around 50% of Russian oil production and exports. While this is a fast-evolving situation, it is reported that some refiners in India and China are backing off from Russian imports and looking to alternative suppliers in The Middle East and Atlantic Basin.

This is positive for the tanker market as these volumes will need to be transported via the fleet of compliant tankers rather than the fleet of shadow tankers, which currently transport the majority of Russian crude oil to India and China. We believe that these factors coupled with the strong crude oil trade volumes described earlier, as well as normal winter seasonal factors will help drive a firm spot tanker market in the coming months. Turning to Slide eight, we review the key drivers for the medium-term outlook.

Global oil demand is projected to increase by 1.1 million barrels per day in 2026 as per the average forecast from the three major oil agencies, which is in line with average growth levels since the end of the COVID pandemic. Global oil supply is also set to rise with more production due to come online from non-OPEC countries. It remains to be seen how OPEC will respond. Should oil inventories continue to fill and oil prices come under further pressure.

However, we believe that there is still plenty of room for inventories to build in 2026, particularly in China, where the government is reportedly looking to add 169 million barrels of new strategic storage by the end of the year. The fleet supply side continues to look balanced with the order book size stable in recent months at around 16% of the existing fleet. A continued lag of tanker scrapping means that the fleet continues to age with the average age of the global tanker fleet now at its highest point since the 1990s.

In the midsized tanker fleet, 344 vessels or 20% of the total fleet is now aged twenty years or older, most of which are sanctioned vessels engaged in shadow trades. We believe that these older tankers will not return to conventional trading even in the event that sanctions are lifted. While the medium-term tanker market outlook appears well balanced, there are a number of geopolitical uncertainties which could influence the direction of the tanker market depending on how they unfold.

These include the outcome of the war in Ukraine and the fate of the shadow fleet serving Russian trade, developments in The Middle East, and disruptions to Red Sea transits, the impact of tariffs and trade barriers on the global economy, and OPEC plus production policy. Turning to Slide nine, we highlight Teekay Tankers' value proposition. First, our operating leverage remains significant and the company is well positioned to generate substantial cash flows in nearly any tanker market. With the three new out charters and no debt, we have lowered our fleet's free cash flow breakeven from $13,000 per day to $11,300 per day.

With this low free cash flow breakeven, every $5,000 per day increase in spot rates above the threshold produces $1.66 per share of annual free cash flow, nearly 3% on a free cash flow yield basis. Second, Teekay Tankers has a strong balance sheet with no debt and a $775 million cash position which provides capacity for disciplined accretive fleet growth. Third, we continue to return capital to shareholders in a disciplined manner through our quarterly dividend. And lastly, the company's performance is underpinned by our integrated platform. We believe our in-house commercial and technical management is a competitive advantage.

Combined with our fifty years of operating experience in the tanker industry, we provide superior service to our customers and transparency through the value chain which drives shareholder returns. In summary, the company's strategy over the last several years has been to maximize shareholder value through our exposure to the strong spot market. This year, we began taking measured action to renew our fleet by making incremental investments in more modern vessels while at the same time selling some of our oldest tonnage. As we look ahead, our best-in-class operating platform and strong financial footing positions the company well to continue renewing our fleet, earning cash flow, and building intrinsic value.

With that, operator, we are now available to take questions.

Operator: Thank you. If you are dialed in via the telephone and would like to ask a question, please signal by pressing star 1 on your telephone keypad. To log your signal to reach our 1 to ask a question. We will go first to Omar Mostafa Nokta with Jefferies.

Omar Mostafa Nokta: Thank you. Hi, Kenneth. Thank you for the update. Just wanted to ask maybe I had a couple of questions. Maybe first, just on the market. And kind of where things sit right now. Clearly, things have gotten much stronger. When we think I think a lot of times when we sort of talk about or think about rising OPEC production, think a lot about say, VLCCs certainly, those rates have, you know, shot towards, you know, past $100,000 a day. But we are also seeing some real strength in the Suezmax and Aframax segments, which are, you know, your bread and butter.

Can you just talk a little bit about how these segments maybe interact with each other or maybe move together, and what is really been driving some of the strength we have seen in the midsize segments here recently?

Kenneth Hvid: Yeah. Thanks. Thanks, Omar. You are absolutely right. I mean, I think when we look at this year, I think the second half of the year has definitely been one going from strength to strength. And I would argue maybe even stronger than most of us expected. What we have seen, just over the last week really is that strength just continues to pick up. So the week is finishing stronger, both in the VLCC, the Suezmax, and the Aframax segments as well as the LR2s, right? So it is really moving up in all of the categories.

And, if you look back over the last, well, since April 2022, what we had was that we had a period where the Aframax absolutely outperformed all sectors as you know. And I think what we have kind of reverted to is more of the traditional dynamics where the larger ships lead the way. They pull up the Suezmaxes and that pull up the Aframaxes. And, underlying that, of course, is that we have a very strong product trade as well that is happening. So everything is really working in all of the different segments where maybe it is more a matter of that in the last three years, the Aframax were really the outliers because they really outperformed everything.

But now we are kind of back to what you would say would be the normal dynamics in a strong tanker market where everything is balanced. And I think what we are seeing now is that we have, as we say, a record number of barrels that are being transported on the water. Of course, most of these barrels in the traditional sense always go on the most efficient vessels, which are VLCCs. But when there is this much oil and this type of supply, then it pulls up the whole market. And that is, I think, in all simplicity what we are seeing here.

Omar Mostafa Nokta: Yeah. That thank you for that helpful color. And I guess maybe just kind of thinking about where Teekay stands. You know, clearly, you guys have been in a very strong financial position for the past several quarters, perhaps several years. Cash is building. And, you know, you have reiterated, you know, several times, be patient, be patient, which makes a whole lot of sense. Given all the unknowns.

As we kind of think about where you are headed, I think it was last quarter or maybe the quarter before you had talked, you know, when it came time to maybe reinvest or add more exposure, you were kind of looking to scale more perhaps into the MR segment, into product? Is that still the case if you kind of think about where you stand if you wanted to deploy more capital or more net capital scale up into the VLCCs?

Would you want to go into products more deeply, or do you feel you would want to either or perhaps maybe just stay within your, you know, your back using the term bread and butter, but the Suezmax, Aframax segment?

Kenneth Hvid: Yeah. That is a great question. I mean, just to be very clear, our core business is absolutely the medium-sized tankers and we constantly look for where we can find incremental value both in our core, but also the adjacent sectors. I think when we had this call almost a year ago, we talked about the MR sector, which looked interesting at the time relative to some of the other sectors. I think as we are sitting here today, we are one year further down the road here. And looking at how we have renewed the fleet or have taken action on some of our older tankers and started to renew our core fleet.

Our focus is, our number one priority right now is investing in our core franchise. I would not say that there never would be an opportunity in MR, but speaking now we actually think that the better value for us is to allocate capital towards our core segments, which are Aframaxes and Suezmaxes.

Omar Mostafa Nokta: Okay. That is very clear. I appreciate that. Thank you. I will pass it back. Thanks. Bye.

Operator: We will go next to Ken Hoexter with Bank of America.

Tim Chang: Hi. This is Tim Chang on for Ken Hoexter. To kind of extend on Omar's question, you have sold 11 vessels year to date and while sales kind of outpaced purchases thus far, you mentioned last quarter you are focusing on accelerating the pace of fleet renewal going forward. So do you feel you are close to the minimum fleet size now? And do you perhaps aim for purchases of new core Aframaxes and Suezmaxes to offset any following sales?

Kenneth Hvid: I think the short answer is yes.

Tim Chang: Got it. And saw your new time charter out agreement with three vessels locking in very favorable rates. Do you expect to engage in more of those given elevated rates near term in 2026?

Kenneth Hvid: Yeah. That is a good question. I mean, we look at every deal opportunistically. There is always a timing, and we consider what is the outlook. And it is very dynamic. We think it is prudent when you see strong time charter rates to log it in, especially if it is with good customers. So it is an ongoing dialogue. It is not a state of strategy that we need to have a certain percentage of our fleet. We are happy to have spot exposure. But these levels, we know in historical terms, are very strong levels, so we can log it in.

And as we pointed out in our remarks, every time we do that, we lower our cash flow breakeven even further. So as you can see, it is a very, very strong position that we are in, in terms of generating cash flows in the spot market. But at the same time, even if we did another couple of these at these levels, then, of course, our free cash breakeven would go down even further. So we look at it as a portfolio and on a deal-by-deal basis.

Tim Chang: Thanks. Appreciate all the insight. Thanks for the questions.

Operator: We will go next to Ford Moychtel with Clarkson Securities.

Ford Moychtel: Thank you. Hi, guys. My first question is on this new, well, China US deal. I guess the Aframax is under the previous USTR regulation was not exempt. Right? So now with the USTR port fees being suspended for a year, does that improve the Aframax opportunities for you guys? Maybe they will, you know, of course, the exports out of The US Gulf but also maybe lightering opportunities. Any color you have on that, please?

Kenneth Hvid: Yeah. Obviously, the deal is very, very new. I think the position we took, first when the USTR came in and recently also the China port fees is that with the way that our fleet is composed, we do not have massive exposure to either sector. And therefore, I think the outcome of this agreement, I think, overall is positive for the industry. But I do not think it has any significant impact on Teekay per se. The same way as the port fees did not have a significant impact on us either. So overall, I think it is a positive.

As it was clearly driving some inefficiencies, which I do not think serves the industry well over the long term. But let us see. I mean, so far, it is only one year we note that has been agreed.

Ford Moychtel: Yeah. Sure. Makes sense. Next question. I guess, more generally speaking, you have clearly proven, I guess, that you have high total shareholder returns, right, CSR? Which does not really require a high payout model. So you know, how confident are you that the stock market would, you know, appreciate that approach today? And you know, given that there is still a slight discount in a year, you know, what might close the remaining valuation gap for your view?

Kenneth Hvid: Yeah. I think over the past seven years, we have been very, very clear on that we first focus on value before we focus on valuation. And valuation follows. And I think to your point, I think that is what we are happy to see that is actually being recognized by the market. So when we look at it through a five-year lens, you are absolutely right. I think that model is right. A company should always focus on value creation, and that is what we are focused on here.

I think it is in any business and shipping, it is about that we continue to have a strong balance sheet that we can act at times when we see good buying opportunities, that we can act when we see good selling opportunities, and we have a strong operating platform with low cash flow breakeven. And that is the fortunate position that we after many years of hard work, put Teekay back in. And operating with that model delivers value every day. And we think we are in a very strong position to continue to build intrinsic value and we fundamentally believe that will always be recognized by the markets ultimately.

Ford Moychtel: Yeah. I agree. Thank you very much.

Kenneth Hvid: Thank you for the questions.

Operator: Thank you. With no additional questions holding, I will now turn the conference back to the company for any additional or closing remarks.

Kenneth Hvid: Thank you for listening into our call today. We look forward to reporting back to you next year.

Operator: Thank you. Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time.

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