Q1 2025 Teekay Corporation Ltd-Teekay Tankers Ltd Earnings Call
Operator: Welcome to the TK Group First Quarter 2025 Earnings Results Conference call.
Welcome to the Teekay Group first quarter 2025 earnings result conference call. During the call all participants will be in a listen only mode. Afterwards, you will be invited to participate in a question and answer session.
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Operator: As a reminder, this call is being recorded.
As a reminder, this call is being recorded.
Operator: Now, for opening remarks and introductions, I would like to turn the call over to the company. Please go ahead.
Speaker Change: Now for opening remarks, and introductions I would like to turn the call over to the company. Please go ahead.
Operator: Before we begin, I would like to direct all participants to our website at www.tk.com where you'll find a copy of the TK Group's first quarter 2025 earnings presentation. Kenneth will review this presentation during today's conference call.
Speaker Change: Before we begin I would like to direct all participants to our website at www Dot T K dot com, where you'll find a copy of the Teekay group's first quarter 2025 earnings presentation.
Speaker Change: Kenneth will review this presentation during today's conference call.
Operator: Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from results projected by those forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the first quarter 2025 TK Group earnings presentation available on our website.
Speaker Change: Please allow me to remind you that our discussion today contains forward looking statements actual results may differ materially from results projected by those forward looking statements.
Speaker Change: Additional information concerning factors that could cause actual results to materially differ from those in the forward looking statements is contained in the first quarter 2025, Teekay group earnings presentation available on our website.
Kenneth Hvid: I will now turn the call over to Kenneth Hvid, Teekay Corporation and Teekay Tankers President and CEO to begin. Thank you, Ed. Hello, everyone. And thank you very much for joining us today for the TK Group's first quarter 2025 earnings conference call.
Speaker Change: I will now turn the call over to Ken said, Teekay Corporation, and Teekay tankers, President and CEO to begin.
Speaker Change: Thank you Ed and Hello, everyone and thank you very much for joining us today for Teekay group's first quarter 'twenty to 'twenty five earnings conference call join.
Kenneth Hvid: Joining me on the call today for the Q&A session is Brody Speers, Teekay Corporations and Teekay Tankers CFO, Ryan Hamilton, our VP Finance and Corporate Development, and Christian Waldegrave, our Director of Research.
Speaker Change: Joining me on the call today for the Q&A session is Brody Speers teekay corporations, and she get tangled CFO, Ryan Hamilton, All VP finance and corporate development and Christian Waldegrave director of research.
Kenneth Hvid: Starting on slide three of the presentation, we will cover Teekay Tango's recent highlights. Teekay Tankers reported GAAP net income of $76 million, or $2.20 per share, and adjusted net income of $42 million, or $1.21 per share, in the first quarter. Teekay Tankers also generated approximately $65 million in free cash flow from operations during the quarter. Over the last several years, TK Tankers has created significant value for a strategy of maximizing our operating leverage to a strong tanker market, both by keeping our fleet spot exposed as well as opportunistically increasing our exposures through well-timed in-charters. As asset values have been plateauing and remain at historically high levels, we are focused on reducing our exposure to 18 to 19-year-old tankers, as well as opportunistically selling some 2009-built Suez For more information visit www.FEMA.gov Altogether, since the beginning of the year, our pace of vessel sales has increased, as we have sold six vessels for total gross proceeds of approximately $183 million, for a total expected accounting gain on sale of approximately $53 million.
Speaker Change: Starting on slide three of the presentation, we will call the Teekay tankers recent highlights.
Speaker Change: Teekay tankers reported GAAP net income of $76 million or $2 20 per share and adjusted net income of $42 million or $1 21, St especially here in the first quarter.
Speaker Change: <unk> also generated approximately $65 million in free cash flow from operations during the quarter.
Speaker Change: Over the last several years Teekay tankers has created significant value for a strategy of maximizing our operating leverage through a strong tanker market both by keeping all fleet spot exposed as well as opportunistically increasing.
Speaker Change: Focus from well timed in shoppers.
Speaker Change: As asset values have been plateauing and remain at historically high levels. We are focused on reducing our exposure to 18 to 19 year old, saying goes as well as opportunistically selling some 2009 built suezmax is.
Speaker Change: Altogether since the beginning of the year peso vessel sales has increased as we have sold six vessels for total gross proceeds of approximately $183 million or a total expected accounting gain on sale of approximately $53 million. In addition, as previously announced we have.
Kenneth Hvid: In addition, as previously announced, we have also agreed to acquire a modern LI2 vessel, which we expect to take delivery of at the end of the month. All of this is part of our fleet renewal plan, which includes selling older vessels and acquiring modern vessels. While we have been more active recently in selling rather than buying, we expect this trend to change over time as we see opportunities to acquire more modern tonnage.
Speaker Change: Also agreed to acquire a mountain dew vessel, which we expect to take delivery off at the end of the month.
Speaker Change: All of this is part of our fleet renewal plan, which they don't just selling older vessels and acquiring more modern vessels.
Speaker Change: And more recently in selling rather than buying it we expect this trend to change over time as we see opportunities to acquire more modern tonnage.
Kenneth Hvid: Looking at our second quarter to date rates, the spot tanker market has strengthened and we are booking rates at meaningfully higher levels than the first quarter. We have secured spot rates of $40,400 per day and $36,800 per day for our Suez Maxx and Afro Maxx LR2 fleets, respectively, with approximately 45% of our spot days booked. We will discuss the drivers of the market in the subsequent slides.
Speaker Change: Looking at our second quarter to date rates the spot tanker market has strengthened and we are booking rates up meaningfully higher levels than the first quarter.
Speaker Change: If secured spot rates of 40000 and $400 per day.
Speaker Change: $800, the baseball Suezmax and Aframax say about two fleets, respectively with approximately 45% of our spot days booked.
Speaker Change: We will discuss the drivers of the market in the subsequent slides.
Kenneth Hvid: Teekay Tankers has declared its regular quarterly fixed dividend of $0.25 per share. In addition, we've declared a special dividend of $1 per share for a total dividend payout of $1.25 per share, payable in May. Since updating our capital allocation plan in May 2023, Teekay Tankers will have paid out a total of $6.25 per share, which includes both our regular quarterly fixed dividend of $0.25 per share and a total of $4 per share of special dividends. More importantly, over the same period, Teekay Tankers has grown its book equity per share by over $21 or close to over $27, including dividends, to a book equity of approximately $53 per share as of March 31st, 2025.
Speaker Change: Teekay tankers has declared its regular quarterly dividend <unk> 25 per share. In addition, we have declared a special dividend of $1 per share for a total dividend payout of $1 25 per share payable in may.
Speaker Change: Our capital allocation plan and base once twice by Teekay tankers will it paid out of a total of $6 25 per share which includes both our regular quarterly fixed dividend for 25 cents per share and that's all for the other especially out of special dividends.
Speaker Change: Importantly over the same period Teekay tankers has grown its book equity Hershey up by almost $21 or close to over $27, including dividends go bankruptcy of approximately $53 per share as of March 31st 2025.
Kenneth Hvid: As evidenced by our recent gains on asset sales, current market values exceed our historical book value.
Speaker Change: As evidenced by our recent gains on asset sales current market values exceed our historical book values.
Kenneth Hvid: Lastly, Teekay Corporation also declared a special dividend of $1 per share payable in July. Please refer to the appendix for more details on Teekay Corporation's updates and results.
Speaker Change: Lastly, Teekay Corporation also declared a special dividend of $1 per share payable in July.
Speaker Change: Parents in the appendix for more details on Teekay Corporation's updates and results.
Kenneth Hvid: Moving to slide four, we look at recent developments in the SWOT market. After a sluggish start to the year, midsize tanker spot rates have increased to the highest levels in over 12 months. Rising oil production, particularly from the Americas, and the imposition of U.S. sanctions on Russian and Iranian shipping since the beginning of the year, has led to Asian buyers sourcing more crude from the Atlantic basin, resulting in higher mid-sized tanker-ton-mile demand. In addition, fleet supply has tightened as more vessels have been drawn into the Russian trade to replace sanctioned vessels, and as the price of crude has fallen below the price cap of $60 per barrel, allowing some owners to carry Russian crude without penalty.
Speaker Change: Moving to slide four we look at recent developments in the spot market.
Speaker Change: After a sluggish start to the year midsized tanker spot rates have increased to the highest levels in over 12 months.
Speaker Change: Rising oil production, particularly from the Americas from the position of U S sanctions on Russia, and Arabia shipping since the beginning of the year. So Asia by our sourcing more crude from the Atlantic basin, resulting in higher midsize tanker ton mile demand. In addition fleet supply has tightened as more vessels have been drawn into the Russian trade to replace sanctioned.
Speaker Change: Missiles, and as the price of crude has fallen below the price cap of about $60 per barrel, allowing some of them want us to carry roughly without penalty.
Kenneth Hvid: Turning to slide five, we have highlighted two examples of how trade dynamics have benefited the mid-sized tanker market since the start of the year. Starting with the chart on the left, Suez Max tanker ton miles demand has benefited from a strong increase in the export of Kazakh crude oil from the Caspian Pipeline Consortium, or CPC, terminal in the Black Sea, with Suez Max loadings at a record high during March. In addition, we've seen an unusually high number of CPC cargoes heading long haul to Asia, almost all of which are transiting via the Cape of Good Hope due to ongoing instability in the Red Sea.
Speaker Change: Turning to slide five we have highlighted two examples of how trade dynamics that benefited the midsized tanker market since the start of the year.
Speaker Change: Starting with a job on the left Suezmax tanker ton miles demand has benefited from a strong increase in the export of Catholic crude oil from the Caspian pipeline consortium, while CPC each I'm hole in the Black sea, whereas suezmax loadings at a record high during March. In addition, we've seen an unusually high number of CPC Chicago is hitting long haul.
Speaker Change: So Asia, almost all of which I'll try something via the Cape of good Hope you ensure ongoing instability in the Red Sea.
Kenneth Hvid: A voyage from the CPC terminal to China via the Cape takes around 50 days compared to just 5 days for a voyage to the Mediterranean or 12 days to Northwest Europe, thereby creating significant ton mile demand. We have also seen an increase in AFROMAX loadings from Vancouver via the TMX pipeline in the past couple of months, with a record high of 30 loadings in both March and April. These cargos have been increasingly transiting directly to Asia on AFROMAXes with a record 14 direct transits in April. An AFROMAX voyage from Vancouver to China takes around 18 days compared to 4 days to Southern California.
Speaker Change: Always from the CPUC each of holds in China via the Cape takes around 50 days compared to just five days a voyage. So the maintenance Iranian 12 base to northwest Europe, thereby creating significant ton mile demand.
Speaker Change: We have also seen an increase in Aframax loadings from Banco Bob do you have the <unk> pipeline in the past couple of months with a record high 30 holdings in both March and April. These cargoes have been increasingly translating directly to Asia on Aframax is with a record 14 direct transits in April and Aframax voyage from Vancouver to China. Thanks.
Speaker Change: Around 18 days compared to four days to southern California, the increase in direct transits to Asia, Therefore, leading to higher aframax tanker ton mile demand in the Asia Pacific region, and we expect that this trend will continue as China and other Asian countries look to diversify the sources of our supply.
Kenneth Hvid: The increase in direct transits to Asia is therefore leading to higher AFROMAX tanker ton miles demand in the Asia-Pacific region. And we expect that this trend will continue as China and other Asian countries look to diversify their sources of oil today. These are just two examples of the shift in trade patterns which have boosted tanker rates since the start of the year, with mid-sized tanker ton miles in March reaching the highest level in 18 months and holding at elevated levels during April.
Speaker Change: These are just two examples of the shift in trade patterns, which of course does.
Speaker Change: Rates since the start of the year with mid sized tanker some pause in March reaching the highest level in 18 months and holding.
Speaker Change: But at levels during April.
Kenneth Hvid: Turning to slide six, we look at near-term oil market fundamentals, which we believe could give support to tanker rates in the coming weeks and months. Global oil prices are currently at a four-year low due to concerns over the impact of U.S. tariffs on future oil demand and the announcement from the OPEC Plus Group that they will accelerate the unwind of voluntary supply cuts during May and June and potentially beyond. Lower oil prices support the TANGA market through reduced bunker fuel prices, which is our largest operational cost, and potentially higher oil demand. TANGA markets could find further support if the oil price futures curve move into a steeper contango structure, which typically stimulates additional storage demand.
Speaker Change: Turning to slide six we'll look at near term oil market fundamentals, which were many cooked it support to tanker rates in the coming weeks and months.
Speaker Change: So oil prices are currently at a four year low due to concerns over the impact of U S tariffs on future oil demand and the announcement from the OPEC plus group that they will accelerate the unwind of voluntary supply clubs during may and June and potentially beyond the oil prices support the tanker market for reduced the bunker fuel.
Speaker Change: Prices, which is our largest operational costs and potentially high oil tanker.
Speaker Change: Tanker markets could find further support if the oil price futures curve move into a steep contango structure, which typically stimulates additional starts demand as shown by the chart on the right OECD oil inventories, including both commercial and government stockpiles are currently at the bottom of the five year range government and industry bodies.
Kenneth Hvid: As shown by the chart on the right, OECD oil inventories, including both commercial and government stockpiles, are currently at the bottom of the five-year range. Government and industry bodies could therefore use this window of lower oil prices as an opportunity to rebuild oil inventories, thereby driving additional tanker demand. We're already seeing some evidence of this in China, with crude oil imports during March reaching the highest level since late 2023, while the United States has also signaled its desire to replenish its strategic petroleum reserve in the coming years.
Speaker Change: Therefore, this window of oil prices as an opportunity to rebuild the oil inventory is now about driving additional tanker demand.
Speaker Change: We're already seeing some evidence of this in China with crude oil imports during mass, reaching the highest level since late 2023.
Speaker Change: United States is also a signal it's the xylem so propane is in such a year or so.
Speaker Change: Petroleum reserve and the coming years.
Kenneth Hvid: Turning to slide 7, we look at some of the uncertainties surrounding the medium-term tanker market outlook due to recent economic and geopolitical developments. The imposition of trade tariffs by the United States and subsequently retaliatory tariffs have clouded the outlook for the global economy and oil demand. While the outcome remains uncertain, industry analysts have started to adjust their global economic and oil demand forecast downwards due to concerns that tariffs may harm global trade and lead to lower economic growth. It is worth noting that all of the major oil forecasting agencies are still expecting demand growth for this year and next, with the average forecast from the IEA, EIA, and OPEC projecting 1.2 million barrels of growth in 2025 and a further 1 million barrels per day in 2026.
Speaker Change: Turning to slide seven where they'll get solved the uncertainty surrounding the medium sour tanker market outlook due to reason economic and geopolitical developments the imposition of tariffs by the United States and subsequently you've retaliatory tariffs have clouded the outlook for the global economy and all the main while the outcome remains uncertain.
Speaker Change: Industry analysts have started to adjust that global economic and oil demand forecast downwards due to concerns that tariffs may harm global trade on each of the all in economic growth.
Speaker Change: Worth, noting that all of the major oil forecasting agencies are still expecting demand growth for this year and next where the average a forecast from the IEA EIA and opaque projecting one 2 million barrels of growth in 2025, and a further 1 million barrels per day in 2026.
Kenneth Hvid: However, uncertainty does exist with the potential for further downgrades on global oil demand growth depending on how things progress during the year with the increased risk of a potential global recession.
Speaker Change: However, all certain St does exist, where the potential for further downgrades on global oil demand growth, depending on how things progressed during the year, where the increased risk of a potential global recession.
Kenneth Hvid: In addition, last month saw an updated proposal from the U.S. Trade Representative regarding the imposition of fees on Chinese owners and operators and Chinese built ships calling at U.S. ports. While the final outcome is still uncertain, the most recent proposal is less impactful to non-Chinese Tango owners compared to the one which was initially put forward in February. We believe that the current proposal, should it be enforced, will be manageable, both from an industry and a TNK perspective, due to the various exemptions granted to non-Chinese operators of Chinese built vessels. A further hearing of the proposal is due to be held on May 19th, following which we would expect to have more clarity on how these rules will impact the wider Tango market.
Speaker Change: In the last.
Speaker Change: Last month's so all in all beta proposal from the U S trade representative regarding indium position of fees on Chinese owners and operators and Chinese built ships, calling at U S ports, while the final outcome is still uncertain. The most recent proposal is less impactful to non Chinese tango owners com.
Speaker Change: Cancel the one which was initially put forth and temporary.
Speaker Change: We believe that the current proposal shouldnt be enforced will be manageable, both from an industry and a TNK perspective juices. The various exemptions granted so non Chinese operators of Chinese built vessels.
Speaker Change: Oh, the hearing of the proposal is doing should be held on may 19th following which we would expect to have more clarity on how these rules will impact the wider tanker market did.
Kenneth Hvid: The geopolitical landscape adds another layer of complexity to the outlook, including the ongoing war in Ukraine, the U.S. maximum pressure campaign against Iran, and the safety situation in the Red Sea, which continues to limit vessel transits. Any changes to these factors could impact the tanker market in the coming months, potentially adding to supply chain inefficiency or significant rerouting of trade flows. It remains very difficult to predict how these events will unfold and what impact they will have on the market.
Speaker Change: The geopolitical landscape adds another layer of complexity to the outlook, including the ongoing war in Ukraine. The U S maximum pressure campaign against their ads and the safest situations in the Red Sea would continues to limit vessel transcends any changes to these factors could impact the tanker market in the coming months potentially adding to the supply chain and.
Speaker Change: Deficiency, all significantly significant rerouting of trade flows throw it remains very difficult to predict how these events will unfold and what impact they will have on the market.
Kenneth Hvid: Turning to slide 8, we look at fleet supply dynamics, which remain supportive through at least the medium term. The pace of tanker new build orders has slowed significantly since the middle of 2024, with just 2.8 million deadweight tons of orders placed in the first quarter of 2025, the lowest quarterly total since Q3 of 2022. Although the pace of tanker ordering has slowed, shipyards continue to receive orders in other shipping sectors, and we estimate the global shipyard capacity is essentially full through 2027 and approximately 70% full for 2028. In addition, a lack of tanker scrapping means that the tanker fleet continues to age, with the average age of the global tanker fleet standing at 13.9 years as of April 2025, the highest since 2001.
Speaker Change: Turning to slide eight we look at fleet supply dynamics, which remains supportive for at least the medium term.
Speaker Change: The pace of Tango Newbuild orders has slowed significantly since the middle of 'twenty to 'twenty ball with just $2 8 million deadweight tons of orders placed in the first quarter of 'twenty to 'twenty five the lowest quarterly total since Q3 of 'twenty to 'twenty two.
Speaker Change: Although the pace of Tango ordering has slowed shipyards continues to receive orders in other shipping sectors and we estimate the global shipyard capacity is essentially full for 2000, and 2007 and approximately 70% full 20th 28.
Speaker Change: In addition, lack of tanker scrapping means that the tanker fleet continues to age with the average age of the global triangles standing at $13 nine years as of April 20 to 25.
Speaker Change: Highest since 2001.
Kenneth Hvid: Should tanker market conditions worsen, there would be increased pressure on the large and growing pool of scrapped candidates to leave the market, providing a mechanism to rebalance the global fleet. We therefore believe the combination of the current order book, an aging tanker fleet, and constraints on available yard space points toward a balance. supply outlook and should result in continued low levels of tanker fleet growth over the medium term.
Speaker Change: Sure tanker market contingent conditions worsen that would be increased pressure on the large and growing pool of scrap candidates to lead the market, providing a mechanism to rebalance the global fleet.
Speaker Change: We therefore believe the combination of the current order book and aging tanker fleet and constraints on available job space points toward a balanced supply outlook and should result in continued low levels of tangled and growth.
Speaker Change: The medium term.
Kenneth Hvid: Turning to slide nine, we highlight how Teekay Tankers has strong cash flow generation while remaining patient for future fleet renewal. Teekay Tango's free cash flow breakeven has declined over the last several years to its lowest level of $13,200 per day from a peak of $21,300 per day in 2022. Combined with our operating leverage, we can generate cash flow in almost any market conditions. To emphasize, every $5,000 increase in spot rates above our break-even produces $2.01 per share of annual free cash flow, or 4.4% on a free cash flow yield basis. The shipping industry is a cyclical, capital-intensive business, which requires reinvestments as vessels age.
Speaker Change: Turning to slide nine we highlight how teekay tankers has strong cash flow generation, while remaining patient for future fleet renewal.
Speaker Change: Teekay tankers free cash flow breakeven has declined over the last several years to its lowest level of $13200 per day from a peak of $21300 per day in 2022.
Speaker Change: Combined with our operating leverage we can generate cash flow in almost any market conditions to emphasize every $5000 increase in spot rates above our breakeven produces $2.01 per share of annual free cash flow of four 4% on that.
Speaker Change: Free cash flow yield basis.
Speaker Change: The shipping industry is a cyclical capital intensive business with requires reinvestments as vessels age why we have been returning capital to shareholders through dividends and our key priorities is to retain significant cash flows to ensure we can act when the right opportunities present themselves as part of all.
Kenneth Hvid: While we have been returning capital to shareholders through dividends, a key priority is to retain significant cash flows to ensure we can act when the right opportunities present themselves as part of our fleet renewal strategy. While we continue to exercise patience, we are well-positioned to generate cash flows in almost any tanker market and are ready to use our balance sheet to take advantage of opportunities as they emerge.
Speaker Change: You can run your own strategy, while we continue to exercise patience, we are well positioned to generate cash flows in almost any tanker market already juniors all balance sheet to take advantage of opportunities as they emerge.
Operator: With that, Operator, we are now available to take questions.
Speaker Change: That operator, we're now available to take questions.
Speaker Change: Thank you and we'll take our first question from Jon Chapell with Evercore ISI.
Jonathan Chappell: Thank you and we'll take our first question from Jon Chappell with Evercore ISD. Thank you. Good morning.
Speaker Change: Thank you good morning.
Kenneth Hvid: Kenneth, on that last point of patience, and it's been brought up a couple of times in the past as well, obviously, you've been a more of a seller than a buyer. You insinuated in the press release that that strategy may shift. But I just kind of have a tough time aligning the positive view on the market with the view that asset prices may come back in to a level that's attractive to you. So can you talk maybe a little bit about, you know, market outlook, why asset values may become more attractive and what it may take for you to shift from that seller mentality to more of a renewal mode?
Speaker Change: Okay. That's on that last point of patients and it's been brought up a couple of times in the past as well, obviously, you've been a more of a seller than a buyer.
Speaker Change: Insinuated in their press release that that strategy may shift them, but I just kind of have a tough time aligning the positive view on the market.
Speaker Change: With a view that asset prices may come back in to a level. That's attractive to you. So can you talk maybe a little bit about you know market outlook why asset values may become more attractive and what it may take for you to shift from that seller mentality to more of a renewal mode.
Kenneth Hvid: Yeah, good morning, John. It's, it's obviously a very good question, right? It's, as we point out, we're trying to balance the thing of having a fleet that still generates significant cash flows. And as we are running off ship years, as you know, we've been doing over the last years without really reinvesting in new ship years, you come to a point where in a security industry, at some we're kind of back to the classic discussion that we had, as you and I remember, back in 2008 and nine, it's just stronger for longer. And when is it going to turn?
Speaker Change: Yeah. Good morning, John It's a it is obviously a very good question Ryan It's a as we pointed out we're trying to balance this thing all of having a.
That still generates significant cash flows and as we are running all shipyards lets you know we've been doing over the last years without really reinvesting in new ship years, you come to a point, where you know cyclically industry at some point you bought a reload with when new ship. He is right and the longer it goes and we were kind of back to the <unk>.
Speaker Change: The discussion that we had.
Speaker Change: I remember back in 2008 in line with our stronger for longer and when does it turn I think history tells us that the it will start at some point, then and mortgage will come down and the way it always it happens suddenly which adds to get surprised when that's when when what opportunities to reload opens up.
Kenneth Hvid: I think history tells us that it will turn at some point and markets will come down. And when it does, it happens suddenly. And we tend to get surprised. And that's when, when, when opportunities to reload opens up. I think staying disciplined in this, we are very clear on what breakeven levels we can, we can run a calculator, as most of our peers can. We understand what, what, what levels you kind of, it's a good time to make a 20 year investment, where we think we can have a good chance of making a return. But, but you're absolutely right.
Speaker Change: I think staying disciplined in this we were very clear on what breakeven levels. We can we can run the calculator out most of our peers can are.
Speaker Change: We understand what levels are you kind of Ah is a good time to Omega at 20 year investment, where we think we can have a good chance of making a return, but you're absolutely right of course, it's a it's a challenge that we have a strong market and the medium term outlook is actually pretty good then at the same time.
Kenneth Hvid: Of course, it's a, it's a challenge that we have a strong market, and the medium term outlook is actually pretty good. And at the same time, we're kind of running off ship years, and we would like to load on some, some new years. So that's why we're leaning in slowly and finding, picking a couple of ships. So. If we look at other sectors, you have seen ordering coming down, and as that comes down, we typically see also shipyard prices coming down. That's what we expect will happen towards the end of this year.
Speaker Change: We were kind of running all shipyards on we would like to load on some some every year. So that's why we're leaning in slowly on finding picking a couple of ships.
Speaker Change: So.
Speaker Change: If we look at that and.
Speaker Change: Other sectors.
Speaker Change: You would have seen already coming down that and as that comes down. We typically see also shipyard prices coming down and that's what we expect will happen towards the end of this year.
Jonathan Chappell: Okay, I understand it's difficult to answer that, may be difficult to answer this follow-up too.
Speaker Change: Mhm, Okay, I understand it's difficult to answer that maybe difficult to.
Jonathan Chappell: You know, putting on your Teekay Corp hat for a second, I know that, you know, the group in general has had the struggle with finding attractively priced assets in any sub-segment, but here you have this subsidiary that you own a big stake in, in TNK, trading by anyone's calculator, a massive discount to NAB. I understand, you know, that you're trying to be patient and there's going to be a reload opportunity at some point, but it seems like it's almost not mutually exclusive when you have almost a billion dollars of liquidity at TNK, and I don't know what the liquidity is at TK, but I imagine it's quite large as well.
Speaker Change: You know putting on your Teekay Corp hat for a second I know that you know the group in general has had to struggle with finding attractively priced assets and any sub segment.
Speaker Change: But here you have this subsidiary that you own a big stake in in TNK trading back anyone's calculator and massive discount to NAV I understand you know that that are that you're trying to be patient and then there's going to be a reload opportunity at some point, but it seems like it's almost not mutually.
Speaker Change: Listen when you have almost $1 billion of liquidity at TNK and I don't know what the liquidity of the teekay, but I imagine its quite large as well wouldn't TNK shares either from the teekay corporate level or the TNK.
Kenneth Hvid: Wouldn't TNK shares, either from the TK corporate level or the TNK subsidiary level, just be the most attractive use of that liquidity today as you wait for the asset values to come in a little bit? I think it's a good point. It's obviously one we are assessing. And as we all saw, the whole space took a dive here in Q1. I think everybody, irrespective of what our strategies are, what our feed profiles are, what our dividend policy are, we're largely trading at these discounts that you refer to. And that obviously always makes it complicated. Do you run that calculator and just increase your NAV by buying back stock?
Speaker Change: Subsidiary level, just be the most attractive use of that liquidity today as you wait for the asset values to come in a little bit.
Speaker Change: I think it's a good point. It is obviously one we are reassessing. The as we were also every the whole space toga dive here in Q1, and I think everybody irrespective of what our authorized users are and what our fleet profile is all what our dividend policy.
Speaker Change: The odd where lots of the trading at at least the discounts that you referred to and that obviously always makes it complicated do you run that calculator and just the increase you're going to have by buying back stock.
Kenneth Hvid: But at the same time, we're an operating company and at some point we need to buy steel so we can generate future cash flows. But as you've seen in the past, we've been buying back stock, especially at TK actively. And we did that because we're trading at an even bigger discount there.
Speaker Change: But at the same time, we're an operating company at some point, we need to buys deal. So we can generate.
Speaker Change: Generate future cash flows but.
Speaker Change: As you've seen in the past we've been buying back.
Speaker Change: Okay, especially at that Teekay actively and Oh, we did that because we were trading at an even bigger discount there and now we're trading in line, which we think is the right parents do that that we should have and so of course, we're looking at at its and especially at the values.
Kenneth Hvid: Now we're trading in line, which we think is Unknown Executive, Stewart Andrade, Lee Edwards, Kenneth Hvid, Teekay Corp, Brody Speers, Kenneth Hvid, Teekay Corp, Brody Speers, Kenneth Hvid, Teekay Corp, Brody Speers, Kenneth Hvid, Teekay Okay, thanks Kenneth. Thanks Sean.
Speaker Change: We have it at TNK I agree it looks attractive.
Speaker Change: Okay. Thanks, guys.
Speaker Change: Thanks, a lot.
Omar Nokta: We'll now take our next question from Omar Nokta with Jeff. Hi, thank you. Hi, Kenneth. Kind of maybe just following up on Jon's line of questions. You mentioned, you know, clearly you've been a net seller, but that could change as time goes on. But I guess when we think about the footprint you have today, is there a level you need to stay above in terms of maintaining a critical mass? You have the 20 Suez maxes, 15 AFRAs. What's the threshold where you don't want to get below? And that starts to maybe affect your commercial. Yeah, that's a great question as well.
Speaker Change: Well now take our next question from Omar knocked out with Jefferies.
Speaker Change: Hi, Thank you I kind of.
Speaker Change: Kind of maybe just following up.
Speaker Change: On John's line of questions.
Speaker Change: You mentioned, you clearly you've been a net seller, but that could change as time goes on but I guess, when we think about the footprint. You have today is there a level you need to stay above in terms of maintaining our critical mass you have the 20 Suezmax is 15 efforts with the threshold, where you don't want to get below and that starts to maybe affect your commercial.
Speaker Change: Yeah.
Yeah, that's a morning Oh my that's a that's a great question well obviously, one we are we're looking at and discussing we all say, we still have a bit of room, but there is of course, a level without giving you the exact number.
Kenneth Hvid: Obviously, one we are we're looking at and discussing we say we still have a bit of room, but there is of course a level without giving you the exact number. I would say that there is a point being an integrated operating company that we don't really want to dip below. I would say from a commercial training point of view, I would say that there is a point being an integrated operating company that we don't really want to dip below. I would say from a commercial training point of view, We haven't really seen the impact on commercial performance.
Speaker Change: I would say that there is a point of being an integrated operating company that we we don't really want to pay below I would say from a commercial training point of view.
Speaker Change:
Speaker Change: We haven't really seen the impact on our commercial performance, which seem to be able to.
Kenneth Hvid: We seem to be able to. get our ships around and get the right charters on them. So I think the performance, considering the profile of the fleet and everything, is actually very good, especially on the AfriMaxis, on a relative basis, and the Suez Maxis we're holding up as well. So I think it's not really impeding the commercial trading of it. But of course, there's always a scale consideration that we have here. So that's also why we're saying that we're probably going to be slowing down on the sales and look for opportunities. So I would say it's close to where we are now.
Speaker Change: Get all ships around and get the right charters on them. So I think.
Speaker Change: The performance considering the profile of the fleet and everything is actually a very good especially on the Aframax is on a relative basis in the suezmax as we were holding up as well. So so I think it's all really impeding our the commercial trading all of it but of course theres always a scale a consideration that we have here.
Speaker Change: So and that's also why we're saying, that's where we're probably going to be slowing down on the sales and the look for Papa John's is so so I would say is close to where we all know we would go a little bit lower.
Kenneth Hvid: We'll go a little bit lower.
Kenneth Hvid: But of course, the exciting part is that we now have a significant investment capacity to renew the fleet when the right opportunities arise. And then shipping, they do come around. So we're excited about that outlook. Okay, that's clear and helpful.
Speaker Change: But of course, the exciting part is that we now have a significant.
Speaker Change: Investment capacity to renew the fleet when when the right opportunities arise and then shipping they do come around so so we are we're excited about that outlook.
Speaker Change: Okay, that's clear and helpful and maybe just a follow up just to that and I think that I know I've asked you. This before but just in general I mean, clearly you've gotten to a point where the cash is coming in the door very very quickly you.
Omar Nokta: And maybe just to follow up just to that, and I think I know I've asked you this before, but just in general, I mean, clearly, you've gotten to a point where the cash is just coming in the door very, very quickly. You paid off all the debt, and now it's just, you know, you get to enjoy the benefit of seeing that cash come in and completely understand the reluctance to want to distribute it to shareholders given that there is a need to replenish and modernize the fleet. I guess maybe as you kind of think about that big picture, does it still make sense to want to put capital to work in tankers?
Speaker Change: Paid off all the debt and now it's just you know you get to enjoy the benefit of seeing that cash come in and completely understand their reluctance to want a distributed to shareholders. Given that there is a need to replenish and modernize the fleet.
Speaker Change: Maybe as you kind of think about that big picture is still does it still makes sense to want to put capital to work and tankers.
Kenneth Hvid: And you just said that they could be, you know, these opportunities show up very quickly. But does it make sense maybe to maybe shift the mindset altogether of the company where, you know, you've made these winnings, quote unquote, from a strong spot market? Do you take that capital and try to maybe redeploy it into something completely different where the earnings quality is perhaps better than a spot-driven tanker business? Yeah, that's another really good question, Omar. And we've spent a lot of time looking at other sectors and also looking at it from a Teekay Corp perspective historically.
Speaker Change: You just said that there could be you know these opportunities show up very quickly, but does it make sense maybe to.
Speaker Change: Maybe the shift in mindset altogether the company, where you know you've made these winnings quote unquote from a strong spot market do you take that capital and try to maybe redeploy it into something completely different where the earnings quality is perhaps better than the spot driven tanker business.
Speaker Change: Yeah, that's that's another.
Speaker Change: Really good question O'mara, and where you spent a lot of time looking at all of the sectors. I'm also looking at it from a cheesecake all aspects of our historically in the.
Kenneth Hvid: And so far, I think we're very happy not having invested in other sectors in the last couple of years. I think the sector we're in here has actually performed extremely well. And we clearly have an operating franchise that is performing well, and that's where we have the skill sets. I would say that what we are always looking at that is interesting is, of course, the adjacency to the core segments that Teekay is in. So we have Afro-MAXs, where we traditionally have been very large, and we have Swiss-MAXs, where we're actually larger today. But of course, the adjacent sectors to that is moving up one size to VLTCs and is moving one size down to MRs. And that's all within our wheelhouse.
Speaker Change: So far I think we were very happy not having invested in all the sectors in the last couple of years I think the sector. We're in here has actually performed extremely well and but we clearly have an operating franchise that is performing well and that's something where we have the skill sets I would say that what we what you always.
Speaker Change: Looking at that that is interesting is of course, the adjacency to the core segments that CK zing.
Speaker Change: We have aframax is where we traditionally have been very large and we have suezmax is where we're actually nacho to date.
Speaker Change: But I suppose the adjacent sectors to bad is moving all but one size two vlccs that is moving one size down to two M ours a.
Speaker Change: And that's all within our wheelhouse. So we're constantly comparing contrast thing or is it rather to return expectations or attractiveness of each of those sectors.
Kenneth Hvid: So we're constantly comparing, contrasting the relative return expectations or attractiveness of each of those sectors. And I think that gives us a pretty sizable sandbox in which we can reallocate capital into in terms of segments where we really are close to our core operations and core skills and where we have the customer relationships. And I'm pretty sure that we'll find what we consider good entry levels in any of those spaces here in the next year or two. I'll be very surprised if that doesn't happen.
Speaker Change: And I think that gives us a pretty sizable sandbox in which we can reallocate capital into in terms of segments, where we really feel are close to our cooperations and core skills and where we have the customer relationships and I'm pretty sure that we will find a what we consider.
Speaker Change: Kind of go to entry levels and in any of those spaces here and there in the next year or two that would be very surprised if that doesn't happen.
Omar Nokta: Okay, very good. Thanks, Kenneth.
Speaker Change: Okay.
unknown: Good thanks, Thanks, Ken.
Speaker Change: Thanks.
Ken Hoexter: We will now take a question from Ken Hoexter with Bank of America. Hey, great. Good morning, Kenneth. You talked about at the beginning of the call, the kind of the super seasonality of rates, you know, lasting into into 2Q here, and maybe even staying a little stronger. Maybe you can talk a little bit about that strength and your thoughts as we've moved, you know, deeper into May and the continuation of that. And then on that same vein, you know, you threw out the shift to Asia, coming out of Vancouver would continue.
Speaker Change: Well now take a question from Ken <unk> with Bank of America.
Speaker Change: Hey, great good morning, guys.
Speaker Change: You talked about at the beginning of the call kind of a super seasonality of rates lasting into into two queue here and maybe even staying a little stronger maybe you can talk a little bit about that strengthen your thoughts as we've moved.
Speaker Change: Deeper in the Bay and the continuation of that and then on that same vein you throw out the the shift to the Asia coming out of Vancouver would would continue.
Kenneth Hvid: Maybe just add on some thoughts on, you know, if we start getting increasing peace discussions, you know, with with the Houthis around the Red Sea or Ukraine and Russia, would you see that abate and see some rapid pressure on those rates? Or maybe just your thoughts on kind of that, the pace with which we could see that all play out? Yeah, that's a good crystal ball question, trying to predict what's what's going to happen in the world here, right. But the way we, I guess, think about it is that, when you look back, the last two quarters were lower than what we have experienced in the past three years.
Speaker Change: Maybe just to add on some thoughts on if we start getting increasing pes discussions you know with with the Hood these around the red sea or or Ukraine or Russia.
Speaker Change: Would you see that abate and see some rapid pressure on those rates or maybe just your thoughts on kind of that.
Speaker Change: The pace with which we could see that out there.
Speaker Change: Yeah, that's a morning I came back.
Speaker Change: That's a good crystal ball question trying to predict what's the what's going to happen in the world right, but the the the way we I guess think about it is that when you look back the last two corners, where with no more than what we have experienced in the past three years, so sequentially down.
Kenneth Hvid: So sequentially down. Clearly, what's driving the rates right now, everything I mentioned in our prepared remarks, we have a low oil price. And we're seeing these that for the first time in three years, actually outperforming the other other sectors. So that's, that's interesting. It's kind of it feels a little bit more back to normal how the tanker markets used to work. But when you look at the world, we're certainly not back to normal, right? There's a lot of moving pieces in the world right now. So it's, it's incredibly difficult to predict exactly what, how that's going to flow down to tanker rates, I think, what I can say is that, as we also point out, and what we focused on is that when you have low oil price, and you have low inventories, you typically have a couple of quarters where you see some pretty good demand.
Speaker Change: Clearly, what's driving the rates right now everything I mentioned in our prepared remarks, we have a low oil price and we are seeing vs that are for the first time in three years I actually outperforming the other other sectors. So that's that's interesting it's kind of it feels a little bit more back to normal how's the tango bloggers, who used to work, but when you look at the world.
Speaker Change: We're certainly not back to normal right, there's a lot of moving pieces in the world right.
Speaker Change: Right now so it's it's incredibly difficult to predict exactly what's how that's going to slow down two to tango rates I think what I can say is that.
Speaker Change: As we also pointed out and what we're focused on is that when you have low oil price and you have low inventories.
Speaker Change: You typically have a couple of quarters, where you see some some pretty good demand but of course, it doesn't last forever and therefore at some point our expectation is that the yeah, there'll probably be some correction, but I would say the outlook, especially for the larger ships right now it looks it looks very very positive.
Kenneth Hvid: But of course, it doesn't last forever. And therefore, at some point, our expectation is that, yeah, there'll probably be some some correction.
Ken Hoexter: But I would say the outlook, especially for the larger ships right now, looks, looks very, looks very positive. Yeah, that's a great point on the on the low inventories and the sustainability of that. So let me jump over to your slide eight, which had the 309 on the order book and 109 that are over 20 years. And then you got a range of 319 that are 15 and 19. And some of those obviously could be closer to 15 and 19. And so I look at that and see kind of an order book that continues to build in and maybe outpace kind of those retirements.
Speaker Change: Yeah, No that's a great point on the.
Speaker Change: On the low inventories in the sustainability of that so let me jump over to to your slide eight which had the 309 on the order book and 109 that are over 20 years, and then you've got a range of 319 that better 15, and 19 and some of those obviously it could be closer to 15 to 19, and so I look at that and see kind of an order book that continues to build in.
Speaker Change: Maybe outpaced kind of those retirements, which is.
Kenneth Hvid: Why are you not fearful that that, you know, can put pressure? I mean, again, your cash flow break even so low, it's not like we're talking about those levels. But just wondering your thoughts on why we should not expect to see some additional pressure on. Yeah, I wouldn't say we're not fearful. I think we're always running the business with being mindful of what what could happen to rates. And I think you raised a good point. I mean, that's as we pointed out in our, on our call last quarter. If you look at the medium-sized tanker space and include the LR2s, and so you look at AFROMAXes and SUIZEMAXes, as we pointed out last quarter, if we don't have any scrapping happening over the next two years, three years, we will have a fleet which counts 600 vessels that are over 20 years old in that space.
Speaker Change: Why are you not fearful that that can put pressure on me to get in your cash flow breakeven. So low it's not like we're talking about those levels, but just wondering your thoughts on why why we should not expect to see some some additional pressure on rates.
Speaker Change: Yeah, I wouldn't say, we're not fearful I think we always are running the business with with being mindful of what could happen to rates and I think you raised a good point I mean does as well.
Speaker Change: Hinted out in and out on our call last quarter.
If you look at the medium sized tanker space and then could be allowed sous.
Speaker Change: So there's a good aframax and Suezmax is as we pointed out last last quarter.
Speaker Change: If we don't have any scrapping happening over the next two years three years, we will have a fleet, which is a six month, which counts six on the vessels that over 20.
Speaker Change: 20 years old and in that space I think that is.
Kenneth Hvid: And I think that is, to be honest, that is the big battle that we're all looking at, because as long as there's no scrapping happening in that age group and you see utilization of that age of vessels, then I would say at some point the rates should come down. We're also pointing out in our prepared remarks here that as the market corrects, and we haven't seen that dip yet, you have a big release battle here where there's a lot of vessels that naturally should be scrapped. And I think from a historical point of view, that's very different, again, from what we saw in 2008.
Speaker Change: That is the big valves that we're all looking at because as long as Theres no scrapping happening.
Speaker Change: And in that age group and you see utilization of that eight salt Vince itself all vessels.
Speaker Change: Then I would say at some point.
Speaker Change: The rates should come down. We're also pointing out are in all remarks prepared remarks here that as the market corrects and we haven't seen that yet you have a big release valve here, where there was a lot of all vessels that naturally should be scrapped.
Speaker Change: I think from a historical point of view, that's very different again from what we saw in 2008. The issue in 2008, we have the youngest fleet that we've had in 20 years and today, we have the oldest average fleet age that we've had in 20 years and of course, the incentive to scrap at 20 or 22 year old ship.
Kenneth Hvid: The issue in 2008 that we had the youngest fleet that we've had in 20 years. Today, we have the oldest average fleet age that we've had in 20 years. And of course, the incentive to scrap a 20 or 22-year-old ship is very different from scrapping a 70-year-old ship, which was the situation we had back then. So I think that's how the situation is a little bit different. We're kind of very mindful of that. We're probably going to see some correction, but we also think that there are some battles that very effectively will take care and putting some of the older tonnets away.
Speaker Change: It's very different from scrapping a 70 year old ship as which was the situation where we had back then so I think that's that's how the situation is a little bit different where we're kind of very mindful that we're probably going to see some correction, but we also think that there are some valves that are very effectively will will take care of it and the and putting some of the older.
Speaker Change: It's on it's a wait.
Ken Hoexter: Yeah, certainly, if I could just get a follow up there on the restocking of the oil inventories. Anything you can kind of quantify in terms of the, you know, where we are relative to normal levels on if you go back to that chart, or how quickly you think that could absorb some capacity in a in a slow summer or a low period to keep the rates Elevated again, putting that crystal ball back on.
Speaker Change: Yeah, certainly if I could just get a follow up there on the restocking of the oil inventories, but anything you can kind of quantify in terms of the you know where we are relative to normal levels. If you go back to that chart or how quickly you think that could absorb some capacity in a in a slow summer or a low period.
Speaker Change: Keep the rates.
Speaker Change: Way to begin putting that crystal ball background.
Christian Waldegrave: Yeah, we have Christian Waldegrave on the call as well, who follows this very closely. So I'll hand it over to him to comment. Yeah, thanks, Kenneth. Yeah, I think it's difficult to quantify in terms of how much actual demand or how much it's going to influence the rates. But the fact that the inventories are at the bottom of the five-year range, both commercial and strategic, as we pointed out in the remarks there, means that as OPEC starts increasing production and we get more non-OPEC supply coming on this year with, I think we've got five FPSOs coming on in Brazil and Guyana over the next few months, we should have a relative oversupply of oil relative to demand.
Speaker Change: Yeah, we have Christian waldegrave on on the call as well who follows very closely so I'll I'll hand, it over to him to.
Speaker Change: To comment.
Speaker Change: Yeah. Thanks goodness.
Speaker Change: Yeah, I think it's difficult to quantify in terms of how much actual demand or well how much is going to.
Speaker Change: Influenced the rates, but the fact that the inventories are at the bottom of the five year range.
Speaker Change: Both commercial and strategic as we pointed out in the remarks that means that there's as OPEC starts increasing production and we can get more non OPEC supply coming on this year with I think we've got five that PSA is coming on in Brazil in Guyana.
Speaker Change: Over the next few months, we should have a relative over supply of oil relative to demand and given given where oil prices are at.
Christian Waldegrave: And given where oil prices are at, it should add to inventories and flow into inventories. I think on-land storage will get filled first. Who knows if the curve goes steeper into Contango, you know, at times you might see some floating storage as well, which then starts to tie up tonnage. As Kenneth pointed out, it's not a situation that will last forever, but these periods where you do get inventories being refilled and a lower oil price in Contango situation, we know from the past that they can be quite positive for rates. And it's coming at a good time, right?
Speaker Change: It should add to inventories and flow into inventories I think on land storage will get filled first.
Speaker Change:
Who knows if the if the curve Steepens contango you know the times you might see some floating storage as well, which was then starts to tie up tonnage.
Speaker Change: It's kinda disappointed that it's not a situation that will last forever, but these periods, where you do get them in the trees being refilled.
Speaker Change: And the level of pricing contango situation, we know from the past that.
Speaker Change: Can be quite positive for rates that he was going to get a good sign right. Because then normally getting into Q2 and Q3 in the summer months, you would you would start to see the seasonal dip in tanker rates, but you know we might get some kind of seasonal strength phase III. The summer and then beyond that like kind of said you know.
Christian Waldegrave: Because normally going into Q2 and Q3 in the summer months, you would start to see the seasonal dip in tanker rates, but we might get some counter-seasonal strength here through the summer. And then beyond that, like Kenneth said, the refilling of the inventories is good for a period of time. After that, once the inventories are refilled, you might start to see OPEC cutting production again or non-OPEC production coming off if the oil price stays low for longer. So, it's definitely a window of opportunity here where we could see some counter-seasonal strength. But like Kenneth said, I think the sort of longer term picture is still a little bit unclear given everything that's going on in the world.
Speaker Change: And that's sort of the refilling the inventory that's good for a period of time.
Speaker Change: After that once inventories are refilled you might start to see OPEC cutting production again, non OPEC production coming off if the oil price stays stays low for longer. So it's definitely a window of opportunity here, where we could see some kansas seasonal strength.
Speaker Change: But like Ken has said I think the sort of longer term picture is still a little bit unclear given given everything that's going on in the world.
Speaker Change: Great Christian Thank you for the time.
Kenneth Hvid: Great, Kenneth and Christian, thank you for the time.
Operator: Thank you.
Speaker Change: Thank you.
Operator: And that does conclude our question and answer session.
Speaker Change: And that does conclude our question and answer session I would like to turn the conference back to the company for additional or closing remarks.
Operator: I'd like to turn the conference back to the company for additional or closing. Thank you everyone for joining us on our call today. We look forward to reporting back to you next quarter. Have a great day.
Speaker Change: Thank you everyone for joining us on our call today, we look forward to reporting back to next quarter.
Speaker Change: Great day.
Speaker Change: And that does conclude today's conference. We thank you all for your participation you may now disconnect.
Operator: That does conclude today's conference. We thank you all for your participation. You may not.
Speaker Change: [music].
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