Business Context and Reporting Period
Company: Teekay Tankers Ltd.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Quarter and nine months ended September 30, 2021
Business Overview: The Company owns and operates crude oil and product tankers (Aframax, Suezmax, LR2) and provides ship-to-ship (STS) support services. As of September 30, 2021, the fleet consisted of 55 vessels (50 owned/leased, 5 chartered-in). The Company operates a single reportable segment following the sale of its non-US STS and LNG terminal management businesses in April 2020.
Key Financial Metrics
| Metric (in thousands USD) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2021 |
|---|---|---|---|
| Total Revenues | $382,059 | $758,632 | $115,890 |
| Net (Loss) Income | $(202,564) | $160,603 | $(52,055) |
| Income from Operations | $(172,771) | $183,919 | $(41,494) |
| Diluted EPS | $(5.98) | $4.73 | $(1.54) |
| Net Operating Cash Flow | $(84,107) | $347,811 | N/A |
| Cash & Cash Equivalents (Sep 30, 2021) | $60,723 | N/A | N/A |
| Total Debt (Principal) | $382,313 | $249,568 | N/A |
| Finance Lease Obligations | $233,816 | $360,043 | N/A |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 49.2% year-over-year for the nine months ended September 30, 2021. This was driven by a 68.2% drop in net revenues due to significantly lower spot Time-Charter Equivalent (TCE) rates across Suezmax, Aframax, and LR2 fleets.
- Operating Loss: The Company reported an operating loss of $172.8 million for the nine months ended September 30, 2021, compared to an operating income of $183.9 million in the prior year. The swing of approximately $356.7 million was primarily due to lower realized spot rates and increased asset write-downs.
- Asset Write-downs: Write-downs and losses on sale of assets totaled $88.1 million for the nine months ended September 30, 2021, compared to $48.2 million in the prior year. This included an $85.0 million impairment on seven tankers due to a weaker near-term market outlook and reduced charter rates.
- Cash Flow Reversal: Net operating cash flow turned negative at $(84.1) million, a decrease of $431.9 million from the prior year's positive $347.8 million, reflecting lower operating earnings and increased dry-docking expenditures.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Market Conditions: Spot tanker rates fell to multi-decade lows in Q3 2021 due to OPEC+ production cuts, reduced oil demand from the Delta variant, and inventory drawdowns. However, rates showed modest improvement in Q4 2021 as global trade volumes recovered.
- Future Demand: Management expects global oil demand to increase in 2022, potentially exceeding pre-COVID levels, driven by vaccination rates and energy switching (gas-to-oil) due to high coal and natural gas prices.
- Fleet Supply: New tanker ordering has virtually halted, and scrapping has increased, suggesting minimal fleet growth in 2022 and 2023, which should support future utilization and rates.
Risks and Contingencies
- Legal Proceedings: The Company is defending a claim for $7.3 million in breakage costs related to interest rate swaps from a counterparty regarding repurchased vessels. No loss provision has been recorded.
- Impairment Risk: Nine vessels currently have market values below carrying values. While not impaired under GAAP due to recoverable cash flows, a 10% reduction in 3-year time-charter rates could trigger a $16.3 million impairment on one vessel.
- Liquidity: The Company maintains a minimum liquidity covenant. As of September 30, 2021, total consolidated liquidity was $140.0 million. Management expects sufficient liquidity for the next 12 months, bolstered by a $68.9 million sale-leaseback transaction completed in November 2021.
Investor Verification Checklist
- Asset Valuation: Verify the fair value assumptions for the nine vessels with market values below carrying values and the sensitivity of future cash flow estimates to charter rate declines.
- Debt Covenants: Confirm continued compliance with hull coverage ratios (currently 212% for revolver, 177% for term loan) and minimum liquidity requirements ($35 million or 5% of debt).
- Legal Exposure: Monitor the status of the $7.3 million breakage cost claim and potential outcomes.
- Market Rates: Track spot TCE rates for Suezmax, Aframax, and LR2 vessels to assess the accuracy of management's recovery outlook for 2022.
- Subsequent Events: Review the impact of the November 2021 sale-leaseback transaction ($68.9 million) on the balance sheet and future cash flow obligations.