Business Context and Reporting Period
Company: Teekay Tankers Ltd. (NYSE: TNK)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Third Quarter ended September 30, 2021
Report Date: November 4, 2021
Teekay Tankers operates a fleet of crude and product tankers, primarily trading in the spot market. The quarter was characterized by historically weak crude spot tanker rates driven by OPEC+ production cuts, reduced oil demand due to the COVID-19 pandemic, and high bunker fuel costs.
Key Financial Metrics
| Metric (in thousands USD) | Q3 2021 | Q2 2021 | Q3 2020 |
|---|---|---|---|
| Total Revenues | $115,890 | $123,420 | $170,240 |
| GAAP Net Loss | ($52,055) | ($129,144) | ($44,434) |
| GAAP Loss Per Share | ($1.54) | ($3.83) | ($1.32) |
| Adjusted Net Loss (Non-GAAP) | ($50,147) | ($41,481) | $3,132 |
| Adjusted EPS (Non-GAAP) | ($1.48) | ($1.23) | $0.09 |
| Total Adjusted EBITDA | ($15,787) | ($6,804) | $46,248 |
| Free Cash Flow | ($25,256) | ($14,735) | $31,178 |
| Net Debt | $565,011 | $529,959 | $502,142 |
| Liquidity (Pro Forma) | $209,000 | $231,400 | N/A |
Note: Liquidity figures for Q3 2021 are pro forma for a $69 million refinancing completed in November 2021. Net debt to capitalization stood at 39% as of September 30, 2021.
Material Changes vs. Prior Periods
- Q3 2021 vs. Q2 2021: GAAP net loss improved significantly from $129.1 million to $52.1 million. This improvement was primarily due to a reduction in vessel write-downs (from $86.7 million in Q2 to $0.7 million in Q3). However, operating performance was pressured by lower average spot tanker rates and the expiration of fixed-rate time charter contracts.
- Q3 2021 vs. Q3 2020: The company reported a GAAP net loss of $52.1 million compared to a loss of $44.4 million in the prior year. Adjusted net income turned from a profit of $3.1 million in Q3 2020 to a loss of $50.1 million in Q3 2021. This deterioration was driven by lower spot rates, the sale of three vessels in 2021, and the expiration of fixed-rate charters, partially offset by lower operating and interest expenses.
- Asset Transactions: In September 2021, the company repurchased six vessels previously under higher-cost sale-leaseback financings for $129 million. It subsequently refinanced these and other vessels with lower-cost sale-leaseback arrangements totaling $142 million ($73 million in September and $69 million in November).
Guidance, Outlook, and Management Commentary
Market Outlook: Management anticipates a modest improvement in the crude tanker market in Q4 2021 and into 2022. Key drivers include recovering global crude oil trade volumes, seasonal winter demand, and potential fuel switching from coal and natural gas to oil due to high energy prices. OPEC+ is gradually increasing supply, with an estimated 4.6 million barrels per day of cuts remaining as of October 2021.
Financial Strategy: The company has strengthened its balance sheet by refinancing eight vessels from higher-cost to lower-cost sale-leaseback financings, expecting interest savings of approximately $11 million in the first 12 months. With the vast majority of its 52-vessel fleet trading in the spot market, management believes the company is well-positioned to benefit from a market recovery.
Risks and Contingencies:
- Market Volatility: Continued uncertainty regarding the duration of the COVID-19 pandemic and its impact on global mobility and oil demand.
- Supply/Demand Fundamentals: Risks related to OPEC+ production decisions, non-OPEC supply levels, and the timing of the unwinding of supply cuts.
- Operational Risks: Potential for early termination of charter contracts and inability to renew contracts at favorable rates.
Key Facts for Investor Verification
- Refinancing Impact: Verify the actual interest savings realized from the refinancing of eight vessels completed in September and November 2021.
- Spot Rate Recovery: Monitor Q4 2021 and 2022 spot tanker rates to confirm if the anticipated market recovery materializes as predicted by management.
- Liquidity Position: Confirm the pro forma liquidity position of $209 million remains stable following the November refinancing activities.
- Fleet Utilization: Track the utilization rates of the 52-vessel fleet, particularly the 48 vessels trading in the spot market, as a leading indicator of revenue performance.
- Asset Sales: Monitor the status of the one Aframax vessel held for sale as of September 30, 2021.