Teekay Tankers Ltd. Reports Fourth Quarter and Annual 2016 Results

HAMILTON, BERMUDA--(Marketwired - Feb 23, 2017) -

Highlights

• Reported GAAP net income of $6.8 million, or $0.04 per share, and adjusted net income attributable to shareholders⁽¹⁾ of $5.1 million, or $0.03 per share, in the fourth quarter of 2016.
• Generated free cash flow⁽¹⁾ of $34.2 million in the fourth quarter of 2016.
• Declared cash dividend of $0.03 per share for the fourth quarter of 2016, representing the minimum quarterly dividend.
• Completed the sale of a Medium-Range (MR) product tanker and an older Suezmax tanker in November 2016 and January 2017, respectively, with one older Suezmax tanker sale scheduled to be completed in late-February 2017.
• Since October 2016, secured three time charter-out contracts, increasing Teekay Tankers' fixed-rate charter coverage to approximately 40 percent for the 12 months ending December 31, 2017.

Teekay Tankers Ltd. (Teekay Tankers or the Company) (NYSE:TNK) today reported the Company's results for the quarter and year ended December 31, 2016:

During the fourth quarter of 2016, GAAP net income and adjusted net income attributable to shareholders were affected by lower spot tanker rates in the fourth quarter of 2016 as compared to the same period of the prior year and the redelivery of nine time chartered-in vessels in 2016. GAAP net income for the fourth quarter of 2016 was also affected by the write-down of two Suezmax tankers which were held for sale as at December 31, 2016, of which one Suezmax tanker was sold January 2017 and the other Suezmax tanker is expected to complete its sale in February 2017, and by unrealized gains on derivative instruments.

CEO Commentary

"During the fourth quarter of 2016, we generated free cash flow of $34.2 million, which, together with recent vessel sales and other actions, has allowed us to reduce our financial leverage to 47 percent on a net debt to book capitalization basis," commented Kevin Mackay, Teekay Tankers' President and Chief Executive Officer. "Our fourth quarter results were positively impacted relative to our third quarter results by seasonal strength in the tanker market and increased oil exports out of Nigeria, Libya and the Baltic Sea. Tanker rates continued to be seasonally strong early in the first quarter of 2017; however, rates have recently begun to soften due to several factors, including, among others, regional refinery maintenance, an increasing number of newbuilding tanker deliveries and the effect of OPEC supply cutbacks on overall tanker demand, especially in the Arabian Gulf."

Mr. Mackay continued, "We expect that the effect of OPEC cuts on Teekay Tankers will be mitigated, as OPEC oil is primarily transported on larger tankers and cuts in OPEC production are expected to be partially offset by increased non-OPEC production from the Atlantic region, which is typically transported by mid-sized tankers. In addition, while we do expect 2017 will be a challenging year overall for the tanker market, with approximately 40 percent of our fleet booked on fixed-rate time-charters and strong support from our lightering and other fee-based businesses, we believe Teekay Tankers has a strong base of cash flow to help reduce the effect of future tanker market volatility."

Summary of Recent Developments

Increased Teekay Tankers' Fixed-Rate Charter Coverage

Since October 2016, Teekay Tankers entered into, and extended, time charter-out contracts for two Suezmax tankers and one Aframax tanker. These contracts have an average rate of approximately $20,800 per day and firm periods of 12 months each. The contracts commenced in December 2016 and February 2017.

New Board Member

Effective February 22, 2017, Kenneth Hvid, President and CEO of Teekay Corporation, has been appointed to the Company's Board of Directors following the previously-announced retirement of Peter Evensen.

Tanker Market

Tanker rates in 2016 softened from the highs seen in 2015, yet remained in-line with the ten-year average as a result of ongoing positive demand fundamentals. Global oil demand remained strong in 2016 with growth of 1.5 million barrels per day (mb/d), which was 0.4 mb/d higher than the ten-year average. Global oil supply was also strong, with record high OPEC production for 2016 of 32.6 mb/d. However, unexpected supply outages in Nigeria put pressure on mid-sized tanker demand in mid-2016. Oil prices remained in the mid-$40 per barrel range for most of 2016 before increasing in December 2016 as OPEC commenced firmed plans for production cuts as a means to rebalance oil markets. While ongoing low prices throughout the year provided some support for tonne-mile demand through strategic and commercial stockpiling programs, record high onshore stock levels towards the second half of 2016 resulted in lower import requirements as refiners struggled with elevated stockpile levels. Tanker fleet growth also created some downside pressure to tanker rates towards the second half of 2016 as crude tanker fleet growth reached 6% and scrapping dipped to the lowest level since 1995.

Crude tanker rates strengthened in the fourth quarter of 2016 due to expected seasonal factors, and reached a seasonal high in December 2016, as global refinery throughput, increased exports out of Nigeria, Libya, and Baltic / Black Sea ports, and winter weather delays provided support for tanker rates. Mid-sized crude tanker rates, in particular, found support from weather delays through the Turkish Straits along with increasing exports out of the U.S. Gulf. Record high Middle East OPEC crude production, averaging 25.6 mb/d in the fourth quarter of 2016, also provided a boost for crude tanker tonne-mile demand.

Strength in spot tanker rates continued into the first quarter of 2017 and resulted in significantly higher crude spot tanker rates for the first quarter of 2017 to date compared to the fourth quarter of 2016; however, crude spot tanker rates have recently started to soften due to a number of factors, including:

• Heavy refinery maintenance programs in the U.S. Gulf through the first quarter of 2017, and a heavy spring maintenance period expected in Asia;
• Fewer weather-related delays in key transit areas, including the Turkish Straits;
• Firming oil prices as a result of recent OPEC cuts have increased bunker fuel costs for shipowners and prompted crude inventory drawdowns; and
• Higher tanker fleet growth: six Suezmax tankers and nine Aframax tankers have delivered in 2017 to-date (compared to one and nine in 2016, respectively)

Looking ahead, the Company anticipates 2017 to present some headwinds to the crude tanker spot tanker market. Total tanker fleet growth is forecast to be approximately 4.5%, which is slightly lower than 2016 but in-line with the ten-year average. However, most fleet growth in 2017 will come from the mid-sized segments, with mid-size fleet growth expected to be approximately 5%. The outlook for 2018 is more positive given a lack of ordering and the expectation for increased scrapping due to an aging fleet and changes to the regulatory landscape.

Global oil demand is forecast to grow by 1.4 mb/d in 2017 (average of IEA, EIA, and OPEC forecasts), which is similar to 2016 and above the ten-year average growth rate of 1.1 mb/d. On the supply side, OPEC production cuts of approximately 1.2 mb/d, with the majority of cuts (approximately 0.8 mb/d) coming from Middle East OPEC producers, will be negative for overall crude volumes available for transport. While OPEC production cuts may continue through the year, non-OPEC production increases of approximately 0.3 mb/d are expected as firming oil prices encourage more drilling, particularly in the U.S. The result could benefit the mid-sized tanker segments from increased tonne-mile demand as oil supply in the Atlantic basin continues to grow. In addition, the Brent - Dubai oil price spread has narrowed considerably as a result of OPEC cuts, and many crude buyers are sourcing Brent-benchmarked crudes as they become more economically attractive. These price / supply factors could offset some of the headwinds that the crude tanker market faces in 2017 as they have the potential to introduce volatility into regional tanker demand, which is positive for spot tanker rates.

In summary, the Company anticipates that 2017 will present some headwinds to crude tanker rates due to cuts to OPEC production, rising oil prices, and fleet growth. However, the Company believes that this dip in the current market cycle will be relatively short and shallow. In addition, lower fleet growth, strong oil demand growth, particularly in Asia, and a potential increase in long-haul movements from the Atlantic basin to the Pacific basin is expected to provide support towards the next market upturn.

Operating Results

The following table highlights the operating performance of the Company's time-charter vessels and spot vessels trading in pools and full service lightering measured in net revenues⁽¹⁾ divided by revenue days⁽¹⁾, or time-charter equivalent (TCE) rates, before related-party pool management fees, related-party commissions and off-hire bunker expenses:

Teekay Tankers' Fleet

The following table summarizes the Company's fleet as of February 23, 2017 (including one committed time charter-out contract and excluding one Suezmax tanker that the Company has agreed to sell, which is expected to be delivered in February 2017):

Liquidity Update

As at December 31, 2016, the Company had total liquidity of $102.4 million (comprised of $68.1 million in cash and cash equivalents and $34.3 million in undrawn revolving credit facilities), compared to total liquidity of $119.2 million as at September 30, 2016.

During December 2016 and January 2017, the Company sold an aggregate of 8,975,172 common shares at an average price of $2.40 per share, generating net proceeds of approximately $21.2 million ($13.6 million was issued subsequent to December 31, 2016), of which Teekay Tankers sold 6,820,000 common shares under its continuous offering program and 2,155,172 common shares in a private placement to Teekay Corporation. The net proceeds from the issuances were used for general corporate purposes, including strengthening the Company's liquidity position and delevering its balance sheet.

Conference Call

The Company plans to host a conference call on Thursday, February 23, 2017 at 1:00 p.m. (ET) to discuss its results for the fourth quarter and fiscal year 2016. An accompanying investor presentation will be available on Teekay Tankers' website at www.teekay.com prior to the start of the call. All shareholders and interested parties are invited to listen to the live conference call by choosing from the following options:

• By dialing (866) 233-4566 or (416) 642-5210, if outside of North America, and quoting conference ID code 2958609.
• By accessing the webcast, which will be available on Teekay Tankers' website at www.teekay.com (the archive will remain on the website for a period of 30 days).

The conference call will be recorded and available until Thursday, March 9, 2017. This recording can be accessed following the live call by dialing (888) 203-1112 or (647) 436-0148, if outside North America, and entering access code 2958609.

About Teekay Tankers

Teekay Tankers currently owns a fleet of 41 double-hull tankers, including 20 Suezmax tankers, 14 Aframax tankers, and seven Long Range 2 (LR2) product tankers, and has seven contracted time charter-in vessels. Teekay Tankers' vessels are employed through a mix of short- or medium-term fixed rate time charter contracts and spot tanker market trading. The Company also owns a Very Large Crude Carrier (VLCC) through a 50 percent-owned joint venture. In addition, Teekay Tankers owns a ship-to-ship transfer business and an approximate 11 percent interest in Tanker Investments Ltd. (OSE: TIL), which currently owns a fleet of 18 modern tankers. Teekay Tankers was formed in December 2007 by Teekay Corporation as part of its strategy to expand its conventional oil tanker business.

Teekay Tankers' common stock trades on the New York Stock Exchange under the symbol "TNK."

Definitions and Non-GAAP Financial Measures

This release includes various financial measures that are non-GAAP financial measures as defined under the rules of the U.S. Securities and Exchange Commission. These non-GAAP financial measures, which include Adjusted Net Income (Loss), Free Cash Flow, Net Revenues and Revenue Days, are intended to provide additional information and should not be considered a substitute for measures of performance prepared in accordance with GAAP. In addition, these measures do not have standardized meanings, and may not be comparable to similar measures presented by other companies. The Company believes that certain investors use this information to evaluate the Company's financial performance, as does management.

Adjusted Net Income (Loss)

Adjusted net income (loss) excludes from net income items of income or loss that are typically excluded by securities analysts in their published estimates of the Company's financial results, as outlined in Appendix A of this release. Adjusted net income (loss) attributable to shareholders of Teekay Tankers represents adjusted net income less income attributable to the Entities under Common Control (see note 1 to the Summary Consolidated Statements of Income (Loss) included in this release for further details). The Company believes that certain investors use this information to evaluate the Company's financial performance as does management. Please refer to Appendix A of this release for a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure reflected in the Company's consolidated financial statements.

Free Cash Flow

Free cash flow (FCF) represents net income (loss), plus depreciation and amortization, unrealized losses from derivatives, certain non-cash items, FCF from the equity accounted investments, loss on sale of vessel, and any write-offs or other non-recurring items, less unrealized gains from derivatives, equity income from the equity accounted investments, gain on sale of vessel and certain other non-cash items. The Company has included FCF from the equity accounted investments as a component of our FCF. FCF from the equity accounted investments represents the Company's proportionate share of FCF from its equity-accounted investments. The Company does not control its equity-accounted investments. Consequently, the Company does not have the unilateral ability to determine whether the cash generated by its equity-accounted investments is retained within the equity accounted investment or distributed to the Company and other shareholders. In addition, the Company does not control the timing of such distributions to the Company and other shareholders. Consequently, readers are cautioned when using FCF as a liquidity measure as the amount contributed from FCF from the equity accounted investments may not be available to the Company in the periods such free cash flow is generated by the equity accounted investments. The Company believes that certain investors use this information to evaluate the Company's financial and operating performance and to assess the Company's ability to generate cash sufficient to repay debt, pay dividends and undertake capital and dry dock expenditures. Please refer to Appendix B to this release for a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure reflected in the Company's consolidated financial statements.

Net Revenues

Net revenues represent revenues less voyage expenses. Because the amount of voyage expenses the Company incurs for a particular charter depends upon the type of the charter, the Company uses net revenues to improve the comparability between periods of reported revenues that are generated by the different types of charters and contracts. The Company principally uses net revenues, a non-GAAP financial measure, because the Company believes it provides more meaningful information about the deployment of the Company's vessels and their performance than does revenues, the most directly comparable financial measure under GAAP.

Revenue Days

Revenues Days are the total number of calendar days the Company's vessels were in its possession during a period, less the total number of off-hire days during the period associated with major repairs, dry dockings or special or intermediate surveys. Consequently, revenue days represents the total number of days available for the vessel to earn revenue. Idle days which are days when the vessel is available for the vessel to earn revenue yet is not employed, are included in revenue days. The Company uses revenue days to explain changes in its net revenues between periods.

Teekay Tankers Ltd.
Summary Consolidated Statements of Income (Loss)
(in thousands of U.S. dollars, except share and per share data)

Components of equity income are detailed in the table below:

Teekay Tankers Ltd.
Summary Consolidated Balance Sheets
(in thousands of U.S. dollars)

Teekay Tankers Ltd.
Summary Consolidated Statements of Cash Flows
(in thousands of U.S. dollars)

Teekay Tankers Ltd.
Appendix A - Reconciliation of Non-GAAP Financial Measures
Specific Items Affecting Net Income
(in thousands of U.S. dollars, except per share amounts)

Teekay Tankers Ltd.
Appendix B - Reconciliation of Non-GAAP Financial Measures
Free Cash Flow
(in thousands of U.S. dollars, except share data)

Forward Looking Statements

This release contains forward-looking statements (as defined in Section 21E of the U.S. Securities Exchange Act of 1934, as amended) which reflect management's current views with respect to certain future events and performance, including statements regarding: vessel sales and deliveries; the Company's forward fixed-rate charter coverage; the impact of OPEC production cuts and increased non-OPEC production on the Company; the impact of the Company's lighterage and other fee-based businesses in 2017 and its ability to reduce future tanker market volatility; crude oil and refined product tanker market fundamentals, including the balance of supply and demand in the tanker market, the amount of new orders for tankers, the estimated growth in the world tanker fleet, the amount of tanker scrapping, estimated growth in global oil demand and supply, the impact of changes to the regulatory landscape, and the length and depth of the current tanker market cycle; tanker fleet utilization and spot tanker rates, including; the effect rates of refinery maintenance, weather, changes in oil prices and refinery throughput;. The following factors are among those that could cause actual results to differ materially from the forward-looking statements, which involve risks and uncertainties, and that should be considered in evaluating any such statement: a delay in, or failure to complete, expected vessel sales; changes in the production of, or demand for, oil or refined products; changes in trading patterns significantly affecting overall vessel tonnage requirements; greater or less than anticipated levels of tanker newbuilding orders and deliveries and greater or less than anticipated rates of tanker scrapping; changes in global oil prices; changes in applicable industry laws and regulations and the timing of implementation of new laws and regulations; increased costs; the performance of the Company's lighterage and other fee-based businesses in 2017; the potential for early termination of charter contracts of existing vessels in the Company's fleet; the inability of charterers to make future charter payments; the inability of the Company to renew or replace charter contracts; and other factors discussed in Teekay Tankers' filings from time to time with the United States Securities and Exchange Commission, including its Report on Form 20-F for the fiscal year ended December 31, 2015. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with respect thereto or any change in events, conditions or circumstances on which any such statement is based.