• Reported GAAP net loss of $52.1 million, or $1.54 per share; and adjusted net loss(1) of $50.1 million, or $1.48 per share, in the third quarter of 2021 (excluding items listed in Appendix A to this release).
• In September 2021, Teekay Tankers repurchased six vessels that were previously under higher-cost sale-leaseback financings with $129 million of existing liquidity.
• In September 2021, Teekay Tankers refinanced two of the above-mentioned vessels and two previously repurchased unencumbered vessels with lower-cost sale-leaseback financings totaling $73 million. In early-November 2021, Teekay Tankers refinanced the remaining four above-mentioned vessels with lower-cost sale-leaseback financings totaling $69 million.
• In September 2021, Teekay Tankers sold a 2003-built Aframax vessel for $11.7 million.
• Strong balance sheet with a pro forma liquidity position of approximately $209 million(3) and net debt to capitalization(4) of 39 percent as at September 30, 2021.
Teekay Tankers Ltd. reported the Company’s results for the quarter ended September 30, 2021:
Third Quarter of 2021 Compared to Second Quarter of 2021
GAAP net loss and non-GAAP adjusted net loss for the third quarter of 2021, compared to the second quarter of 2021, were impacted primarily by lower average spot tanker rates in the third quarter of 2021 and the expiration of certain fixed-rate time charter contracts. These decreases were partially offset by lower vessel operating expenses in the third quarter of 2021 compared to the second quarter of 2021. In addition, GAAP net loss in the third quarter of 2021 included a net expense of $0.7 million relating to vessel write-downs and gains on vessels sales, which was lower than the $86.7 million write-down of vessels recorded as part of the GAAP net loss in the second quarter of 2021.
Third Quarter of 2021 Compared to Third Quarter of 2020
GAAP net loss and non-GAAP adjusted net loss for the third quarter of 2021, compared to the GAAP net loss and non-GAAP adjusted net income for the third quarter of 2020, were impacted primarily by lower average spot tanker rates in the third quarter of 2021, the expiration of certain fixed-rate time charter contracts, and the sale of three vessels during the first quarter and third quarter of 2021. These decreases were partially offset by lower vessel operating expenses and interest expense in the third quarter of 2021 compared to the same period of the prior year. In addition, GAAP net loss in the third quarter of 2021 included a net expense of $0.7 million relating to vessel write-downs and gain on vessel sales, which was lower than the $45.0 million write-down of assets recorded as part of the GAAP net loss in the third quarter of 2020.
“During the third quarter of 2021, we experienced historically weak crude spot tanker rates due to ongoing OPEC+ production cuts resulting from reduced oil demand related to the COVID-19 pandemic, inventory drawdowns as a result of a backwardated oil price structure, and higher bunker fuel costs,” commented Kevin Mackay, Teekay Tankers’ President and CEO.
“The crude tanker market improved modestly at the beginning of the fourth quarter due to recovering global crude oil trade as the OPEC+ group has been gradually increasing oil supply over the past several months; however, as of October 2021, there are still approximately 4.6 million barrels per day of oil supply cuts remaining in place, relative to pre-COVID-19 production levels,” commented Mr. Mackay. “As we enter the winter months, the crude tanker market could see some support from seasonal factors, as well as incremental oil demand as high coal and natural gas prices continue to cause switching to oil for power generation. Looking further ahead, although the near-term outlook is uncertain due to COVID-19, we believe many of the leading indicators for a tanker market recovery continue to improve, including increases in OPEC+ and non-OPEC+ production, rapidly declining global oil inventories, which are well below the 5-year average, and positive tanker fleet supply fundamentals as reflected in a low orderbook, increased scrapping, and a very limited amount of new tanker orders.”
“As a result of the work we did during last year’s market upswing to increase our financial resilience and focus on sustainability throughout the cycle, the Company has maintained a strong financial position with pro forma liquidity of approximately $209 million(1) and net debt to capitalization of 39 percent at the end of the third quarter of 2021,” continued Mr. Mackay. “We have completed the refinancing of all eight vessels that were previously under higher-cost sale-leaseback financings with new lower-cost sale-leaseback financings, which are expected to result in interest savings for the first 12 months of approximately $11 million(2). While we anticipate a strengthening of the tanker market as trade volumes continue to recover, we remain financially strong and with the vast majority of the Company’s 52 tanker fleet trading in the spot market, we are very well-positioned to benefit from the anticipated tanker recovery,” commented Mr. Mackay.
1. Pro forma for the $69 million refinancing of four unencumbered vessels in November 2021, which were previously under higher-cost sale-leaseback arrangements. These four vessels were acquired along with two other vessels for $129 million in September 2021 with existing liquidity.
2. Assuming LIBOR rate of 0.15% in 2021 and 0.30% in 2022.
Summary of Recent Events
In March 2021, Teekay Tankers declared options to repurchase six vessels that were under higher-cost long-term sale-leaseback financings, which were repurchased in September 2021 for $129 million. In September 2021, two of these vessels along with two previously repurchased unencumbered vessels were refinanced with new lower-cost sale-leaseback financings totaling $73 million. In November 2021, the remaining four vessels were refinanced with new lower-cost sale-leaseback financings totaling $69 million.
In September 2021, the Company sold a 2003-built Aframax vessel for $11.7 million, which resulted in a gain on sale of $0.2 million in the third quarter of 2021.
Crude tanker spot rates fell to multi-decade lows in the third quarter of 2021. The primary reason was a continued lack of crude oil trade volumes as ongoing OPEC+ production cuts and various non-OPEC+ supply outages, coupled with a continued drawdown of oil inventories due to a backwardated oil price structure, weighed on crude tanker demand. Crude tanker spot rates were also impacted by the Delta COVID-19 variant during the quarter, which led to reduced mobility and lower oil demand in several regions, most notably in Asia. Asian crude oil imports were further impacted by weaker oil demand in China, as the country cut import quotas for independent refiners. Lastly, higher bunker fuel prices, which rose in tandem with crude oil prices, also weighed on crude tanker spot rates during the third quarter.
Crude tanker spot rates have shown modest improvement at the beginning of the fourth quarter of 2021 as global crude oil trade volumes have begun to recover. The OPEC+ group has been increasing crude oil supply at a rate of 0.4 million barrels per day (mb/d) per month since August 2021, and this has led to an increase in exports out of key load regions such as the Middle East and West Africa; however, as of October 2021, the OPEC+ group still had an estimated 4.6 mb/d of supply cuts in place. The unwinding of OPEC+ cuts is expected to continue in the coming months which, coupled with rising non-OPEC+ production, should result in an increase in global oil production of 2.7 mb/d between September 2021 and the end of 2021 according to the International Energy Agency (IEA). Global oil demand is expected to increase over the winter, boosted by the ongoing energy supply crisis and record high prices of coal and natural gas, which has encouraged switching to oil for power generation. According to the IEA, oil demand could increase by more than 0.5 mb/d compared with normal winter conditions due to gas-to-oil switching, particularly if the northern hemisphere experiences a cold winter. The above factors, coupled with normal winter market seasonality, could lead to an improvement in crude spot tanker rates through the rest of the fourth quarter of 2021 and into early 2022.
Looking further ahead, the recovery in global oil demand is expected to continue in 2022 as increasing vaccination rates are anticipated to result in a higher level of global mobility. The IEA forecasts an increase in global oil demand of 3.3 mb/d in 2022, lifting oil demand above pre-COVID levels. However, some forecasters are more optimistic, with OPEC projecting an increase of 4.2 mb/d next year. With global oil inventories currently well below the 5-year average, more oil supply will be needed in order to meet growing demand. The OPEC+ group announced plans to continue unwinding its supply cuts at a rate of 0.4 mb/d per month next year until cuts are fully unwound by September 2022. In addition, non-OPEC+ supply is expected to increase by just under 2 mb/d next year. This includes higher production from the United States, Brazil, and Guyana, which are key load regions for mid-size tankers. Crude tanker demand is therefore expected to improve during 2022.
The outlook for tanker fleet supply continues to look positive. New tanker ordering ground to a virtual halt in the third quarter of 2021 with just 0.75 million deadweight tons (mdwt) of new orders placed, which is the lowest quarterly total since the second quarter of 2009. Elevated newbuilding prices, which are currently the highest since 2009, are expected to limit newbuild orders in the near-term. The third quarter of 2021 also saw an increase in tanker scrapping with 4.7 mdwt removed, the highest quarterly scrapping total since the second quarter of 2018. A combination of low tanker ordering and higher scrapping bodes well for limiting the level of future fleet growth. The Company currently estimates approximately 2 percent tanker fleet growth in both 2021 and 2022, and minimal fleet growth in 2023, as scrapping is expected to largely offset new vessel deliveries.
In summary, the tanker market has seen a period of exceptionally low spot rates in 2021 to-date. However, the tanker market is experiencing an improvement at the start of the fourth quarter and increasing trade volumes, coupled with a potential oil demand boost due to the global energy crunch and seasonal weather delays, could support rates further over the winter months. Looking further ahead, tanker supply and demand fundamentals continue to trend in a positive direction, which should lead to higher tanker fleet utilization and improved tanker rates in the future.
As at September 30, 2021, the Company had total liquidity of $140.0 million (comprised of $60.7 million in cash and cash equivalents and $79.3 million in undrawn capacity from its credit facilities), compared to total liquidity of $231.4 million as at June 30, 2021. Pro forma for a $69 million refinancing of four unencumbered vessels completed in November 2021, the Company’s total liquidity would have been $209 million as at September 30, 2021.