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Text: Before Kevin begins I'd like to direct all participants to our website at www.
I'll now turn over the call to Kevin to begin.
With me here in Vancouver I have Stewart Andrade Teekay Tankers Chief Financial Officer.
Teekay Tankers generated total adjusted EBITDA of $132 million during the fourth quarter more than double the $62 million reported in the fourth quarter of 2018.
For the full year 2019 we generated total adjusted EBITDA of $259 million up approximately 100% from the $129 million in fiscal year 2018.
We reported adjusted net income of $83 million or $2.47 per share in the fourth quarter up from an adjusted net income of $14 million or $0.42 per share in the fourth quarter of 2018.
For the full year in 2019 we reported adjusted net income of $64 million or $1.91 per share up from an adjusted net loss of $55 million or $1.63 per share in fiscal year 2018.
Our spot tanker rates in the fourth quarter of 2019 peaked at the highest level since 2008 and Teekay Tankers marked one of the most profitable quarters since the end of the tanker market super cycle in 2009.
Including all of these items our pro forma net debt at the end of the year was reduced by $153 million or 15% since the third quarter of 2019.
And our pro forma liquidity at year-end increased to approximately $260 million from $95 million at the end of last quarter.
The strength in the tanker market continued into the early part of the first quarter of 2020 and I'm pleased to report that we have secured significantly higher spot tanker rates to date than those achieved in the fourth quarter.
While crude tanker spot rates have come under pressure in recent weeks primarily due to the coronavirus and the removal of sanctions against COSCO we continue to believe the underlying tanker supply and demand fundamentals point toward an improved rate environment in the medium term.
I will touch on this in the next few slides.
Turning to slide four.
We look at recent developments in the spot tanker market.
Crude tanker spot rates saw extreme volatility during the fourth quarter of 2019 as shown by the chart on the right of the slide.
The market initially started tightening in September as a result of firmer refining demand ahead of IMO 2020 and a slowdown in tanker fleet growth due to shrinking newbuild deliveries and vessels being taken out of service for scrubber retrofitting.
The market received a significant boost in October from the removal of 26 COSCO-owned VLCCs from the trading fleet due to sanctions imposed by the United States.
This tightened available fleet supply further exacerbating positive underlying fundamentals and caused crude tanker spot rates to spike to the highest level since 2008.
This spike in spot rates also drove an increase in time charter rates and Teekay Tankers took advantage of this window of opportunity by chartering out four Suezmaxes at very attractive rates averaging $37000 per day for average durations of 12 months.
The window for chartering out at those levels was relatively brief with rates correcting to more normalized seasonal levels at the start of November as the market absorbed the news of the COSCO sanctions.
Nevertheless rates remained relatively firm.
And in the fourth quarter as a whole rates averaged the highest since the last market peak in the fourth quarter of 2015 as shown by the chart on the left of the slide.
Spot tanker rates started 2020 on a positive note as the supply demand fundamentals remain fully intact in the new year and various market events continue to support rates.
However rates in most segments have come under pressure during February due to a combination of weaker refining margins the onset of seasonal refinery maintenance the return of the COSCO vessels to the trading fleet and the impact of the coronavirus outbreak.
I will discuss these factors in more detail on a later slide.
Turning to slide five.
We give a summary of our earnings in the first quarter of 2020 to date.
Based on approximately 77% and 62% of spot revenue days booked Teekay Tankers' first quarter-to-date Suezmax and Aframax bookings have averaged approximately $51700 and $38100 per day respectively.
For our LR2 segment with approximately 65% of spot revenue days booked first quarter-to-date bookings have averaged approximately $40100 per day.
In each segment rates achieved to date are significantly above those achieved during the fourth quarter.
It's also important to note that we are currently trading the majority of our LR2s in the crude market hence the LR2 earnings being comparable to those achieved by Aframax fleet and at a substantial premium to earnings which could be achieved in the clean market.
As discussed in the previous slide the freight market for most segments except our U.S. Gulf Aframaxes have come off from the highs seen at the start of the year and we expect spot rates during the balance of Q1 to be at levels substantially lower than those booked in the quarter-to-date for these segments.
Turning to slide six.
We discuss some of the factors which will impact the tanker market over both the near and medium terms.
In the near term the tanker market faces a number of headwinds most prominent of which is the recent coronavirus outbreak.
Although the full impact of the outbreak remains uncertain it appears likely that the tanker market will be negatively impacted in the coming weeks or months due to reduction in Chinese oil demand and associated refinery run cuts.
In an effort to support oil prices the OPEC+ group have also indicated the potential for additional supply cuts in the anticipation of reduced demand caused by the virus outbreak.
Although the near-term outbreak of the coronavirus on the tanker market is clearly negative there are offsetting factors which could mitigate a portion of the overall impact.
Some refiners may look to take advantage of lower oil prices and a contango pricing structure by stockpiling cheaper oil.
In addition lower oil prices will also lead to lower bunker costs which will help support spot tanker earnings.
We're also seeing delays to vessels discharging at Chinese ports as well as delays at Chinese newbuild yards and Chinese repair yards.
This could help to tie up tonnage and will also likely extend scrubber retrofits further into 2020 than was previously expected.
In addition to the coronavirus the tanker market also faces headwinds in the near-term from the return of the COSCO vessels to the trading fleet weak refining margins in Asia and the onset of seasonal refinery maintenance.
Although the near-term outlook for the tanker market is uncertain we believe the underlying supply and demand fundamentals remain positive.
Non-OPEC oil supply is expected to grow by over two million barrels per day in 2020 led by the U.S. Brazil Guyana and Norway.
This will lead to an increase in long-haul Atlantic to Pacific crude oil movements and a stretching of the fleet as more vessels will have to ballast back to the Atlantic to load cargo.
We also believe that global oil demand could experience a strong rebound once the impact of coronavirus passes particularly if the Chinese government acts to further stimulate their economy.
The outlook for tanker fleet supply remains highly encouraging with the tanker order book currently at a 23-year low when measured as a percentage of the existing fleet.
We also believe that scrapping could rebound this year as 13 million deadweight ton of tankers reaches 20 years of age.
As highlighted earlier fleet supply should also remain constrained through 2020 by ongoing vessel removals for scrubber retrofits.
And finally new tanker ordering remains at relatively low levels compared to previous market cycles due to a lack of available financing and uncertainty created by anticipated long-term changes to maritime regulations and new technology development.
In sum while the coronavirus creates a period of uncertainty we believe the underlying supply and demand fundamentals are constructive for a return to a healthier rate environment in the medium term.
I will now turn over the call to Stewart to cover the next couple of slides.
Turning to slide seven.
TNK continues to maintain significant operating leverage to the tanker market as highlighted by the two graphs on this slide.
On an annualized basis the rates we achieved in the fourth quarter of 2019 would result in over $320 million of free cash flow or over $9.5 per share.
This is compelling relative to our closing share price yesterday of $12.66 per share and equates to a free cash flow yield of approximately 75%.
From an earnings per share perspective using a similar methodology it would translate into $8 per share which can be seen in the graph on the right.
This equates to a compelling 1.6 times price to earnings ratio.
Turning to slide eight we highlight significant balance sheet improvements that we have made since the beginning of the third quarter.
Starting with the graph on the top of the page we provide our debt repayment profile before and after the recently secured five year $533 million revolving credit facility refinancing which was approximately two times oversubscribed.
This attractively priced refinancing at LIBOR plus 240 basis points reduces our 2021 balloon maturities from approximately $390 million to approximately $70 million with our next balloon maturity coming at the end of 2024.
Including this refinancing and our previously mentioned asset sales our pro forma December 31 liquidity is $260 million compared to $95 million at the end of the third quarter.
Our balance sheet leverage has also improved with net debt to capitalization decreasing by 5% from 51% at the end of the third quarter to 46% on a pro forma basis at December 31.
Our net debt which includes our debt and capital lease obligations less cash on hand has reduced significantly since the beginning of 2019 as shown by the graph on the bottom of the page.
Taking into account cash flows earned from the improved tanker market and proceeds from agreed asset sales our pro forma net debt at the end of the year stands at $844 million a decrease of over $200 million or approximately 20% since the end of 2018 and a decrease of $150 million or approximately 15% from the third quarter of 2019.
In 2020 we will continue to allocate capital toward debt reduction as we think this will create the most shareholder value by increasing our net asset value better positioning us to exercise purchase options on higher cost sale leaseback debt thereby reducing our cost of capital and strengthening our balance sheet which will further which will build further our financial flexibility.
Turning to slide nine we have summarized our execution on many of the strategic priorities that we laid out at our recent Teekay Group Investor Day in November with a goal of creating shareholder value and strengthening our balance sheet.
Operationally we have maintained our high spot market exposure while locking in attractive time charters when the market spiked in October.
Financially we have increased balance sheet strength by aggressively reducing debt and pushing out maturities.
On the asset side we have opportunistically agreed to sell more than $100 million of assets further accelerating our debt reduction and exiting a noncore business.
And lastly on IMO 2020 I am pleased that we have had a very smooth transition to burning lower sulfur more environmentally friendly fuels which we attribute to our extensive preparations over the past three years and to having secured supply contracts with quality fuel suppliers covering approximately 75% of our requirements.
Given our leverage to the tanker market and tanker supply and demand fundamentals pointing toward a healthier rate environment in the medium term we expect to continue creating significant shareholder value and increasing our financial strength.
With that operator we are now available to take questions.

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teekay tankers q4 adj earnings per share $2.47 excluding items.
q4 adjusted earnings per share $2.47 excluding items.

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