Welcome to Teekay Tankers Ltd’s Second Quarter 2021 Earnings Results Conference Call. During the call, all participants will be in a listen-only mode. Operator provided instructions to participants. As a reminder, this call is being recorded. Now for opening remarks and introductions, I would like to turn the call over to the company. Please go ahead.

Before we begin, I would like to direct all participants to our website at www.teekaytankers.com where you will find a copy of the second quarter 2021 earnings presentation. Kevin and Stewart will review this presentation during today’s conference call. Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from results projected by those forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the second quarter 2021 earnings release and earnings presentation available on our website. I will now turn the call over to Kevin Mackay, Teekay Tankers’ President and CEO to begin.

Thank you, Ryan. Hello, everyone. Thank you very much for joining us today for Teekay Tankers second quarter 2021 earnings conference call. I hope you and your families are all safe and healthy. Joining me today on the call are Stewart Andrade, Teekay Tankers’ CFO, and Christian Waldegrave, Director of Research for Teekay Tankers. Moving to our recent highlights on Slide 3 of the presentation, Teekay Tankers had negative total adjusted EBITDA of $6.8 million during the second quarter, down from $15.9 million in the prior quarter. We also reported an adjusted net loss of approximately $42 million, or $1.23 per share during the second quarter compared to an adjusted net loss of $22 million or $0.65 per share last quarter. Our results are largely due to weak spot tanker rates, a heavy drydock schedule period during the quarter, and the expiration of fixed-rate time charter-out contracts secured during the strong tanker market last year. Despite a challenging quarter, we continue to have a strong balance sheet, with pro forma liquidity of $274 million and a net debt to capitalization of 36% at the end of the second quarter. In addition, as previously announced, we are in the process of lowering our cost of capital by refinancing vessels that have been in higher cost sale and leaseback structures, which Stewart will elaborate on later in the presentation. Lastly, spot tanker rates continued to be very weak in the second quarter due to the ongoing impact of COVID-19. This weakness has continued into the early part of Q3. Looking ahead, although the near-term outlook is uncertain due to COVID-19, we believe many key indicators for tanker market recovery continue to improve, which I will touch on in more detail later in the presentation. Based on our forward view, we counter-cyclically in-chartered three additional Aframaxes for 18 to 24 months, with options to extend beyond different periods. Turning to Slide 4, we look at the recent developments in the spot tanker market. Spot tanker rates remain very weak in the second quarter primarily due to the ongoing impact of COVID-19 on oil demand and associated supply cuts from the OPEC+ group. There were also a number of short-term factors which negatively impacted rates during the quarter. Although OPEC+ started increasing oil supply from May onwards, this didn’t translate fully into additional crude exports, as Saudi Arabia increased their domestic consumption of oil for power generation during the summer months. We also saw a decline in long-haul oil movements from the Atlantic to Pacific during the quarter due to a widening of the Brent-Dubai oil price spread. This meant a drop in the average of voyage distances, which was negative for tanker ton-mile demand. Lackluster Chinese crude oil imports were also a negative, with imports down 3% year-over-year in the first half of 2021. This was due to a combination of reduced product export quotas for independent Chinese refiners, new taxes on bitumen and other feedstocks, and inventory draw-downs due to higher oil prices. The first half of the year also saw significant growth in available fleet supply due to the return of ships from floating storage and our front-heavy order book delivery schedule. Using the Suezmax sector as an example, 20 of the 22 newbuildings scheduled for delivery this year have already entered the fleet. The flipside of this is that in the second half of the year, we will see a much lower delivery schedule and therefore relatively low fleet growth compared to the first half. Finally, higher bunker prices have negatively impacted tanker earnings in recent months. Prices have increased by approximately $100 per ton since the start of the year, which is equivalent to a reduction in spot rates of approximately $3,000 to $4,000 per day. The weak spot tanker market has also weighed on time charter rates, as shown by the chart on the right of the slide. Although the near-term outlook remains challenging, we believe that there will be a stronger freight market over the next two to three years and we have therefore taken the opportunity to counter-cyclically in-charter three additional Aframaxes for periods of between 18 to 24 months at an average rate of $17,800 per day with extension options, which we believe represents an attractive risk-reward and has been a profitable lever for us during past tanker market cycles. These vessels will deliver over a staggered period from mid-Q3 through the end of Q4. Turning to Slide 5, we provided a summary of our spot rates in the third quarter to date. Based on approximately 41% of spot revenue days booked, Teekay Tankers’ third quarter-to-date Suezmax bookings have averaged approximately $2,400 per day. These lower averages are partially the result of the timing of repositioning voyages for unfixed vessels, which incur bunker fuel expenses in the near term without offsetting charter revenue, which will be recorded later in the quarter when the vessels are fully fixed. Current Suezmax round-trip TCE returns are averaging $5,600 per day, per the latest Clarksons spot rates being reported. For our Aframax and LR2 fleets, which are predominantly trading dirty, based on approximately 36% and 38% spot revenue days booked, third quarter-to-date bookings have averaged approximately $6,200 per day and $8,100 per day respectively. Lastly, in anticipation of an improved winter market, we will complete 10 of our scheduled 12 drydockings by the end of the third quarter. Turning to Slide 6, we look at some of the key indicators which we believe point towards a tanker market recovery and which have continued to improve over the past quarter. Oil demand continues to recover in tandem with the rollout of global COVID-19 vaccinations, particularly in North America and Europe, where we are seeing a significant recovery in transportation fuel demand during the summer months. We expect oil demand will continue to recover through the second half of the year and to revert back to pre-COVID levels sometime in 2022. However, we also acknowledge that recovery will be uneven across different regions and that COVID-19 may continue to periodically disrupt demand as new outbreaks emerge and fresh travel and mobility restrictions are implemented. The combination of recovering oil demand and OPEC+ supply cuts has significantly reduced bloated oil inventories, which are now well below five-year averages and which have pushed oil prices above $75 per barrel in recent weeks. The OPEC+ group has recognized that the world needs more oil in order to keep the market in balance and has announced a production increase of 2 million barrels per day between August and December. Although they plan to review their policy at the December meeting, the group has also indicated intent to fully unwind their supply cuts by September of 2022. This boost to production, coupled with an expected increase in non-OPEC supply, should be positive for tanker demand in the coming quarters. The fleet supply side continues to look very positive. In particular, we would highlight the acceleration in tanker scrapping over the past few months due to a combination of weak freight rates and very high scrap prices which are currently at a 10-year high. A total of 6.6 million deadweight tons have been removed from the fleet so far in 2021 compared to just 3.5 million deadweight tons in all of 2020. The combination of a relatively small tanker order book, low levels of new tanker orders due to high newbuilding prices, and increased scrapping are expected to keep tanker fleet growth at relatively low levels over the next two to three years. In summary, although tanker rates have been at historically low levels through the first half of the year, we believe that the market may be nearing an inflection point through a combination of rising tanker demand and constrained fleet supply. It appears that this sentiment is shared by the wider market as asset volumes have risen by over 20% since the start of the year in anticipation of a stronger tanker market in the coming quarters and years. I will now turn the call over to Stewart to cover the financial slide.

Thanks, Kevin. Turning to Slide 7, we highlight the company’s strong financial foundation. As Kevin mentioned in his opening remarks, we continue to have a strong balance sheet, which provides us with financial strength and flexibility. We have a pro forma liquidity position of $274 million and a net debt to capitalization of 36% at the end of the quarter. Since November 2020, the company has declared options to repurchase eight vessels that were under higher cost long-term sale and leaseback financings. In May, two of these vessels were repurchased for $57 million using existing liquidity and thus remain unencumbered, while the remaining six vessels are scheduled to deliver in September for $129 million. We have signed term sheets and are in the documentation stage to refinance all eight vessels with lower cost sale and leasebacks for a total refinancing amount of $142 million, which we expect to close in the third quarter. As mentioned in prior presentations, one of our strategic priorities is to reduce our cost of capital and this refinancing will result in an estimated interest expense savings of approximately $11 million in the first 12 months. Lastly, having reduced significant amounts of debt in 2020, our debt repayment profile is very manageable in the coming years, with no significant debt maturities until 2024. With that, I will turn the call over to Kevin to conclude.

Thanks, Stewart. As I have said in past quarters, I would again like to thank all of our seafarers and shore-based staff for their continued dedication to providing safe and uninterrupted service to our customers during these challenging times. We continue to focus on the safety and wellbeing of our seafarers as we look forward to the continued transition to a more normalized world. With the strong financial position and high operating leverage, we believe that Teekay Tankers is well-positioned to continue to weather the current market challenges and benefit from an anticipated tanker market recovery in the quarters ahead. With that, operator, we are now available to take questions.

Thank you. Operator provided instructions to participants. And we will go first to Jon Chappell with Evercore ISI.

Thank you. Yes. Good morning and good afternoon. Kevin, first question: you mentioned second half asset values are up 20% and it seems like the disconnect between asset values and the actual market itself is widening almost by the week. You guys have a pretty diverse fleet as it relates to age, so it’s almost like the market is kind of giving you a gift. I understand you want to keep your operating leverage given your view on the market, but whether it’s scrapping or selling maybe some ships that are a little bit less core than the more modern ones, have you thought about taking advantage of that opportunity and monetizing some of your ships in a market that’s still really difficult?

Yes, it’s a good question, Jon. We have said in the past we are open-minded in terms of how we approach our sales strategy on some of the older units. So, if the right opportunity comes up at the right price, it’s something that we will definitely consider. At the moment, although asset prices are up, the activity levels have dropped off in the last couple of months. So, as of now, we haven’t really seen anything that we can conclude on, but it’s certainly something that we keep an eye on.

And Stewart, I kind of ask about the sale and leaseback every quarter, but maybe I will just ask it a different way this time: if this lasts longer than most of us think and you’ve certainly laid out a thesis on the recovery in the market that’s in line with ours, but it’s also continuing to be pushed to the right a little bit. How many unencumbered vessels do you have? What’s your opportunity to maybe refinance some other vessels, just other liquidity triggers that are not the obvious sale and leaseback refinancing that you have accomplished over the last year?

Hi, Jon. So in total at the moment, we have three vessels which are unencumbered: two of them that we just repurchased in May and which we intend to refinance in September as I mentioned in the prepared remarks. Aside from that, we have one other vessel which is unencumbered at the moment. In terms of other levers to pull, as you can see from the sale and leasebacks that we are currently doing, we do have a group of lessors who are happy to work with us and with whom we can do higher leverage financings if we choose to do so. So, the main lever I would point to is the number of vessels that we have in commercial debt financing that we could move into sale and leasebacks. That market is quite diverse in terms of the loan-to-value you can achieve depending on the counterparty you go with and the interest rate you are willing or think is prudent to pay. So, I think we still do have a fair amount of headroom there. As you mentioned, we have laid out the thesis for market recovery, and we have taken some steps such as taking vessels on longer-term time charters, which underlies our confidence in the market improving in the short and medium term.

Okay. If I can just sneak one last quick one in Kevin on the third quarter to-date rates: you laid out the repositioning issues associated with the Suezmaxes, was there something similar in the Aframax? And is there any way to quantify the impact of those, because usually the numbers that publicly traded companies like yourselves put up are much better than maybe the industry benchmarks and that’s not necessarily the case this quarter, so it’s a little bit surprising by just how low those figures are?

Yes. I think we have to acknowledge that the market is at historic lows and as a result it is challenging, perhaps more so on the Suezmax side than on the Aframaxes, to keep tonnage moving and to get the right voyages. The differential on the ballast portion is definitely more of a Suezmax issue than on the Aframaxes. That’s a function of the Suezmax being more of a global trading ship. In our case, we had a number of ships coming out of drydock in China and we positioned a few ships into the Asian market in the prior quarter. With the lack of supply coming out of Saudi Arabia despite their increase in production, we felt it was best to reposition ships further afield and to stretch our program out. So this quarter we had quite a number of ships with the ballast leg issue. It’s more confined to Suezmax than anything else. In terms of quantum, I don’t have the exact figure with me, but it was a couple of thousand dollars a day at least in impact, which as the quarter goes on and those ships get into position and are fixed away, we will get the revenue to offset that and we should come up to more market-related levels than what we are posting here at this point in the third quarter.

Okay, that’s great. Thanks, Kevin. Thanks, Stewart.

Thanks, Jon.

Thanks, Jon.

We will go next to Ken Hoexter with Bank of America.

Hey, great. Good afternoon. Can we just talk a little bit about the asset values — Kevin, is it typical to see asset values climbing ahead of the inflection in spot rates or typically do you see the spot rates move and then see the asset values climb? It seems like we are doing a little bit of the reverse. Is that typical anticipation or is this an abnormal part of the move here?

Asset values typically reflect a number of factors, one being newbuilding prices and the other being where the forward market is likely to go as opposed to where the actual market is right now. I think both of those factors have come into play. We are seeing asset prices move up quite significantly in the first half of this year, driven off a very large increase in newbuild prices on the back of constrained supply. That has been a big driver. I think also it’s sentiment driven: although the current spot market is historically weak, people are looking at fundamentals that continue to show improvement month on month. It’s a question of timing as to when the spot market catches up with where people’s perception of asset prices and time charter prices is headed. Christian, do you want to give any more detail in terms of the newbuilds or secondhand price increases over the last few quarters?

Yes. I think it’s not unusual to sometimes see asset values move ahead of the freight market. The degree to which it’s happened this year has been a bit unusual. As Kevin has pointed out, it’s due to various factors, some of which have nothing to do with the tanker market. Newbuild prices have definitely risen this year, not really due to tanker orders but due to container ship orders and higher steel costs, which then filter into modern secondhand values. At the older end, we have seen very high scrap prices — the highest since 2008. This year, a few state-owned companies have also been active in the secondhand market and are probably more willing to pay up and push the market. So, several factors have driven pricing up. As Kevin said, I think it was also in anticipation of better times ahead. But I would say the degree to which they have decoupled this year has been a bit unusual.

It’s helpful. I appreciate that, Christian. Kevin, just one follow-up: the move to more Saudi local production, as COVID creeps on with Delta, what signs do you see for the recovery? I guess I am trying to figure out your timing thoughts. As Jon mentioned, it keeps getting pushed out to the right, so what are your thoughts on when you see this inflection in market rates?

It’s really difficult to pinpoint the exact quarter. As we pointed out on Slide 6, some of the things we look at are global oil demand relative to where it’s been, inventory levels coming down, and global oil production — both OPEC+ and non-OPEC — which are starting to come back. Those metrics are heading in the right direction. We have highlighted that there will be regional dislocations because of COVID and that will continue in a few parts of Asia where reduced mobility and restrictions on travel are occurring. But overall, the macro picture continues to improve quarter on quarter, and we think demand and supply dynamics should support a recovery over the coming quarters.

Great. I appreciate that. Thanks for taking my questions.

Thanks Ken.

We will go next to Randy Giveans with Jefferies.

Hi gentlemen. How is it going?

Hi, Randy.

Hi. Two questions for me. First, you chartered in those three Aframaxes to carry crude oil product for 18 to 24 months. How did this come about? Why these vessels in this segment and why that duration?

We have spoken about our capacity to expand spot exposure through the use of in-charters. We have done it successfully before and it has been incremental and accretive to our bottom line. We are always in the market looking at the potential to bring in ships. Given the current disconnect between time charter rates and the spot market, short-term six-month or one-year deals were off the table. Given our conviction that over the coming quarters and certainly over the next two to three years we will see a return to a better freight rate environment, the 18- to 24-month duration allows us to absorb a weaker market at the front end and take advantage of what we think will be attractive rates further out. The duration gives us optionality and the ability to build our book incrementally. We will continue to monitor the market and decide whether to add more or to sit on the sidelines.

Okay. In terms of your vessels and the industry more broadly, there has been a subdued nature of scrapping despite low rates and high steel prices. When do you think that turns? You have some 17-plus-year-old vessels; at what age do you start looking at scrapping those? And how big of a discount are those older vessels earning relative to a more modern eco build?

We regularly assess our fleet. We have a couple of ships getting into the 17- to 18-year range, so we constantly evaluate forward earnings on those ships versus selling them at today’s prices or sending them to scrap. At this point, we haven’t made any decisions to send those ships to scrap. We still believe the market will return in time for those ships to be accretive. At the same time, if the right price comes along for those older ships in the sale market, we will execute. We keep an eye on both scrapping and sale opportunities.

Earlier in the year scrapping looked set to be large. We have definitely seen an acceleration in the last three to four months. Year-to-date scrapping is close to 7 million deadweight tons, which has already doubled what we had last year; we had about 3.5 million deadweight in 2020 and similar in 2019. The very low freight rates we are seeing now and high scrap prices are starting to kick-start scrapping. That will likely continue into the next couple of years because a lot of ships are entering the 17- to 20-year bracket over the next two to three years. This is another reason why we are more positive on the market looking ahead into 2022 and particularly 2023. For example, on the Aframax side we have 72 ships turning 20 years, so we are at the beginning of this scrapping phase, and there has been an uptick in the last two or three months.

Got it. That’s it for me. Thank you.

Thanks, Randy.

We will go next to Magnus Fyhr with H.C. Wainwright.

Yes. Thank you. Good afternoon. Just a follow-up question on these chartered-in vessels: the rates have been pretty flat on the three-year. Have you seen much change on the two-year rate or did you feel like you got a really good level? The rate here hasn’t changed much in the last couple of months as you were looking at these opportunities.

Hi, Magnus. We have seen some movement on the two-year rate coming off to the levels at which we took the ships in, and that was why we felt now was a time to start executing. The three-year rate has held up pretty strongly, and looking at two-year deals with options to extend for a third year gives us optionality to carry through to a stronger market. Earlier in the year people were more confident the second half would kick off in June; the two-year rate was certainly higher than where it is today. That is why we did the first ship at the end of Q2 and then two more in early July. The rate could come off further if the spot market doesn’t improve in the coming weeks, and there is not that much activity currently. It’s fairly quiet across the market.

Got it. So, this is kind of a one-off deal. But you think there is appetite to do more of these charters from the other side?

I think we probably could find more opportunities. We were looking at another one but decided not to pull the trigger. In the past we have built quite a large in-charter portfolio going into stronger markets. We may be more active in building up scale, but we do not plan to pull the trigger on everything at once. We felt doing one, then two, then three was prudent. If the spot market remains weak, numbers may come off further, and we would reassess and either add more or sit on the sidelines until we see clearer green shoots in the spot market. We monitor this daily and we will act as appropriate.

Great. Thanks for the additional color.

Thanks Magnus.

At this time, there are no further questions. I will turn the call back to the company for closing remarks.

Stay safe and we look forward to speaking with everyone in three months' time. Thank you.

This does conclude today’s conference. We thank you for your participation.