Fleet Financing

Teekay Tankers: Crude tanker spot rates are improving (NYSE: TNK)

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Introduction

Teekay Tankers Ltd., based in Bermuda (NYSE: TNK) released its fourth quarter 2021 results on February 24, 2022.

1 – Overview of 4Q21 and full-year 2021 results

The company reported a quarterly adjusted loss of $0.74 per share compared to a loss of $1.21 per share a year ago. Results were slightly better than expected due to higher rates for spot tankers.

Net profit is again a loss of $39.81 million, compared to $73.29 million a year ago. This is the sixth consecutive quarterly loss for the shipper.

Presentation

TNK: 4Q21 Highlights Presentation (Teekay Tankers)

CEO Kevin MacKay said on the conference call:

Despite a difficult year, we continue to maintain a strong liquidity position. We signed two term sheets to refinance 13 vessels with new low-cost flexible sale-leaseback financing. These new sale-leasebacks have competitive interest rates, slightly higher than our main business revolver and will increase liquidity by $75 million. Including the sale of three vessels built in 2004, Teekay Tankers had pro forma liquidity of $246 million and net debt to capitalization of 41% at the end of 2021.

Teekay Tankers is one of three “Teekay Group” companies that I cover on Seeking Alpha.

However, as you all know, Teekay LNG (TGP) and Stonepeak completed the merger on January 22, 2022.

All Common Units will be converted into the right to receive $17.00 per Common Unit in cash, subject to applicable withholding taxes. Ordinary shares, which trade on the New York Stock Exchange (“NYSE”) under the ticker symbol “TGP”, will be suspended from trading today and delisted from the NYSE within 10 days.

The Series A and B Preferred Units of the Partnership, which trade on the NYSE under the symbols “TGP PR A” and “TGP PR B”, respectively, will remain outstanding and continue to trade on the NYSE.

After the acquisition was completed, the limited partnership changed its name to Seapeak.

The Partnership intends to convert to a limited liability company during the first quarter of 2022, at which time it will change its name to Seapeak LLC and change its trading symbols for Series A and B Preferred Units to “SEAL PR”. A” and “SEAL PR B”. “, respectively.

2 – Stock market performance

As we can see below, TNK is quite strong and is now up 35% YoY.

Chart
Data by YCharts

3 – Investment thesis

The investment thesis for TNK is not an easy exercise due to the extreme volatility inherent in the oil tanker industry.

We have recently received encouraging signs that spot tanker rates will continue to recover, but the market remains weak and above all unpredictable.

Total Fleet: Type 4T20 4Q21
Suezmax 9,283 12,294
Aframax 10,015 15,679
LR2 10,555 12,223

Source: TNK press releases.

The TNK fleet specializes in crude and refined tankers:

Segment Number of ships
Ships owned 48
Charter vessels 5

Total

53

One problem with TNK is that it is highly specialized and therefore lacks diversity. In addition, the stock does not pay dividends.

These are the two main reasons why I prefer SFL Corp (SFL) in this segment. I recommend that you read my recent article on SFL by clicking here.

Thus, I recommend LIFO for short-term trading and profiting from wild market swings. However, it is also essential to build up a small long-term position while waiting for the rebound of the industry which seems to be well underway.

4 – Crude Oil Spot Rates

Crude oil spot prices were much better in the fourth quarter of 2021. However, the market remains weak. CEO Kevin Mackay said on the conference call:

In the freight market, tanker spot rates in the fourth quarter improved to their highest point in 2021, but remain low on a historical basis as the Omicron variant constrained oil supply and prices Bunker lifts appeared with short-term headwinds. To mitigate this weakness, our vessels engaged in full-service lightening were employed at $22,200 per day in the fourth quarter, which supported our Aframax rates. The company also chartered 1 Aframax for $18,000 per day for a 12 month period.

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TNK: Spot Price Rebound in 4Q21 Overview (Teekay Tankers)

TNK – The Raw Numbers: Fourth Quarter of 2021 and financial history

Teekay LNG Partners LP 4T20 1Q21 2Q21 3Q21 4Q21
Total revenue in millions of dollars 127.80 142.75 123.42 115.89 160.31
Net income in millions of dollars -73.29 -21.37 -129.14 -52.06 -39.81
EBITDA in millions of dollars -15.87 15.96 -95.07 -18.31 -5.77
Diluted EPS in $/share -2.17 -0.63 -3.83 -1.54 -1.17
Cash flow from operations in millions of dollars 0.13 -27.45 -18.26 -38.40 -23.21
CapEx in millions of dollars 7.14 0.91 6.32 7.93 6.28
Free cash flow in millions of dollars -7.01 -28.36 -24.58 -46.33 -29.48
Total cash in millions of dollars 97.23 87.60 60.50 60.72 50.57
Long-term debt (including current) In millions of dollars 253.0 599.7 596.4 631.3 355.29
Shares outstanding (diluted) in millions 33.74 33.74 33.76 33.90 33.90

Source: Release of the Teekay Tankers

Note: More data is only available to subscribers.

Analysis: revenue, profit details, free cash flow

1 – Operating revenue was $160.31 million in 4Q21

Chart

TNK: Quarterly Earnings History Chart (Fun Trade)

Teekay Tankers reported a total adjusted net loss of $24.96 million, or $0.74 per share, in the fourth quarter, down from a loss of $50.15 million, or 1.48 $ per share, in the fourth quarter of 2020.

The improved quarterly results were primarily due to higher average spot tanker rates and full-service relief revenue, lower scheduled dry-docking and lower freight charges payable. They were partially affected by the expiration of specific fixed time charter contracts at higher rates in 2021.

2 – Free cash flow was a loss of $29.48 million in 4Q21

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TNK: Quarterly Free Cash Flow History Chart (Fun Trade)

To note: Free cash flow is cash flow from operations minus capital expenditures.

Trailing 12-month free cash flow was a loss of $128.75 million with a quarterly free cash flow loss of $29.48 million in 4Q21. The company does not pay a dividend.

3 – Debt analysis

3.1 – Debt analysis

Net debt is $294.72 million in 4Q21 (or $579.43 million including short-term and long-term finance lease obligations). Pro forma liquidity is $246 million.

Chart table

TNK: Debt and Liquidity 4Q21 Presentation (Teekay Tankers)

To note: The company reported net debt of $583.844 million with a different (non-GAAP) calculation, including short-term, short-term and long-term debt, and short-term and long-term lease obligations. – financing less cash and cash equivalents and restricted cash. .

As of December 31, 2021, the company had total liquidity of $246 million, compared to $209 million as of September 31, 2021.

Net debt to total capitalization is 41% in 4Q21, compared to 39% in 3Q21.

3.2 – Recent transactions:

  • In December 2021, Teekay Tankers sold an Aframax vessel built in 2004 for $13 million.
  • In January 2022, Teekay Tankers entered into agreements to sell one Aframax vessel built in 2004 and one Suezmax vessel built in 2004 for total proceeds of $28.6 million.
  • In December 2021 and February 2022, signed term sheets for new low-cost sale-leaseback financings to refinance 13 existing vessels, which are expected to be completed in the first and second quarters of 2022 and increase the company’s liquidity approximately $75 million. Including these refinancings and the two vessels agreed to be sold in early 2022, Teekay Tankers’ pro forma liquidity was approximately $246 million as of December 31, 2021.
  • In January 2022, chartered an Aframax vessel for $18,000 per day for a period of 12 months.

4 – Outlook for the first quarter of 2022

4.1 – The company forecasts lower revenue in the first quarter of 2022 and expects more dry-docking days and fewer calendar days.

Table

TNK: Presentation of the outlook for 1Q22 (Teekay Tankers)

4.2 – Below is the Spot tanker to date.

Table

TNK: 1Q22 rate Presentation (Teekay Tankers)

Technical analysis and commentary

Chart

TNK: Short Term TA Chart (Fun Trade)

TNK is forming an ascending triangle with resistance at $17.40 and support at $14.50.

The short-term trading strategy is to trade LIFO around 65% to 70% of your position. I suggest selling between $17.25 and $17.65 and waiting for a retracement to $14.50 or lower on weakness. TNK could experience a breakdown if the recent increase in daily rates loses momentum and retests the lower support I see between $13.3 and $12.5.

Conversely, if the nascent recovery in the rate continues, TNK could break out and retest $18-19, but that remains unlikely.

Warning: The TA table must be updated frequently to be relevant. This is what I do in my stock tracker. The table above has a possible validity of approximately one week. Remember that the TA chart is a tool only to help you adopt the right strategy. This is no way to predict the future. Nobody and nothing can.

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