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Date
Thursday, July 31, 2025 at 3:00 p.m. ET
Call participants
President and Chief Executive Officer — Kenneth Hvid
Chief Financial Officer — Brody Speers
Vice President, Finance and Corporate Development — Ryan Hamilton
Director of Research — Christian Waldegrave
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Takeaways
GAAP net income— $62.6 million, or $1.81 per share, in GAAP net income for Q2 2025, as directly reported by management.
Adjusted net income— $48.7 million, or $1.41 per share, in adjusted net income for Q2 2025.
Free cash flow from operations— $62.8 million in free cash flow from operations for Q2 2025, well above the company’s breakeven levels.
Reported cash and short-term investments— $712 million in cash and short-term investments at period end for Q2 2025 with zero debt.
Fleet sales— 11 vessels sold or agreed for sale in 2025 with $340 million total gross proceeds and estimated book gains of $100 million; these sales include four Suezmaxes and one LR2 to be delivered in Q3 and Q4 2025 for $158.5 million, with an estimated $46 million book gain.
Fleet acquisitions— One modern Suezmax acquired and full ownership of the Hong Kong Spirit VLCC agreed upon post-quarter.
Dividend declaration— The quarterly fixed dividend was maintained at $0.25 per share for Q2 2025.
Spot charter rates secured— To date in Q3 2025, Suezmax spot rates are at $31,400 per day and Aframax/LR2 rates are at $28,200 per day, with 43% of spot days booked for Q3 2025.
Other revenues— Driven by a one-time $6 million restructuring charge funded by a customer for an expired FPSO contract.
Global tanker order book— New tanker orders totaled 11 million deadweight tons in the first half of 2025, compared to 42 million deadweight tons in the same period of 2024, stabilizing the order book in recent months at approximately 15% of the global fleet.
Average age of global tanker fleet— The average age of the global tanker fleet reached 14 years, marking a 25-year high.
Teekay Tankers' free cash flow breakeven— $13,000 per day free cash flow breakeven, as disclosed by management for the first half of 2025.
Free cash flow sensitivity— For each $5,000 increase in spot rates above breakeven, annual free cash flow rises by $1.89 per share or over 44% on a free cash flow yield basis.
Strategic capital allocation— Management emphasized a shift from active vessel selling to renewed vessel purchases, with focus on younger Aframax and Suezmax segments.
OPEC plus supply cuts unwind— The 2.2 million barrels per day of voluntary cuts are scheduled to be fully unwound by September 2025, a full year ahead of schedule.
Geopolitical volatility factors— Management explicitly cited new EU price caps on Russian crude, US sanctions on 50 additional vessels carrying Iranian crude, and timeline risks concerning Russian oil exports as prominent market uncertainties.
Summary
Teekay Corporation(TK 4.29%) concluded the period with significant cash reserves and no debt, supporting a disciplined approach to fleet renewal amid a sale of 11 vessels and selective acquisitions. New vessel purchases have prioritized younger assets in the core Aframax and Suezmax classes, while management committed to gradually increasing acquisition activity, leveraging proceeds from recent sales. Management expects global tanker demand to increase in the second half as OPEC plus unwinds supply cuts, projecting continued volatility from evolving geopolitical events such as sanctions and price caps. The order book for tankers has contracted compared with the previous year, leading to an aging global fleet, and management identified this as a mechanism for long-term supply constraint. Recent "other revenues" were temporarily elevated by a one-off customer payment related to an Australian FPSO restructuring.
President Hvid said, "the selling is largely done for now, and what we are looking to do is we are going to recycle a lot of the capital that we will be collecting from those sales and gradually start adding newer ships to the fleet again."
Director Waldegrave noted, "we certainly think that there will be some more volatility and stronger rates as we go into the latter part of the year."
Chief Financial Officer Speers clarified, "other revenues were a bit higher this quarter because we had a one-time restructuring charge in our Australian business that was funded by one of our customers for an FPSO that the contract had expired on."
Industry glossary
Suezmax: A class of oil tanker with the maximum dimensions capable of transiting the Suez Canal fully loaded, typically 120,000-200,000 deadweight tons.
Aframax: A medium-size crude oil tanker with a deadweight of 80,000-120,000 tons, suited for shorter-haul voyages and often used in regional trades.
VLCC (Very Large Crude Carrier): A large oil tanker with a deadweight between 200,000 and 320,000 tons, used for long-haul crude transport.
FPSO (Floating Production, Storage, and Offloading Unit): A vessel used in offshore oil production to process and store hydrocarbons before offloading to tankers.
Ton-mile: A shipping industry metric representing the movement of one ton of cargo over one mile, used to gauge demand for marine transport.
Order book: The aggregate volume or number of new ships ordered but not yet delivered within a specific vessel segment or the entire shipping industry.
Full Conference Call Transcript
Kenneth Hvid: Thank you, Ed. Hello, everyone, and thank you very much for joining us today for the Teekay Group's second quarter 2025 earnings conference call. Joining me on the call today for the Q&A session is Brody Speers, Teekay Corporation's and Teekay Tankers' CFO, Ryan Hamilton, our VP of Finance and Corporate Development, and Christian Waldegrave, our Director of Research. Starting on slide three of the presentation, we will cover Teekay Tankers' recent highlights. Teekay Tankers reported GAAP net income of $62.6 million or $1.81 per share and adjusted net income of $48.7 million or $1.41 per share in the second quarter.
Second quarter spot rates were counter-seasonally strong with rates outperforming the last two quarters and above long-term averages for the second quarter. Further, with spot rates well above our free cash flow breakeven levels, the company generated approximately $62.8 million in free cash flow from operations. At the end of the quarter, we had a cash short-term investment position of $712 million and no debt. With strong free cash flow generation and cash position, Teekay Tankers is well-positioned to continue actively executing on our fleet renewal strategy. This includes reducing our exposure to 19-year-old vessels as well as opportunistically selling 2009-built Suezmaxes in today's historically higher asset price environment, as well as making incremental purchases of modern vessels.
In July, we acquired one modern Suezmax, and we agreed to acquire the remaining 50% ownership interest in the Hong Kong Spirit VLCC from our joint venture partner. This VLCC acquisition was opportunistic based on relative market values and our belief in the near-term strength of the tanker market. In addition, the company agreed to sell four Suezmaxes and one LR2, which will be delivered to the new owners in the third and fourth quarters for a combined total of $158.5 million, which we expect to result in an estimated book gain on sale of approximately $46 million.
So far in 2025, we have sold or agreed to sell 11 vessels for total gross proceeds of $340 million and estimated bookings on sale of approximately $100 million. Although our sales have outpaced our purchases so far this year, the plan is to gradually change the pace of buying as we remain focused on renewing and growing our fleet in an accretive manner to future earnings. Looking at our third quarter to date rate, we have secured spot rates of $31,400 per day and $28,200 per day for Suezmax and Aframax LR2 fleets, respectively, with approximately 43% of our spot days booked.
We believe there are potential tailwinds for the tanker market towards the end of the year and that the fundamentals for the medium term remain balanced but with more uncertainty due to the complex geopolitical landscape. We'll discuss the drivers of the market in the next few slides. Lastly, Teekay Tankers has declared its regular quarterly fixed dividend of $0.25 per share. Moving to slide four, we look at recent developments in the spot market. Spot tanker rates improved during the second quarter compared to the last two quarters and rates were above long-term average levels for the second quarter.
The strength in tanker rates was primarily due to longer average voyage distances during April, though rates subsequently softened during the remainder of the quarter in line with normal seasonal trends. The market saw a brief period of volatility in June following the escalation of hostilities between Israel and Iran. However, there was no material disruption to regional oil production, exports, or tanker movement, with several spot charters failing subjects, and rates quickly reverting to prior levels once a ceasefire was announced. Turning to slide five, we look at near-term oil fundamentals, which we believe could give support to tanker rates during the second half of the year.
Global oil production is expected to increase sharply in the coming months due to the unwinding of OPEC plus supply cuts and higher production from South America. The OPEC plus group has accelerated their unwind and at the current pace will have fully unwound the 2.2 million barrels per day of voluntary supply cuts by September 2025, a full year ahead of schedule. This should translate into increased tanker ton-mile demand, particularly from September onwards, as reduced domestic demand will allow Middle Eastern producers led by Saudi Arabia to increase seaborne exports. New offshore oil production coming online in Brazil and Guyana should also increase volumes and support crude tanker ton-mile demand during the second half of the year.
As shown by the chart on the left of the slide, global oil supply is expected to exceed demand in the coming quarters, leading to an expected build in global oil inventories. The chart on the right shows that oil inventories outside of China are currently below average levels. Therefore, we expect that the market will be able to absorb the additional supply that is due to come online. Periods of oil inventory builds have historically been positive for tanker rates, and we believe this could be another tailwind for rates as we move into the seasonally stronger winter months.
Turning to slide six, we review the key drivers of the medium-term outlook, but also some of the uncertainties which add a layer of complexity. Global oil demand is projected to increase by 700,000 barrels per day in both 2025 and 2026, as per the IEA. While this is lower than projections made at the start of the year, it still represents healthy growth and would push total oil demand to a record high of almost 105 million barrels per day.
As mentioned on the previous slide, growing oil supply from both OPEC plus and non-OPEC plus sources will help meet this demand growth and provide positive tanker ton-miles demand growth, particularly as we anticipate that a growing portion of new oil supply coming online in the Atlantic Basin will be moved long haul to meet growing demand in Asia. Turning to global fleet supply, the pace of new tanker orders has slowed significantly since the start of the year, with 11 million deadweight of new orders placed in the first six months compared to 42 million deadweight in the same period of 2024.
The order book, when measured as a percentage of the global tanker fleet, has stabilized in recent months at approximately 15%. Meanwhile, a lack of tanker scrapping means that the fleet continues to age, with the average age of the global tanker fleet at a 25-year high of 14 years. Should tanker market conditions worsen, there could be increased pressure on the large and growing pool of scrap candidates to leave the market, providing a mechanism to rebalance the global fleet.
We believe the combination of the current order book, aging tanker fleet, and constraints on available yard space points towards a balanced fleet supply outlook and should result in continued low levels of tanker fleet growth over the medium term. While underlying tanker market fundamentals look positive, a number of geopolitical factors add complexity to the outlook and will likely influence the direction of spot tanker rates. I'll not go into each point in detail, but I note that in September alone, we expect that the OPEC plus group will complete the unwinding of the 2.2 million barrels per day of voluntary supply cuts.
The EU will introduce a new price cap of $47.60 per barrel on Russian crude oil exports. President Trump's 50-day ultimatum to Russia is set to expire, though this timeline could be moved up given Trump's recent comments. And as we saw yesterday, the US just announced sanctions on an additional 50 vessels moving Iranian crude oil. As such, we anticipate that the market will continue to exhibit volatility going forward both in the short and medium term. Turning to slide seven, we highlight how Teekay Tankers continues to build value while remaining patient for future fleet renewal.
With our operating leverage and low free cash flow breakevens of $13,000 per day, Teekay Tankers generated $128 million in free cash flow in the first half of the year. With no debt on our balance sheet, the company continues to build its financial strength and flexibility. Looking ahead, the company is well-positioned to continue generating free cash flows. To emphasize, for every $5,000 increase in spot rates above our breakeven, it produces $1.89 per share of annual free cash flow or over 44% on a free cash flow yield basis. In summary, Teekay Tankers is an operating company in a cyclical, capital-intensive business.
We remain disciplined in our capital allocation as our financial strength positions the company well for future fleet renewal while enabling us to continue to build value in a complex tanker market outlook. We expect to continue generating strong cash flows and taking incremental steps on fleet renewal while returning capital to shareholders. With that, operator, we're now available to take questions. Thank you.
Operator: If you are dialed in via the telephone and would like to ask a question, please press star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach the equipment. Again, press star 1 to ask a question. If you are in the event via web interface and would like to ask a question, simply type your question in the ask a question box and click send. Our first question is going to come from Omar Nokta from Jefferies. Please go ahead.
Omar Nokta: Hi, Kenneth. Hi, guys. Good morning. Thanks for the update. Just wanted to ask quickly, maybe if you would not mind just expanding on the comments you made early in the presentation. You are referencing the purchasing of the latest ship and then some of the sales you did. And you mentioned that you would be looking to change the pace given the need to renew. And so I just wanted a bit more clarity. Are you talking about accelerating the pace of acquisitions? Or maybe rightsizing the ratio between purchasing and selling?
Kenneth Hvid: Yeah. Morning, Omar. Thanks for that question. I think what we wanted to point out, as everybody can see, we have been fairly active in selling some of our older ships in the first half of this year. So we sold a total of 11 ships, and then at the same time, we have started picking up a couple of younger ships. Last year, we picked up a couple of Aframaxes, did a Suezmax now, and then we simplified the ownership structure around the VLCC that we own 50% of.
So the point that we make here is that I think we said that the selling is largely done for now, and what we are looking to do is we are going to recycle a lot of the capital that we will be collecting from those sales and gradually start adding newer ships to the fleet again.
Omar Nokta: Okay. Thank you. And you mentioned the opportunistic transaction to take the full ownership of the VLCC. You've also got, I guess, the opportunistic stake in Ardmore, given your exposure to MRs and obviously have your bread and butter. So as not Zap for Max. How are you thinking about further capital deployment as you renew the fleet? Are you looking within the same, you know, your main asset class? Or do you look towards a larger or perhaps a smaller cyclist?
Kenneth Hvid: Yeah. I would say our number one priority is finding good purchase candidates within our core segments of Aframaxes and Suezmaxes. We are, of course, looking at where we are and trying to square making sense of selling at what we think are quite strong prices for the older assets and then recycling the capital into younger assets where we can find good value. And there are still some relative price movements there. And we think that there are the odd opportunities that allow us to create a positive arbitrage on that. So in the near term, I think that you will see us finding single vessels in our core segments, Aframaxes and Suezmaxes.
And over the medium term, we might be in a little bit bigger with new buildings if we think that is the right time or maybe looking at other asset classes. But the priority right now, and the near term here is really just reloading on our core asset classes.
Omar Nokta: Okay. Very good and very clear. Thanks, Kenneth. I'll pass it back.
Kenneth Hvid: Appreciate it. Thanks, Omar.
Operator: And our next question is going to come from Ken Hoexter from Bank of America. Please go ahead. And, Ken, are you there? Do you perhaps have your mute function button on?
Tim Chang: Hi. This is Tim Chang on for Ken Hoexter with BofA. You mentioned the OPEC plus unwinding production cuts in September and an increase in non-OPEC production in the Atlantic Basin as favorable for demand uplift later in the year. Do you see this lifting rates mainly in 4Q just given that rates soften due to seasonality in the third quarter?
Christian Waldegrave: Yes. Hi, it's Christian here. Yes, we definitely see more oil volumes coming on the market later in the year with OPEC plus. It's not just the production increase, but the fact that the Middle Eastern countries have been keeping more oil domestically during the summer months for power generation. So as we get through the summer and probably into September, we should see more Middle East volumes hitting the water. And then we do expect more oil coming from the Atlantic Basin. We still have the normal seasonality in tanker rates. The winter does tend to be seasonally stronger months.
So with more export volumes coming online in the second half and also some of the geopolitical complexities as well that Kenneth touched on in terms of more sanctions on Russia and Iran, which just makes trade in general less efficient, we certainly think that there will be some more volatility and stronger rates as we go into the latter part of the year.
Tim Chang: Got it. Thank you. And then secondly, other revenue stepped up materially to $42 million from around $33 million last quarter. How should we think about the run rate going forward there?
Brody Speers: Yeah. Hi. This is Brody. Yeah, the other revenues were a bit higher this quarter because we had a one-time restructuring charge in our Australian business that was funded by one of our customers for an FPSO that the contract had expired on. So it's about $6 million higher this quarter than it otherwise would be because of that. So that was a flow-through cost to Teekay.
Tim Chang: Got it. Very clear. Thank you for taking my question.
Operator: There are no further questions in the queue at this moment. I'll turn the conference back over to the company for any additional or closing remarks.
Kenneth Hvid: Well, thank you very much for tuning into our call this morning, and we look forward to reporting back to you next quarter. Have a great day.
Operator: And this concludes today's call. Thank you for your participation. You may now disconnect.