Must-know company overview: Is Teekay Tankers undervalued?

Part 3
Must-know company overview: Is Teekay Tankers undervalued? (Part 3 of 7)

Teekay Tankers is evolving into a full-service conventional tanker

Teekay Tankers’ evolution

TNK’s vessels operating in the spot tanker market also participate in Teekay Corporation’s Aframax and Gemini Suezmax pools, enabling the company to leverage Teekay’s experience successfully operating through the spot tanker market cycles.

Below is TNK’s fleet detail as of May 1, 2014.

Fleet mixEnlarge Graph

Positive quarterly results

For the first quarter of 2014, TNK recorded Suezmax TCE per revenue day of $26,462, compared to $15,086 in the corresponding quarter a year ago. Meanwhile, Aframax TCE per revenue day stood at $18,821, compared to $15,605 earlier.

During the first quarter of 2014, Teekay Tankers realized its highest quarterly earnings in its Suezmax and Aframax crude spot tanker segments since 2010—mainly as a result of higher crude oil imports into China, an increase in long-haul crude oil movements from the Atlantic basin to Asia, and strong seasonal factors. In the first quarter, TNK’s spot Suezmax tankers averaged $28,100 per day and Aframax tankers averaged $22,600 per day. This is significantly supported by the availability of the balanced fleet mix of TNK and high support from the parent company.

TNK’s peers, Frontline Ltd (FRO), Nordic American Tanker Ltd. (NAT), and DHT Holdings Inc. (DHT), don’t have such a balanced fleet mix to support their high earnings. Teekay Corp (TK), TNK’s parent company, is part of the Guggenheim Shipping ETF (SEA).

Recent developments

In April 2014, TNK entered into an agreement with TK and acquired a 50% joint-venture interest in its commercial and technical management operations (Teekay Operations) for approximately $15.6 million. This transaction includes ownership of the following:

  1. Commercial management operations, including the Gemini Suezmax Pool (33% owned by Teekay), Aframax RSA, and Taurus LR2 Pool
  2. Teekay Marine Limited (51% owned by Teekay)

The company chief executive believes this investment will enable TNK to generate additional income as the tanker market recovers and as the number of vessels under commercial and technical management increases. TNK expects to earn ~$2.5 million (calculated on the last four quarters, adjusted for known changes to the fleet) in additional equity income per year. This is based on a commission fee of 1.25% on gross freight revenue and a daily management fee for commercial and technical management.

In January 2014, TNK invested $25 million in Tanker Investments Ltd. (TIL), which completed its initial public offering on the Oslo Stock Exchange in late March. Also, in May 2014, TNK announced that it has agreed to sell its two 2010 built Very Large Crude Carriers (VLCCs) to TIL for $154 million.

The Teekay group entities and TIL have a contractual obligation to use Teekay Operations to manage their conventional tanker vessels.

Let’s discuss in detail in the next part of this series how the company’s evolution is benefitting its operational capabilities.

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