Teekay Tankers Ltd. Class A Stock

Welcome to the Teekay Group Second Quarter 2026 Earnings Results Conference Call.

[Operator Instructions] 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.teekay.com, where you will find a copy of the Teekay Group's second quarter 2026 earnings presentation. Kenneth 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 2026 Teekay Group earnings presentation available on our website.

I will now turn the call over to Kenneth, Teekay Corporation and Teekay Tankers' President and CEO, to begin.

Thank you, Ed. Hello, everyone, and thank you very much for joining us today for the Teekay Group's second quarter 2026 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, Finance and Corporate Development; and Christian Waldegrave, our Director of Research.

Starting on Slide 3 of the presentation, we will cover Teekay Tankers' recent highlights. Teekay Tankers reported GAAP net income of $226 million or $6.49 per share and adjusted net income of $194 million or $5.56 per share in the second quarter, which was 50% better than our results posted last quarter. This quarter also marks the highest ever quarterly adjusted net income for the company, surpassing the previous record set in the first quarter of 2023. Spot tanker rates during the second quarter were the highest ever as well, averaging $109,200 per day and $74,100 per day for our Suezmax and Aframax LR2 fleets, respectively. With our significant spot exposure and a low free cash flow breakeven, we generated approximately $200 million in free cash flow from operations, which along with the vessel sale has increased our cash position to over $1.2 billion with no debt as of quarter end.

We continue to execute on our fleet renewal strategy, which includes acquiring modern vessels by selling our older vessels. In the second quarter, we completed the previously announced transactions, including acquiring two Korean Suezmax newbuildings for a total of $190 million, which are expected to be delivered in 2027. And we sold one 2009-built Suezmax for $53.5 million, recording a gain on sale of $32.3 million during the quarter. At the beginning of July, we completed the previously announced VLCC sale for $84.5 million, and we expect to record a gain on sale of approximately $23 million in the third quarter. In addition, I want to highlight that all three Aframaxes acquired at the beginning of the year have been redelivered from the bareboat charters and are now being operating under Teekay technical and commercial management and trading in the strong spot tanker market.

Looking ahead to the third quarter, we have secured spot rates of $104,800 per day and $59,900 per day for our Suezmax and Aframax LR2 fleets, respectively, for approximately 44% spot days booked. I'll touch on the market more in the next slide. Lastly, Teekay Tankers has declared its regular fixed quarterly dividend of $0.25 per share.

Moving to Slide 4, we look at recent developments in the spot tanker market. Spot tanker rates in the second quarter of 2026 reached a record high with Teekay Tankers achieving average midsized tanker rates of approximately $91,000 per day. This beat the previous record of just over $60,000 per day in the first quarter of 2023 by 50%, highlighting the incredible strength in the spot tanker market. The strength continued in Suezmax tanker segments with rates remaining at near record levels so far in the third quarter. In the Aframax sector, we experienced some softening of rates mid-quarter due to a buildup of tonnage in the Atlantic and a lack of arbitrage opportunities. However, spot rates have strengthened again in the Aframax sector during July, particularly in the Atlantic, where we are currently seeing rates of over $100,000 per day.

Turning to Slide 5. We highlight several geopolitical events, which have caused a series of disruptions to trade flows in recent months. While these events have not directly impacted the safety or operations of our vessels, they are driving volatility in the oil and tanker markets. The war between the U.S. and Iran has significantly impacted vessel transits and oil flows through the Strait of Hormuz, which I'll cover in more detail on the next slide. More recently, the resumption of attacks by Houthis in the Red Sea is impacting the flow of oil heading south via the Bab el-Mandeb Strait. Should this continue a safe outlet for Saudi Arabian crude loading from the Red Sea port of Yanbu through the Suez Canal, which would potentially add to tanker ton-mile demand through longer voyage distances.

Recent months have also seen an increase in attacks on Russian oil infrastructure, including the targeting of vessels loading from the Caspian Pipeline Consortium, or CPC terminal in the Black Sea. As a result, we are now in an unprecedented situation whereby attacks on vessels are occurring in three separate regions that are vital to the global oil trade. Not only does this represent a severe risk to ships and crews operating in these regions, but also adds further complexity to global oil trade flows and creates fresh trading inefficiencies, which leads to further spot rate volatility.

Despite the severe disruption to oil market, to oil exports and attacks on commercial vessels, the crude oil and shipping markets have remained resilient due to a combination of rising exports from other regions, oil inventory drawdowns and lower demand, particularly in Asia. These trends are most clearly demonstrated when looking at the United States and China. U.S. crude oil export reached a record high in June, supported by the release of oil from strategic reserves, which boosted midsized tanker demand in the Atlantic. Meanwhile, Chinese crude oil imports fell to a 10-year low in June due to refinery run cuts and inventory drawdowns, which offered some relief to global oil markets and prevented oil prices from spiraling out of control. How these dynamics play out in the coming months will be key to determining whether the oil market can continue to cope with the loss of oil from key export regions.

Turning to Slide 6. We provide an update on the Strait of Hormuz disruption. As shown by the chart on the left, transit through the vital Strait of Hormuz waterway collapsed in March before undergoing a partial recovery in June after the U.S. and Iran signed a framework agreement aimed at ending hostilities. However, renewed hostilities at the start of July, including attacks on vessels transiting the Strait of Hormuz have led to a collapse of the agreement and a sharp slowdown in movement through the Strait. As mentioned on the previous slide, the oil market has adjusted to the loss of Middle Eastern exports through a combination of Saudi Arabia and the UAE diverting supply to alternative ports, including Yanbu and Fujairah, which lie outside of the Middle East Gulf and rising output from the Atlantic Basin.

While this doesn't fully cover the loss of supply from the Middle East, a combination of longer voyage distances and increased trading inefficiencies have supported spot tanker rates. Finally, the tanker market has also benefited from vessels being kept off market, either because they are trapped behind the Strait of Hormuz or because they're empty and sitting idle outside of Hormuz, waiting for resolution. Should Asian refiners look to increase supply from the Atlantic Basin in light of new disruptions, a large number of tankers will have to ballast again to the Atlantic, which will stretch the fleet and give support to overall tanker demand. In short, the ongoing disruption to trade flows and resulting inefficiencies could benefit spot tanker rates.

Turning to Slide 7, we look at the medium-term tanker supply and demand outlook. Given recent events in the Middle East and the ongoing war between Russia and Ukraine, it is difficult to predict the future pathway for oil supply and demand. However, it is clear that global oil inventories are being depleted due to the reduction in supply from the Middle East with strategic and commercial inventories in the OECD currently at a 20-year low. The eventual replenishment of these inventories once market conditions allow should provide a significant boost to oil and tanker demand.

On the fleet supply side, a high level of new tanker orders in 2026 has expanded the order book, which now stretches into 2030. Scrapping activity remains limited, though pressure is building on the dark fleet of older vessels due to fewer trading markets as sanctions are lifted and as regulatory scrutiny increases. In addition, the tanker fleet continues to age with the average age of the midsized tanker fleet now the oldest in over 30 years. We believe the eventual removal of these older vessels should help in reducing the impact of rising tanker deliveries in the coming years.

Turning to Slide 8, we continue to build value and have significant financial strength and optionality. This includes first, our ability to generate significant free cash flow with a low free cash flow breakeven. With the majority of our vessels trading in the strong spot market, we generated near record free cash flows in the first half of 2026. As an illustrative example, if we annualize our first half 2026 free cash flows, TNK would generate free cash flows of $684 million or almost $20 per share by the end of the year. With a free cash flow breakeven of approximately $9,700 per day over the next 12 months, we believe our operating leverage provides a powerful platform for continued cash generation and long-term value creation.

Second, we're executing on our fleet renewal strategy by selling older assets in today's high asset price environment and recycling that capital to acquire more modern vessels in a disciplined manner. Looking back 12 months, we have sold nine older vessels for $369.5 million with combined gains of $125 million and acquired or committed to seven modern vessels for approximately $427 million, including two Suezmax newbuildings delivering in 2027. These transactions have lowered our average fleet age while maintaining significant operating leverage to the strong tanker market as highlighted by our record adjusted net income during the second quarter.

Third, we have significant investment capacity, which allows us to incrementally progress our fleet renewal requirements while being patient for larger transactions in the future at more attractive entry points. The tanker shipping industry is capital-intensive, cyclical and increasingly dynamic, and we believe having significant investment capacity provides financial flexibility to pursue opportunities swiftly when the timing is right. Although the near-term tanker market outlook remains complex, unpredictable and subject to significant influence from geopolitical events, we believe Teekay Tankers' low cash flow breakeven levels, significant free cash flow generation and sizable investment capacity positions us well to simultaneously renew our fleet and create shareholder value.

With that, operator, we are now available to take questions.

Thank you. [Operator Instructions] We'll now go to your first question that will be coming from Omar Nokta with Clarksons Securities.

Congrats on a record quarter. I had a couple of questions, maybe one a bit more market specific and then one on Teekay Tankers. And you referenced this in your presentation just in terms of how this market has really been evolving into something quite a bit different than what we've been used to seeing or at least saw in the past. Can you talk about how you're seeing kind of the Suezmax, Aframax segments react in this environment that we're in today? Specifically, now that you're maybe seeing a shift in some of those, as you referenced, the Saudi barrels going up to the Med now, there has been a lot of conversations in the past week or two about how VLCC activity has really picked up to handle some of those cargoes. But I guess maybe long term, how do you think about it if indeed that becomes a new trade, where do the Suezmax, Aframaxes fit in that market?

Omar, thanks for the question here. I think it's a great question. As you say, we're definitely seeing patterns at the moment, which are unprecedented. I think if we look at what happened in the quarter at our fleet, we saw, as I said in my prepared remarks that Suezmaxes held up really well. And I think they were basically just following trailing the VLCC rates throughout. So we saw good utilization, good demand. They're still incredibly flexible vessels. There's a lot of ports where the VLCCs can't go in fully latent. So for example, if you take a VLCC through Suez up north, you can only do it partially latent. So you will need to do STS. All depending on where that VLCC is going, you will have a consideration whether it's more beneficial to use a Suezmax instead for a shorter route.

I think you're going to see a lot of those decisions that are going to be going around. And that's before you get to what size of parcels that are being traded. So I think what we have seen for the first half of this year is basically, yes, the Suezmax is performing extremely well, being pulled up by a very, very strong VLCC market. And I think the Aframaxes, if you look at them, have always continued at time to fill some of the slots where, again, you have parcels, you have ports where the Suezmaxes can go into where the Aframaxes come in. For the first time in actually four years, we saw a bigger divergence on the Aframax versus the Suezmax rates. I think it's more better explained by actually that the Vs and the Suezmaxes outran the medium-sized segment or the Aframax segment.

But when we look at it in absolute terms, of course, the Aframax rate was just very, very strong. And what we've seen just over the last couple of weeks is that we've actually seen a couple of examples where we are fixing now our Aframaxes out at higher rates than what we're fixing the Suezmax vessels out there. So all I can say is that it's incredibly dynamic, and we seem to be utilizing all of the assets on the water depending on what position that they're in. And I think all three sectors are performing extremely well.

Yes, certainly. That's helpful detail in terms of just kind of thinking about this market. And I guess maybe as you were talking about, obviously, the balance sheet is exceptionally strong, the best it has ever been for Teekay, and you're continuing to just sort of fine-tune the business and then maybe there's an opportunity that comes your way at a better entry point than obviously where prices are today. But I guess maybe in that context, given capital allocation, the way it's set up at the moment, I wanted to ask about the dividend at this point. You've got the special payout that comes out in the first quarter of each year, at least that has been the case for the past three or four years.

But in terms of, say, the base payout of $0.25, which has been in place since the beginning, I think, of '23, you're in a completely different world today, both earnings-wise and then balance sheet-wise. Does it make sense to revisit that base dividend? Not saying it needs to be transitioning to a high payout model, but do you see a world in which, say, TNK starts to ratchet up the payout on an ongoing basis rather than keep it flat at this $0.25 in the past three-plus years?

Yes. First of all, I would say that obviously, I think we all agree this year has turned out much, much stronger for the tanker markets than any one of us saw and even what we saw when we reviewed it with our Board in March here. As I think we've had a good cadence in terms of having the fixed dividend and then the special discussion after the first quarter every year. We like that cadence, but it's clearly something that we need to continue to discuss with our Board at our Board meetings. We normally would signal it to the market that we do it on an annual basis. I don't expect that, that's going to change. But it's clear that the -- when you have this unprecedented cash flow generation, then, of course, we are intensifying our capital allocation discussions with the Board because the position we are in right now is a high-class problem to have, but we have generated a lot of excess cash here. So we're looking at it.

Our plan when we entered into the year, and we're very clear on that, I think, on our previous calls was that we expected to have faster fleet renewal. What happens when we see rates like this going on for a couple of quarters is that we're also seeing the highest premiums for underwater tankers that we've seen in probably ever, I think, when you go back. So that makes it a little bit harder and requires that discipline to do that. But of course, we totally understand that by the end of the day, we work for our shareholders. We are always focused on, first and foremost, creating the value. We have a strong conviction in that eventually the market will recognize the value that we're creating as a company. And whether we change the dividend a little bit here, I think it just signals what we believe. But I think our cash flows that we generate, I think, is a clear demonstration of that we're creating a lot of value and making the company a lot more valuable.

Next question will come from the line of Ken Hoexter with Bank of America.

I guess maybe just real quick, you mentioned some of the threats and dangers to the ships in multiple regions now that it has changed. Anything you can talk to in actions you've taken or routes that you've changed or insurance cost changes? That's just a preliminary question. My question was going to be on kind of your chart on Page 7, given the oil inventories, which are going to need restocking. Are you seeing accelerating drawdowns in this third quarter, which is normally kind of a period of fixing some kind of drawdowns? Or is that -- you mentioned what China was doing. Are you still seeing that kind of drawdown at this point?

Ken, thanks for the questions. I'll take the first part, and then I'll pass it on to Christian for the second part. I think in terms of trade routes that we are seeing, I think what we are seeing in the world right now is that we're seeing an unprecedented number of attacks on commercial shipping in more regions than we've ever seen historically. And that's the fact. I think -- and that just means that there are fewer areas or more areas where we have to apply our security principles, which is no different from when we had specific regions in the past. I mean we will always go in and assess whether it was safe to go in. And we always have a policy that if we don't deem it to be safe for our crews and vessels, then we won't make the call.

So as an example, we haven't been transiting south of through the Red Sea for a long time. We haven't gone into the Strait of Hormuz. That's a decision we've made. Some people have, we have not. There is the ongoing at the moment in the Black Sea, do you go into the terminals. That's a very dynamic situation as it is right now. And as of this morning, we saw that there were attacks into the med. So I would say, in terms of our -- how we approach it, it's always safety and security first, irrespective of what region we are looking at. And I think the sheer number of ports that we consider unsafe today, that's definitely at a higher number today than I can recall we've ever had. So the world is getting a lot more complex and much more dynamic because these windows they open and close, and that just leads to a lot of inefficiencies, as I said in my remarks.

On your second question, I'll pass it on to Christian to weigh in on the inventory drawdowns and what we -- which numbers we know and what we don't know at the moment.

Yes. Hi, Ken. With regards to the inventory situation, obviously, when inventories get restocked will depend on the situation in the Middle East. At the moment, obviously, we're still in a supply deficit with Hormuz being closed. So inventories continue to get drawn down. So the timing of when inventories might start to get restocked is wholly dependent on that situation getting resolved. Once that situation is resolved, there should theoretically be plenty of oil in the world to restock inventories. If you look at projections by the likes of the IEA, they're forecasting quite a big supply surplus next year should Middle East production get back to somewhat normal levels.

At that point, obviously, if there's an oversupply of oil, it should push down prices and that will be the stimulus for oil inventories to start restocking again. And there's a big need for that we've shown on Slide 7. Oil inventories are at a 20-year low in the OECD. Look at the U.S. SPR is down to just over 300 million barrels, which is the lowest in 43 years, I think prior to COVID in 2020 was at 635 million barrels. So that's over 300 million barrels of oil that I think the U.S. would like to restock. China has been probably drawing down their inventories at a rate of about 1 million barrels per day for the past three months. So that's another 100 million barrels of oil. Japan has been drawing down stocks. Europe has released a lot of product inventory.

So the need is definitely there, but the pace -- the timing of it will depend on a successful resolution to the situation in the Middle East and the pace of the restocking will depend on market conditions, specifically oil price. But I think it will definitely provide a tailwind to tanker demand as and when it comes, but I can't actually predict right now when that might happen.

Great. And then I guess, two quick ones. Kenneth, I think it's on Page 16, you had a 3Q outlook. Thanks for the detail there. Maybe you can just fill us in on your thoughts on what's included there. I know you've got 48% of days booked. I don't know if you want to talk about what the assumptions are to get to the full numbers. And then just -- I'm sorry, but a dumb one on dry docking. Is there any movement on those? I mean just you talked about these record rates in the third quarter and what is normally seasonally low pricing. So I understand why you ramp up the number of days. But given where rates are, is there anything you can do to push that out? Would you want to? Or do you definitely want the vessels ready for the fourth quarter run-up? Maybe just your thoughts on that timing.

Yes, I can take the dry docking timing first, and then I'll pass on to Brody on some of the other details there. Yes, I think the reality is we pushed them out from Q2 to Q3. So we don't have a ton of flexibility. As you know, we have these anniversaries where everybody needs to dry dock their ships and ours are coming due this year. I'm glad we didn't -- that we did -- that we pushed it out to Q3, but I think we need to get on with them now and get them done and then get them out. And of course, the focus is on getting good voyages into the region where we're dry docking, get them turned around as quickly as possible and then get them out again and pick up a cargo. But yes, we need to get on with them. So I don't think we will see a lot of movement in the actual dry dockings that we're doing in Q3.

Yes. Hey Ken, I can take the outlook question. Yes, on the revenue side, as Ken mentioned, we have a number of dry dockings in Q3. So we're projecting 260 days of off-hire related to that. And outside of that, it's just the remaining unfixed days on the spot market. On the cost side, we're expecting OpEx and G&A to come down a little bit in Q3 versus Q2. So we'll see about a $3 million reduction there is what we're expecting and a little bit lower tax expense in Q3 as well. But otherwise, it's obviously largely rate dependent on where we end up.

And it appears there are no additional questions at this time. I will turn the call back to the company for any additional and closing remarks.

Well, thank you very much for tuning in today. We look forward to reporting back to you next quarter. Have a great day.

This concludes today's call. Thank you for your participation. You may now disconnect.

Welcome to the Teekay Group Fourth Quarter and Fiscal 2025 Earnings Results Conference Call. [Operator Instructions] 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.teekay.com, where you will find a copy of the Teekay Group's Fourth Quarter and Annual 2025 earnings presentation. Kenneth 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 fourth quarter and annual 2025 Teekay Group earnings presentation available on our website.

I will now turn the call over to Kenneth Hvid, Teekay Corporation and Teekay Tankers' President and CEO, to begin.

Thank you, Ed. Hello, everyone, and thank you very much for joining us today for the Teekay Group's Fourth Quarter and Annual 2025 Earnings Conference Call. Joining me on the call today for the Q&A session is Brody Speers, Teekay Corporation and Teekay Tankers CFO; Ryan Hamilton, our VP, Finance and Corporate Development; and Christian Waldegrave, our Director of Research.

Starting on Slide 3 of the presentation, we will cover Teekay Tankers recent highlights. Teekay Tankers reported GAAP net income of $120 million or $3.47 per share and adjusted net income of $97 million or $2.80 per share in the fourth quarter. For the full year, Teekay Tankers reported GAAP net income of $351 million or $10.15 per share and adjusted net income of $241 million or $6.96 per share and realized gains on vessel sales for the year totaling $100 million.

Spot tanker rates during the quarter were the second highest for a fourth quarter in the last 15 years. With our significant spot exposure and a low free cash flow breakeven, the company generated approximately $112 million in free cash flow from operations. And at the end of the quarter, we had a cash position of $853 million with no debt. This includes $99 million of cash held in escrow at the end of the year related to payments for vessel purchases.

Teekay Tankers continues to execute on its fleet renewal strategy. In January, we acquired 32016 built Aframaxes for $142 million and bareboat charter the vessels back to the seller on short-term contracts. We expect to take over full commercial and technical management of these vessels in the second and third quarter this year.

In addition, we sold or agreed to sell 2 older Suezmaxes for gross proceeds of $73 million. And just this week, we finalized an agreement to sell our only VLCC for gross proceeds of $84.5 million with delivery during Q2. We expect to recognize total gains from these sales of approximately $45 million in the first and second quarter of 2026.

Looking at our first quarter to date, the tanker market has continued to strengthen, and we have secured spot rates of $79,800, $56,900 and $51,400 per day for our VLCC, Suezmax and Aframax LR2 fleets, respectively, with approximately 78% spot base book for VLCC and around 65% spot based book for our midsize 3.

Lastly, Teekay Tankers has declared its regular fixed dividend of $0.25 per share.

Moving to Slide 4. We look at recent developments in the spot market. Swap tanker rates strengthened in the fourth quarter of 2025 due to a combination of fundamental drivers, geopolitical events and seasonal factors. Global seaborne oil trade volumes were near record highs during the fourth quarter due to the unwinding of OPEC plus supply costs coupled with rising oil production from non-OPEC plus countries, particularly in the Americas.

In addition, tighter sanctions against Russia, Iran and Venezuela created trading inefficiencies, which have benefited tanker ton mile demand while pushing more trade volumes away from the dark fleet towards the compliant fleet of tenders. Midsized tanker spot rates were further supported by disruptions on the CPC terminal in the Black Sea during November 2025 which led to a reduction of crude oil exports for around 2 months. This outage opened up the arbitrage to bring U.S. oil across the Atlantic to Europe, while poor weather in Europe prevented ships and ballast from returning across the Atlantic, giving rise to very strong rates for both spot voyages and lightering in the U.S. Gulf region.

Spot tanker rates have strengthened at the start of 2026 with midsize rates trending above the 5-year high in February. As many of the factors, which supported the tanker market during the fourth quarter remained in place.

Turning to Slide 5. We look at the impact of sanctions on tanker trade patterns. Geopolitical events continue to shape global oil trade flows and in recent months have pushed an increasing portion of global seaborne oil trade to the non-sanctioned or combined fleet of tankers. As shown by the chart on the left, both Russia and Iran have found it increasingly difficult to sell their oil due to stricter sanctions leading to a more than 70% increase in sanctioned barrels at Sea over the past 12 months. This includes both Tankers and transit as well as oil held and floating storage and reflects the increasing complexity of the logistics chain for sanctioned oil exports.

The end result is that buyers of Russian and Iranian barrels are having to find alternative sources of oil using the compliant fleet in order to compensate for the loss of sanctioned oil. This trend is most evident when looking at Indian crude oil imports. India became the top buyer of Russian crude over the past 2 to 3 years with imports averaging 1.6 million barrels per day in 2025. However, sanctions on Russian oil companies,, Rosneft and Lukoil coupled with an EU ban on the import of refined products made from Russian crude oil has led to a drop in imports to around 1 million barrels per day as of January 2026, with replacement barrels being sourced from the Middle East and Atlantic Basin via the compliant fleet.

In addition, the U.S. and India recently signed a trade deal, which reportedly involves India, further reducing the imports of Russian crude oil, which may push even more trade to the compliance fleet in the coming months.

Finally, recent U.S. action in Venezuela is incrementally shifting trade flows to the benefit of compliant tanker demand. Closer Venezuela and oil to China via the dark fleet which averaged 550,000 barrels per day in 2025 have fallen to 0 since the onset of the U.S. Naval blockade in December.

Ministry and oil is now being transformed entirely by the fleet of compliant tankers with most volumes in January being directed to the U.S. Gulf and Caribbean on Aframaxes. In the early part of February, we have also seen several loadings destined for Europe and Suezmaxes, while we understand that some Indian refiners have also booked cargoes for April delivery using VLCCs. To give an illustration of the potential impact going forward, an extra 500,000 barrels per day ship from Venezuela to the U.S. Gulf creates demand for approximately 20 Aframaxes.

Turning to Slide 6. We review the key drivers for the medium-term tanker market outlook. Underlying tanker demand fundamentals remain positive global oil demand is projected to increase by 1.1 million barrels per day in 2026, which is in line with levels seen in 2024 and 2025. Demand could be further boosted by strategic stockpiling, particularly in China, where the country is projected to add just under 1 million barrels per day to strategic reserves during 2026 and as per estimates by the U.S. Energy Information Administration. Non-OPEC supply growth is projected to increase by 1.3 million barrels per day in 2026 led by the Americas, which should lead to meaningful midsized tanker demand growth.

The OPEC Plus Group, which unwound over 2 million barrels per day of voluntary cuts in 2025 has announced a pause on further unwinds during the first quarter of 2026, and its supply policy for the remainder of the year is uncertain.

On the supply side, over the recent months, we have seen an increase in tanker ordering, particularly for large crude tankers, which has pushed the size of the order booked to a 10-year high when measured as a percentage of the existing fleet. As a result, tanker deliveries are set to increase in 2026 with a further acceleration in 2027. And so actual fleet growth will depend on the level of vessel removals through scrapping or via the migration of vessels from the compliant fleet to the dark fleet and the utilization of older vessels. While the order book size has increased over the past year, we should keep in mind that the tanker fleet is aging with the average age of the fleet now the highest in over 30 years.

Meaning that there will be a significant amount of replacement demand in the coming years. In fact, the order book, which now stretches into 2029 is completely offset by the number of compliance tankers reaching age 20 over the same time frame, not to mention the dark fleet of tankers, which already has an average age of over 20 years.

So in short, while the tanker order book appears large on the surface, -- these vessels are needed to replace the older fleet of tankers which are approaching the end of their trading lives in the coming years, although the timing of when vessels will exit the fleet is uncertain.

Turning to Slide 7. We highlight TNK's key achievements in 2025. Reflecting on the year, the tanker market for 2025 was strong but volatile influenced by several dynamic geopolitical factors. With our exposure to the spot tanker market and our low free cash flow breakeven levels, Teekay Tankers generated $309 million of free cash flows while returning approximately $69 million of capital to our shareholders via our regular quarterly dividend and $1 special dividend in May of last year.

We commenced our fleet renewal process, including our recent transactions in January and February, the company acquired 6 vessels for $300 million while selling 14 vessels for $500 million booking estimated gains of approximately $145 million. As a result of these transactions, we have made progress towards reducing our fleet age. These transactions highlight our ability to act opportunistically given the dynamic market conditions in addition to the fleet renewal transactions, we out chartered 3 vessels, extended an in-charter vessel for another 12 months and sold our investment in Atmore, generating a gross return of over 14% on this investment.

Overall, our strong financial results were supported by our exceptional operational performance with 0 lost time injuries and 99.8% fleet availability. Important metrics measuring the safety of our crews and reliability of our operations.

Turning to Slide 8. We highlight Teekay Tankers' value proposition. First, as a result of our fleet profile, our operating leverage remains strong, and the company is well positioned to generate significant cash flows in nearly any tanker market. With our 3 out-charters and no debt, we have a low free cash flow breakeven of approximately $11,300 per day, which is down significantly from $21,300 per day in 2022.

For every $5,000 per day increase in spot rates above our low free cash flow breakeven is expected to produce about $55 million of annual free cash flow or $1.60 per share. Second, Teekay Tankers has a strong balance sheet with no debt and a large investment capacity for future growth. Having $853 million cash position, we can transact quickly in this dynamic tanker market.

And lastly, the company's performance is underpinned by our integrated platform. We believe our in-house commercial and technical management is a competitive advantage, combined with over 50 years of operating experience in the tank industry, we provide superior service to our customers and transparency through the value chain, which drives shareholder returns.

In summary, the company's strategy over the last several years has been to maximize shareholder value through our exposure to the strong spot market. In 2025, we made progress to renew our fleet by making incremental investments in more modern vessels, while at the same time, selling some of our oldest tonnage. As we look ahead our best-in-class operating platform and strong financial footing positions the company well to continue renewing our fleet, earning cash flow building intrinsic value and returning capital to shareholders.

With that, operator, we are now available to take questions.

[Operator Instructions]

We'll take our first question from Jon Chappell with Evercore ISI.

Yes. Brody, a couple of questions for you today on modeling. So the bareboat charters for the Aframaxes that you acquired and will take full commercial ownership in the second and third quarter. Between January and taking that full ownership, the P&L impact is that you're just getting the bareboat rate that you chartered back to the previous owner. There's no OpEx. There's no D&A. There's no other impact, except a revenue?

Yes, that's right. We're just getting the bear boat back. And those ships will actually dry dock in the first half of the year during that period too, but we'll continue to get the bareboat rate during the dry docking.

Okay. Great. The other thing I wanted to ask you was the G&A run rate. So you did the whole management reorg, et cetera. So as we look at kind of the last 3 quarters, is that the right run rate to think about going forward, maybe some inflationary impact on there? Or is there anything that would either make that go up or down significantly from, let's call it, the last 3 quarter run rate?

Yes, I think that's right. I think if you look at even our annual G&A for the year, around $46 million, going forward, I think we should be about that or maybe a little bit lower. So it approximates the run rate from the last few quarters.

Okay. Final thing, sorry, just to harp on this stuff, it's the strategic stuff to market. I think we've covered that pretty well already. The D&A. So you've done a lot of fleet renewal taken out to a couple of more Suezmaxes and then obviously, you're not going to add the 3 acquired APRAs until, call it, the middle of the year. What do we think about for a first quarter starting point on D&A? Is it similar to 4Q? Or would it be a step down from there?

Yes, it should be pretty close to what we had in Q4 there at about $21.5 million or $22 million in the first quarter. Yes.

Our next question will come from Omar Nokta with Clarksons Securities.

Kenneth Obviously, things are progressing quite nicely. You were mentioning the $850 million of cash you've got that gives you plenty of flexibility in this market to act quickly when an opportunity arises, and you're getting close to that $1 billion number here seemingly, I would say, in the next presumably next few weeks or months. But and you have no debt.

So just wanted to get a sense from you in terms of how you're feeling about this cash position you have on the balance sheet. Do you feel compelled to put that to work? And is there like a sense of urgency that you have either at your -- at the management level or at the board level that you want to put that to work? And I guess maybe kind of related, obviously, to that is -- how are you thinking about putting that to work when it's time? Is it more kind of drip feed dynamic in acquiring assets in the sale and purchase market? Or are you thinking more big picture or M&A?

Thanks, Omar. Welcome back. Good question. Obviously, it's a bit of a high-class problem we're sitting on here. But it's not something that's a big surprise to us. I mean, we could obviously project this out. I think what has surprised us maybe in this quarter -- last quarter and this quarter, we are in year is how strongly the market has performed. That's obviously a positive.

We have still a lot of operating leverage and generating a lot of cash flow in this market. Has the market been low, we probably would have been a bit more active on the buying side. We still found a couple of ships, and we're happy about that. The way we look at it in a strong market, which very clearly and we've seen the big uplift in tanker values here is that -- we're still an operator. We still want to renew our fleet. We still believe that there are deals that we can find in this market. So -- but at the same time, we also recognize that asset values have had another step-up here, and that's natural as we are seeing spot rates as we have.

I expect that we'll continue to do a couple of purchases throughout the year here. I think it's a very tough environment to see that we do a major acquisition just because of the relative asset values. So I think the short answer to your question in terms of big acquisition versus drip feeding I think was your word, it'll probably be more trip feeding with a couple of ships here and there. And the way we think about it is that we can still do it on a basis where we are selling maybe one old ship and buying two new ones and using a bit of the arbitrage that we have as we have seen a nice uplift also on the values of the older tankers that we have.

Yes. And then, I guess, perhaps a follow-up and clearly related -- we're coming up on the 1Q dividend potential. I know you declared $0.25. The past 3 years, you've conditioned us to anticipate a special with 1Q. Is the plan still to stick to that. And I know it's a Board decision. You can't just speak openly like that.

But can we presume that the payout for the first quarter will be higher than what was done last time around?

I'm just looking for my note to your question from exactly a year ago, Omar. And I think my answer at that time was that it's something we discussed with the Board at our March Board meeting and as we've done in the last couple of years, we typically announce any specials in connection with the May earnings release.

Okay. I'll try to remember that for next year. I'll turn it over.

We'll now take our next question from Ken Hoexter with Bank of America.

Broadly, I love going back to the May script to repeat it. So thoughts on -- you mentioned the 500,000 barrels increase in Venezuela. -- can provide the increased demand for a number of vessels. Your thoughts on timing of Venezuela getting back up and running or is there an immediate amount that they've talked about kind of revamping and being able to scale up and with speed before long-term capital investments have to be made. Is there a potential of that increase of 500,000 barrels.

Yes. I think the -- it's Kennon there. I'll pass it on to Christian. The oil is obviously being transported already now, as we said in our prepared remarks, but I'll let Christian comment on kind of our outlook for Venezuela.

Yes. So last year, Venezuela and crude exports averaged about 800,000 barrels a day. We obviously saw in December and January after the U.S. naval blockade that those volumes fell to about 500,000 barrels a day, and it was all the long-haul flows to China that disappeared. Just looking at where it's tracking in February, we're already back up to about 700,000 barrels a day of exports.

So the oil is starting to move again, and it's all going on nonsanctioned ships primarily to the U.S. South Caribbean region, but we've also seen 2 or 3 cargoes to Europe. And we know that India is starting to buy some barrels as well. So -- it looks like we're going to get back up to the normal run rate of 800,000 barrels a day of exports fairly soon. And then I think there's an expectation as well that with the Venezuelan oil industry opening up and foreign companies coming in and doing more investment that production and exports could be boosted within the year by another 200,000 to 300,000 barrels a day, but that's obviously dependent on how quick quickly, they can get things moving there.

So I think it's a good story for the tanker market in terms of the exports are shifting from the dark fleet to the compliant fleet. And then if we can get some extra production and volumes moving as well, then it's just going to benefit the midsized tankers, especially even more.

Great. How about the same thing, Christian, on an update on the Canada shipments?

Yes. So it's an interesting 1 because, obviously, a lot of that Venezuelan crude, which is heavy sale was going to China. And so some of the Chinese state-owned refiners that we're getting that heavy sour crude, we'll probably be looking for replacement. And there's 2 areas that could replace it from 1 is Middle East heavy crude and the other is Canadian.

We have seen an increasing trend of the TMX exports going directly on Aframax to Asia. And I think it's a natural replacement for some of that Venezuelan crude. And we're also seeing a trend of the U.S. West Coast requirements are coming down because there's been some refinery closures there in the Benicia refinery, I think, is in the process of closing down as well. So again, that just frees up more Canadian crude flow to China. So I think we will see some volumes picking up there directly on Aframaxes, which again is going to benefit the FX market.

Yes. So it's staying on Aframax, is it not trend leading.

Now it doesn't seem to be transloading, it's going more directly on APRAs rather than translating up power on to this.

Kenneth, how about a little history lesson, right? I mean, it seems like something I don't know, maybe it's getting a little more antagonistic with Iran the last couple of days. If there is action maybe a little history lesson on what's happened with rates and volumes with military action in the region.

Yes. I think it's a good question. Right now, it more in anticipation of something happening. And as you're probably alluding to, it's -- we go back to the last time that we had action in the region where there was military action. And we looked at it back then, we saw a run-up in rates. We saw some security fears. I think we -- at the time, we pointed out that historically, we've never seen a closure of the spread of outs.

But of course, that's what everybody is speculating about in the event that we see an escalation there. How that's going to drive up rates. And I would say the one difference we have this time around is that we've seen also consolidation in the VLCC segment. So it's a slightly different dynamic this time around in the event that charterers will be looking to secure tonnage quickly.

But I think at this point, I mean, we see rates which are as high as we saw last time but for slightly different reasons. And I think it's just a situation we need to watch. Christian, do you want to add anything?

No, I think like Ken said, when we had the last time, obviously, it was last June during that 12-day conflict, as Ken said, I think the big thing was during that time, there was no actual disruption to flows and to movements. It was more of a security sort of premium that caused the rates of spike and they came down pretty quickly.

So it will depend if there's military action Obviously, we don't know that, that's kind of speculative. But if the military action, it depends on whether actual shipping and oil infrastructure is impacted or not. If the oil keeps flowing then presumably, it will be a bit like last time, the effects might be short-lived, but it really depends on how some falls.

So if no attack on shipping or infrastructure, then rates you're saying they've already run up in anticipation and we see it moving off Okay. Got it. And then last one for me is the tanker order book now. You mentioned 18% of the fleet, the highest since 2016, but you said optically, it's different as I think you said some of the vessels needed to replace an aging fleet. So maybe thoughts on your thoughts on supply/demand, Christian. What -- how do you think we see the balance in the year ahead?

Yes. It's going to be a timing issue, I guess, because as we laid out in the prepared remarks, the order book, while on the surface it looks quite big. If you look at the fleet age profile, -- there was a lot of ships that were built in the late 2000s, especially 2008, 2009, 2010. So we're approaching a big hump in the fleet age profile that needs to be replaced.

So the ships that are in order right now are needed to replace the older ships, but it's a matter of timing, right? We know when the ships are coming into the fleet. We don't know when ships are going to be exiting either through scrapping or other means. So -- in the meantime, like I said, the deliveries will ramp up this year and further into next year. So there's quite a bit of tonnage that needs to be absorbed. But for now, as we're seeing in the rate environment, the the fact that the underlying demand is still positive.

We're seeing more and more trade getting pushed to the non-sanctioned fleet. There are factors there that in the near term, Middle, suggests that the market should stay firm. But beyond that, it's going to depend on the timing of the order book coming in versus some of these changes that are going on, on the geopolitical side. So that's why we take a more balanced outlook on the medium term. And certainly, in the near term, I think things still look pretty positive.

And that does conclude our question-and-answer session for today. I'd like to turn the conference back to the company for any additional or closing comments.

Thank you very much for tuning in today, and we look forward to reporting back to you next quarter. Have a great day.

And once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.

Welcome to the Teekay Group Third Quarter 2025 Earnings Results Conference Call. [Operator Instructions] 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.teekay.com, where you'll find a copy of the Teekay Group's Third Quarter 2025 earnings presentation. Kenneth 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 third quarter 2025 Teekay Group earnings presentation available on our website. I will now turn the call over to Kenneth Hvid, Teekay Corporation and Teekay Tankers' President and CEO, to begin.

Thank you, Ed. Hello, everyone, and thank you very much for joining us today for the Teekay Group's Third 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, Finance and Corporate Development; and Christian Waldegrave, our Director of Research.

Starting on Slide 3 of the presentation, we will cover Teekay Tankers' recent highlights. Teekay Tankers reported the best quarter in the last 12 months with GAAP net income of $92.1 million or $2.66 per share and adjusted net income of $53.3 million or $1.54 per share in the third quarter. Third quarter spot rates remained counter-seasonally strong with rates meaningfully above the historical average for third quarter. Further, with spot rates well above our free cash flow breakeven levels, the company generated approximately $69 million in free cash flow from operations and at the end of the quarter, had a cash position of $775 million with no debt.

Teekay Tankers continues to execute on its fleet renewal strategy, delivering on its previously announced transactions. Since the beginning of the third quarter, we have completed the acquisition of 1 modern Suezmax and the remaining 50% ownership interest in a VLCC from our joint venture partner. In addition, the company completed the sales of 5 -- of 4 Suezmax tankers, which delivered to their new owners in the third and fourth quarters. The combined gross proceeds of the 5 vessel sales is $158.5 million, and we expect an estimated book gain on sales of approximately $47.5 million recorded in the third and fourth quarters. In addition, the strength in the spot market supported the time charter market and the company opportunistically out-chartered 1 Suezmax vessel for $42,500 per day and 2 Aframax-sized vessels for an average time charter rate of $33,275 per day for periods ranging from 12 to 18 months. Two of these charters have already commenced with the remaining charter set to start in November.

Looking at our fourth quarter to date, we have secured spot rates of $63,700, $45,500 and $35,200 per day for our VLCC, Suezmax and Aframax/LR2 fleets, respectively, with approximately 47% to 54% of spot days booked. We believe the tanker market is well positioned for a firm winter market, which we'll discuss in more detail in the next few slides. Lastly, Teekay Tankers has declared its regular fixed dividend of $0.25 per share.

Moving to Slide 4. We look at recent developments in the spot tanker market. Spot tanker rates improved during the third quarter of 2025 with rates on a par with the strong levels seen over the past 3 years and well above long-term average levels. An increase in global oil supply due to the unwinding of OPEC+ supply cuts and rising production in the Atlantic Basin led to a sharp increase in global seaborne crude trade volumes during September to the highest level since early 2020.

Rates were further boosted by an increase in long-haul crude oil movements between the Atlantic and Pacific Basins, particularly in the Suezmax and VLCC segments. As shown by the chart on the right of the slide, spot tanker rates have strengthened further at the start of the fourth quarter with rates in October near the top of the 5-year range.

Turning to Slide 5. We look at the growth in global crude oil production and exports, which is underpinning the recent strength in spot tanker rates. Global oil production has been rising throughout the year due to increases from both OPEC+ and non-OPEC+ sources. The OPEC+ group began unwinding some of the voluntary supply cuts, which have been in place since 2023 at the start of April and by September had completed the unwind of the first round of cuts totaling 2.2 million barrels per day. The group is now in the process of unwinding the next round of cuts totaling 1.65 million barrels per day at a rate of 137,000 barrels per day every month over the next year.

Oil production has also been boosted by new supply coming online from non-OPEC+ countries, particularly in South America, where new offshore production in Brazil and Guyana is in the process of ramping up. The increase has been particularly evident during the third quarter with supply growing by 1.6 million barrels per day compared to Q2 levels. The net result of the higher oil production has been a sharp increase in seaborne crude oil trade volumes, most notably since September as more Middle East crude has been made available for export following the end of the summer direct crude burn season. In fact, if we exclude the period in early 2020 when Saudi Arabia and Russia flooded the market with oil during the brief oil price war, global seaborne crude oil trade volumes are currently at a record high. With OPEC+ expected to continue to unwind supply cuts in the coming months, we expect global seaborne trade volumes to increase further during the fourth quarter.

Turning to Slide 6. We look at some of the near-term oil market fundamentals, which we believe will support spot tanker demand in the coming months. One of the consequences of higher oil production this year has been a decrease in crude oil prices, as shown by the chart on the left of the slide. For countries outside the United States, a weaker U.S. dollar has led to an even steeper drop in real oil prices. Lower oil prices are generally positive for tankers as it spurs oil consumption and lower bunker fuel prices, which is our largest operating cost. Low oil prices also stimulate demand for stockpiling, both for commercial and strategic purposes.

Given that global oil inventories are below long-term average levels, we believe that there is enough spare capacity to absorb a prolonged period of excess oil supply. Should global oil supply growth continue to exceed demand in the coming months as many analysts predict, then we could even see a contango oil price structure emerge, which could further stimulate tanker demand.

Turning to Slide 7. We look at the geopolitical events, which are creating trade inefficiencies and adding further volatility to what is already a firm underlying tanker market. In recent weeks, we've seen a number of announcements with regards to sanctions and port fees, which are serving to create uncertainty and inefficiency in the tanker market. It's positive that the U.S.-China trade agreement announced earlier today includes a postponement of the announced port and shipping fees by at least a year.

As it relates to sanctions, we've seen an escalation of efforts to curb Russia's profits from oil sales via a series of new sanctions by both the EU and the United States, most notably the recent actions to sanction Rosneft and Lukoil who together control around 50% of Russian oil production and exports. While this is a fast-evolving situation, it is reported that some refiners in India and China are backing off from Russian imports and looking to alternative suppliers in the Middle East and Atlantic Basin. This is positive for tanker market as these volumes will need to be transported via the fleet of compliant tankers rather than the fleet of shadow tankers, which currently transport the majority of Russian crude oil to India and China. We believe that these factors, coupled with the strong crude oil trade volumes described earlier as well as normal winter seasonal factors will help drive a firm spot tanker market in the coming months.

Turning to Slide 8. We review the key drivers for the medium-term outlook. Global oil demand is projected to increase by 1.1 million barrels per day in 2026 as per the average forecast from the 3 major oil agencies, which is in line with average growth level since the end of the COVID pandemic. Global oil supply is also set to rise with more production due to come online from non-OPEC countries. It remains to be seen how OPEC will respond, should oil inventories continue to fill and oil prices come under further pressure. However, we believe that there is still plenty of room for inventories to build in 2026, particularly in China, where the government is reportedly looking to add 169 million barrels of new strategic storage by the end of the year.

The fleet supply side continues to look balanced with the order book size stable in recent months at around 16% of the existing fleet. A continued lack of tanker scrapping means that the fleet continues to age with the average age of the global tanker fleet now at its highest point since the 1990s. In the midsized tanker fleet, 344 vessels or 20% of the total fleet is now aged 20 years or older, most of which are sanctioned vessels engaged in shadow trades. We believe that these older tankers will not return to conventional trading even in the event that sanctions are lifted.

While the medium-term tanker market outlook appears well balanced, there are a number of geopolitical uncertainties, which could influence the direction of the tanker market depending on how they unfold. These include the outcome of the war in Ukraine and the fate of the shadow fleet serving Russian trade, developments in the Middle East and disruptions to Red Sea transits, the impact of tariffs and trade barriers on the global economy and OPEC+ production policy.

Turning to Slide 9, we highlight Teekay Tankers' value proposition. First, our operating leverage remains significant, and the company is well positioned to generate substantial cash flows in nearly any tanker market. With the 3 new out charters and no debt, we have lowered our fleet's free cash flow breakeven from $13,000 per day to $11,300 per day. With this low free cash flow breakeven, every $5,000 per day increase in spot rates above the threshold produces $1.66 per share of annual free cash flow or nearly 3% on a free cash flow yield basis.

Second, Teekay Tankers has a strong balance sheet with no debt and a $775 million cash position, which provides capacity for disciplined accretive fleet growth. Third, we continue to return capital to shareholders in a disciplined manner through our quarterly dividend. And lastly, the company's performance is underpinned by our integrated platform. We believe our in-house commercial and technical management is a competitive advantage. Combined with our 50 years of operating experience in the tanker industry, we provide superior service to our customers and transparency through the value chain, which drives shareholder returns.

In summary, the company's strategy over the last several years has been to maximize shareholder value through our exposure to the strong spot market. This year, we began taking measured action to renew our fleet by making incremental investments in more modern vessels, which at the same time -- while at the same time, selling some of our oldest tonnage. As we look ahead, our best-in-class operating platform and strong financial footing positions the company well to continue renewing our fleet, earning cash flow and building intrinsic value.

With that, operator, we are now available to take questions.

[Operator Instructions] We will go first to Omar Nokta with Jefferies.

Thank you for the update. Just wanted to ask maybe -- I had a couple of questions, but maybe first just on the market and kind of where things sit right now. Clearly, things have gotten much stronger. And when we think -- I think a lot of times when we sort of talk about or think about rising OPEC production, we think a lot about the VLCCs. And certainly, those rates have been shot towards past 100,000 a day. But we're also seeing some real strength in the Suezmax and Aframax segments, which are your bread and butter.

Can you just talk a little bit about how these segments maybe interact with each other or maybe move together? And what's really been driving some of the strength we've seen in the midsized segments here recently?

Yes. Thanks, Omar. You are absolutely right. I mean, I think when we look at this year, I think the second half of the year has definitely been one going from strength to strength, and I would argue maybe even stronger than most of us expected. What we've seen just over the last week really is that, that strength just continues to pick up. So the week is finishing stronger both in the VLCC, the Suezmax and the Aframax segment as well as the LR2s, right?

So it's really moving up in all of the categories. And if you look back over the last -- well, since April '22, what we had was that we had a period where the Aframax has absolutely outperformed all sectors, as you know. And I think what we've kind of reverted to is more of the traditional dynamics where the larger ships lead the way, that pull up the Suezmaxes and that pull up the Aframaxes. And underlying that, of course, is that we have a very strong product trade as well that's happening.

So everything is really working in all of the different segments where maybe it's more a matter of that in the last 3 years, the Aframaxes were really the outliers because we really outperformed everything. But now we're kind of back to what you say would be the normal dynamics in a strong tanker market where everything is balanced. And I think what we're seeing now is that we have, as we say, a record number of barrels that are being transported on the water. Of course, most of these barrels in a traditional sense always goes on the most efficient vessels, which are VLCCs. But when there's this much oil and this tighter supply, then it just pulls up the whole market. And that's, I think, in all some places what we're seeing here.

Yes. Helpful color. And I guess maybe just kind of thinking about where Teekay stands. Clearly, you guys have been in a very strong financial position for the past several quarters, perhaps several years. Cash is building. And you've reiterated several times be patient, be patient, which makes a whole lot of sense given all the unknowns.

As we kind of think about where you're headed, I think it was last quarter or maybe the quarter before, you had talked when it came time to maybe reinvest or add more exposure, you were kind of looking to scale more perhaps into the MR segment into products. Is that still the case if you kind of think about where you stand if you wanted to deploy more capital or more net capital, would you want to go into products more deeply? Or do you feel you'd want to either scale up into the VLCCs or perhaps maybe just stay within your back to using the term bread and butter, but the Suezmax, Aframax segment?

Yes, that's a great question. I mean, just to be very clear, our core business is absolutely the medium-sized tankers. And we constantly look for where there's -- where we can find incremental value both in our core, but also the adjacent sectors. I think when we had this call almost a year ago, we talked about the MR sector, which looked interesting at the time relative to some of the other sectors. I think as we're sitting here today, we are 1 year further down the road here and looking at how we renewed the fleet or have taken action on some of our older tankers have started to renew our core fleet. Our focus is -- our #1 priority right now is investing in our core franchise. I wouldn't say that there never would be an opportunity in MR. But relatively speaking now, we actually think that the better value for us is to allocate capital towards our core segments, which are Aframaxes and Suezmaxes.

We'll go next to Ken Hoexter with Bank of America.

This is Tim Chiang on for Ken Hoexter. To kind of extend on Omar's question, you've sold 11 vessels year-to-date. And while sales kind of outpaced purchases thus far, you mentioned last quarter you're focusing on an accelerating pace of fleet renewal going forward. So do you feel you're close to the minimum fleet size now? And do you perhaps aim for purchases of new core Afras and Suez to offset any following sales?

I think the short answer is yes.

Got it. And saw your new time charter out agreement with 3 vessels locking in very favorable rates. Do you expect to engage in more of those given elevated rates near term in 2026?

Yes, that's a good question. I mean we look at every deal opportunistically. There's always a timing and we consider what is the outlook, and it's very dynamic. We think it's prudent when you see strong time charter rates to lock it in, especially if it's with good customers. So it's an ongoing dialogue. It's not a stated strategy that we need to have x percentage of our fleet. We're happy to have spot exposure. But these levels, we know in historical terms are very strong levels. So we can lock it in. And as we pointed out in our prepared remarks, every time we do that, we lower our free cash flow breakeven even further.

So as you can see, it's a very, very strong position that we're in, in terms of generating cash flows in the spot market. But at the same time, even if we did another couple of these at these levels, then of course, our free cash flow breakeven would go down even further. So it's -- we look at it as a portfolio and on a deal-by-deal basis.

We'll go next to Frode Morkedal with Clarksons Securities.

My first question is on this new -- well, China-U.S. deal. I guess the Aframax is under the previous USTR regulation was not extended, right? So now with the USTR port fees being suspended for a year, does that improve the Aframax opportunities for you guys? Maybe they -- of course, the exports out of the U.S. Gulf, but also maybe lightering opportunities? Any color you have on that, please?

Yes. Obviously, the deal is very, very, very new. I think the position we took first when the USTR came in and recently also the China port fees is that with the way that our fleet is composed, we don't have massive exposure to either sector. And therefore, I think the outcome of this agreement, I think, overall is positive for the industry. But I don't think it has any significant impact on Teekay, per se, in the same way as the port fees didn't have a significant impact on us either.

So overall, I think it's a positive as it was clearly driving some inefficiencies, which I don't think serves the industry well over the long-term. But let's see. I mean, so far, it's only 1 year we note that's been agreed.

Yes. Sure. Makes sense. Next question, I guess, more generally speaking, -- you've clearly proven, I guess, that you have high total shareholder returns, right, TSR, which doesn't really require a high payout model. So how confident are you that the stock market would appreciate that approach today? And given that there's still a slight discount to NAV, what might close the remaining valuation gap in your view?

Yes. I think over the past 7 years, we have been very, very clear on that we first focus on value before we focus on valuation and valuation follows. And I think to your point, I think that is what we are -- we're happy to see that's actually being recognized by the market. So when we look at it through a 5-year lens, you're absolutely right. I think that model is right. Our company should always focus on value creation, and that's what we're focused on here.

I think it's in any business in shipping, it is about that we continue to have a strong balance sheet that we can act at times when we see good buying opportunities that we can act when we see good selling opportunities and that we have a strong operating platform with low cash flow breakeven and that's the fortunate position that we, after many years of hard work, have put Teekay back in and operating with that model delivers value every day. And we think we're in a very strong position to continue to build intrinsic value, and we fundamentally believe that, that will always be recognized by the markets ultimately.

With no additional questions holding, I'll now turn the conference back to the company for any additional or closing remarks.

Thank you for listening into our call today. We look forward to reporting back to you next year. Have a great day.

Thank you. Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time.