Teekay Tankers Ltd.
Q4 2014 Earnings Call Transcript

Published:

  • Operator:
    Welcome to Teekay Tankers Limited's Fourth Quarter and Fiscal 2014 Earnings Results Conference Call. [Operator Instructions]. Now for opening remarks and introductions, I would like to turn the call over to Mr. Kevin Mackay, Teekay Tankers Limited's Chief Executive Officer. Please go ahead, sir.
  • Scott Gayton:
    Before Mr. Mackay begins, I would like to direct all participants to our website at www.TeekayTankers.com where you will find a copy of the fourth quarter and FY '14 earnings presentation. Mr. Mackay 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 FY '14 earnings release and earnings presentation available on our website. I will now turn the call over to Mr. Mackay to begin.
  • Kevin Mackay:
    Thank you, Scott. Hello, everyone and thank you very much for joining us today. With me here in Vancouver is Vince Lok, Teekay Tankers, Chief Financial Officer and Brian Fortier, Group Controller of Teekay Corporation. During today's call, I will be taking you through Teekay Tankers fourth quarter and FY '14 earnings results presentation, which can be found on our website. Beginning with our recent highlights on slide 3 of the presentation, Teekay Tankers reported adjusted net income of $0.21 per share in the fourth quarter, a significant increase from the third quarter adjusted net income of $0.03 per share. For FY '14, Teekay Tankers earned adjusted net income of $0.39 per share, compared to an adjusted net loss of $0.29 per share in FY '13. The improved results were primarily related due to stronger Suezmax, Aframax and LR2 spot tanker rates earned in 2014, combined with our strategic initiatives to increase spot market exposure. For the fourth quarter of 2014, the Company declared and paid a quarterly dividend of $0.03 per share. Since inception, Teekay Tankers has declared dividend in 29 consecutive quarters, with dividends paid to date now totaling $7.425 per share. Teekay Tankers dividend is currently fixed at an annual level of $0.12 per share payable quarterly. In December as part of our strategy of increasing of our exposure to strengthening spot tanker market, Teekay Tankers agreed to acquire four LR2 product carriers and one Aframax tanker from third-parties. Two of these vessels were delivered into our fleet in mid-February, one delivered this morning and two remaining vessels are expected to deliver by the end of the first quarter. Based on this delivery schedule and current spot rates, this transaction will be immediately accretive to net income. Since our last earnings call in November, Teekay Tankers has continue to build out its in-charter fleet, securing new in-charter contracts for two Aframax tankers and one LR2 product tanker at an average rate of $19,200 per day for periods ranging from 12 to 24 months, with options to extend beyond that. These three vessels add approximately 900 days to our overall spot tanker exposure in 2015 and increase our in-charter fleet to 11 ships. In the first quarter of 2015 to date, spot tanker rates have continued to strengthen, with rates booked to date significantly higher than rates realized in the fourth quarter of 2014. Turning to slide 4, I will provide further details of our recent vessel acquisitions. The five modern second-hand mid-sized tankers that Teekay Tankers agreed to acquire in December will have a total aggregate purchase price of approximately $230 million. These acquisitions will be funded with a combination of debt and equity, with the equity component funded with a portion of the proceeds from the $125 million equity offering completed by Teekay Tankers in December, which includes a $20 million investment by our sponsor, Teekay Corporation. In addition, we also completed a new $127 million debt facility in January of this year. These strategic acquisitions benefit Teekay Tankers in several ways. First, the low cash breakeven enables us to maximize earnings from the current robust spot tanker market. Secondly, the longer-term the four LR2's provide us with flexibility and optionality to trade the vessels in either the crude or refined product segments, depending on market conditions. And finally, the young age of the acquired vessels, which increases our directly-owned fleet to 33 ships, reduces the average fleet age by one year. In summary, this transaction is consistent with our stated strategy to grow and renew our fleet, while increasing our exposure to an improved spot tanker market. Turning to slide 5, I will provide an update on Teekay Tanker's fleet employment mix and the very deliberate actions we have taken to actively increase the Company's spot market exposure which we believe is benefiting and will continue to benefit shareholders. Based on our view, the spot tanker rates would on average exceed tank charter out rates. We continue to increase the Company's spot market exposure through a combination of the recent fleet acquisitions, securing additional in-charter vessels and transitioning some of our owned vessels from fixed rate employment to spot rate employment as their existing change out contracts expire. With the 11 in-charter vessels currently in our fleet, we have increased Teekay Tankers spot exposure by approximately 3,900 revenue days for FY '15. On a fleet basis, our spot market exposure for the next 12 months now totals 37 vessels or 85% of revenue days. Based on our expectations, the spot tanker market will remain firm. The increase in our spot exposure should translate into increased earnings and free cash flow. The blue line in the chart on the right, shows that for every $5,000 increase in average spot tanker rates for the 12-month period ending December 31, 2015, free cash flow per share is expected to increase by $0.51 per share, compared to $0.35 per share for the 12-month period ended December 31, 2014. This increase in earnings are, highlights Teekay Tankers strong operating leverage to the firming spot tanker market. At current spot Aframax rates of approximately $30,000 per day, our free cash flow yield is over 30% based our current share price. Turning to slide 6, we take a look at recent developments in the crude tanker spot market. As indicated by the chart on the left, Teekay Tankers fourth quarter earnings outperformed earnings for fourth quarter of 2013 by approximately $10,500 per day for Aframaxes and $11,200 for Suezmaxes and we're our highest fourth quarter earnings since 2008. The strong rates were primarily driven by combination of winter weather delays, low oil prices prompting stockpiling for both strategic and commercial reserves and high refinery throughput which drove increased demand. The chart on the right shows that globally mid-sized tanker rates have averaged close to $9,000 per day higher over the last 12 months, compared to the 12 months prior. While rates at the start of 2014 dropped off with the dramatic winter spike, rates in the first weeks of 2015 have only marginally softened as we enter a period of seasonal refinery maintenance. In addition to lower oil prices, encouraging the filling of both strategic and commercial reserves, particularly in China, where the government continues to fill the second tranche of its strategic petroleum reserve, positive fleet fundamentals and changing trading patterns are providing the foundation for a sustained positive rate environment. We expect the ongoing positive demand resulting from lower global oil prices will continue to support mid-sized tanker rates in the near-term. Turning to slide 7, I will provide further commentary on the positive roles that lower oil prices are having on tanker demand in the near-term. Lower oil prices are having a positive impact on the tanker market in a number of ways. Firstly, owners trading their vessel spot are enjoying increased earnings as a result of lower operating costs. For every $10 per barrel drop in the price of oil, we enjoy the equivalent of around $2,400 per day in bunker fuel savings. Secondly, low oil prices are positively boosting refinery margins, which leads to greater crude throughput and therefore stronger tanker demand. And lastly, we see there is potential for significant levels of floating storage to emerge during 2015, should the contango price structure steepen. As the chart on the bottom of the slide indicates, the price of oil is currently in contango. Although the current structure first developed in August of 2014, the economics that encourage the use of floating storage did not develop until January of this year, at which point more than 30 VLCCs were contracted on period charter with storage options. While these vessels currently continue to trade in the spot market and have not yet been idled for actual storage, we believe as shore inventories continue to decline through 2015, the storage options on these vessels will ultimately be exercised, effectively removing around 5% of the VLCC fleet from the market. Floating storage on this scale will have a positive knock-on impact from the Suezmax sector as the removal of the larger tankers in the spot trading fleet reduces competition for Suezmaxes on certain main trade routes. At a more macro level, changing trade patterns are stretching out the global tanker fleet as shown on slide 8. As surplus Atlantic Basin crudes have found new and growing markets in Asia, there has been a sustained annual increase in long-haul movements from West to East. Specifically cargoes from West Africa to the U.S. Gulf, traditionally a staple Suexmax trade route, have declined by close to 70% due to the surge in U.S. shale production, displacing demand for Nigerian light sweet crude. In contrast, trade on Suezmaxes between West Africa and Asia have increased by close to 75% and trade from West Africa to Europe have also increased 70% over the last four years. In addition, the lack of a natural backhaul cargo from West Africa to the Asia trade, have led to growing inefficiency in the fleet as ships discharging in the East face longer ballast voyages back to the Atlantic load ports. As a result, many owners are choosing instead to load in the Middle East, rather than ballast back to the Atlantic, which leads to further displacement of the vessels in the Atlantic Basin as tonnage supply remains east of Suez. Such changes to traditional trade patterns have stretched the mid-sized tanker fleet, reducing supply of available tonnage and increasing both the occurrence and periods of volatility in spot rates. Turning to slide 9, I will provide an update on spot earnings in the first quarter of 2015 to date. First quarter Suexmax, Aframax and LR2 rates so far have been significantly higher than average realized rates for the third and fourth quarters of 2014. Based on approximately 60% spot revenue days booked, Teekay Tankers first quarter to date Suezmax bookings have averaged approximately $39,000 per day, up significantly from $26,600 per day in the fourth quarter of 2014 and our first quarter to date Aframax bookings have averaged approximately $30,000 per day, up from $25,700 per day in the fourth quarter of last year. For the LR2 segment, with 80% of our spot revenue days booked, our first quarter to date LR2 bookings have also trended higher, with returns on average increasing approximately $26,000 per day, compared to $21,900 per day in the fourth quarter of 2014. As we approach mid quarter, the fundamental tightness in vessel supply as well as the ongoing impact of low oil prices continues to support firm crude tanker rates, with high levels of naphtha moving into Asia, providing ongoing support for robust LR2 product tanker rates. With the current high rate environment anticipated to continue in the near-term, we believe that Teekay Tankers strong operating leverage and increased spot exposure positions us very well to benefit from the expected fundamental strength in the global tanker market. With that operator, we now are available to take some questions.
  • Operator:
    [Operator Instructions]. Our first question comes from the line of Michael Webber at Wells Fargo Securities. Please go ahead.
  • Michael Webber:
    Just want to start off with a question around your dividend policy. Obviously, the cash flow dynamics of the businesses have significantly improved as rates have run and it certainly seems that we're going to be in that kind of scenario, for at least the bulk of the first half of the year. I am curious as to what you would need to see, in order to flex your dividend policy away from something fixed towards a variable payout structure that would allow investors to capture more of that volatility? Whether that is something that is on the table and if so, what would you look at now to get comfortable with that?
  • Kevin Mackay:
    I will kick off the answer and then hand over to Vince. But Mike, I think we have stated, a lot -- our strategy going forward is to grow the fleet and as such we need a strong balance sheet. And our view is that as the cash flows come in and we reduce our leverage that will provide us the opportunities to expand and give the shareholder a reward to -- in larger increases in our spot market exposure. Vince?
  • Vincent Lok:
    Yes, I would reiterate what Kevin said. It's -- we want to use this operating cash flow, I guess, first and foremost, to delever the balance sheet. I think we recognize we still do have quite a bit of leverage on the balance sheet. And it is actually -- obviously, it's a good time to have the leverage in a rising market. But we need to some of this cash flow to delever the balance sheet and we can redeploy that in an accretive manner in this market. So I think we would have to see the balance sheet delever quite a bit further from these levels, to consider sort of a full payout or an increase in the dividend.
  • Michael Webber:
    Right. I mean, in terms of thinking about and ranking those sources of capital to delever, I mean, equity would be one way to do that. So in terms of the way you would prioritize the sources of capital to repay debt organic cash flow is still at the top of that list, in terms of efficiency?
  • Vincent Lok:
    Yes. That has clearly got to be one of the top sources again.
  • Michael Webber:
    Okay. Vince, I will just stick with you for a second. In the last, in the pro -- related to the last equity raise, there is some language around a major M&A, which was exclusive of the most recent deal and anything related to related party like TIL. I'm just curious -- I know you probably can't get into specifics -- but maybe if you can talk about what that environment is like right now, relative to what it was like in December? And whether or not the bump in rates and asset values has pushed those kind of deals off the table or whether you see people that are looking to maybe talk [inaudible] and sell out at these levels?
  • Kevin Mackay:
    As I have said Mike, we're always looking at opportunities to -- if our strategy is to grow the organization, we need to be talking to third-parties about opportunities. I don't think that has materially changed from December until now. It's still something that we continue to look at, still something that we continue to have conversations with a variety of parties out there. Some of which as you have said, maybe looking to get out at this point in the cycle.
  • Michael Webber:
    Okay. Fair enough. Just one more for me and I will turn it over. You guys provide a lot of color in the deck and you run through the charter ins, a number of which -- I think three have options, extension options within this quarter and next, I believe two Afra's and an LR. Is safe to say those would be extended. And then if I think about how much additional net charter in exposure, you could add to the remainder of the year, how should I think about that?
  • Kevin Mackay:
    Well definitely those options are clearly in the money relative to today's and our forecasted rate environment going forward, so we will be exercising those options. I think we have a vessel and subject actually today to add to that portfolio and we continue to look for other opportunities. The numbers have gone up from some of the early charters that we did earlier, but we still see based on our forecast, that there is a margin to be had there. We're still looking to increase our exposure to this market, that we believe it has some legs to it through 2015.
  • Michael Webber:
    And then, is that an Aframax that is on subject?
  • Kevin Mackay:
    Yes, it is.
  • Operator:
    Our next question comes from the line of Fotis Giannakoulis at Morgan Stanley. Please go ahead.
  • Fotis Giannakoulis:
    I would like to ask you about the floating storage that you mentioned earlier. If you can give us an estimate of how much is the capacity of the vessels that they can be used for floating storage? You mentioned that there are around 55, 40 vessels they have been chartered so far. But how many you think VLCCs are available? And what is your view about the oversupply of crude and how quickly do you think that the land-based storage facilities, they can fill up?
  • Kevin Mackay:
    Okay. I think with regards to the VLCCs, there has been a variety of numbers put out. Some people are calling it 30, some people are calling it closer to 40. Our estimates are, it is sort of middle of that range, about 35 ships and they have been taken on charter for periods between 12 and 24 months, primarily as time-charters with storage options. So at the moment, we haven't seen a lot of those vessels actually laid up and idled in storage positions. So they continue to trade in spot market. And whether there is an appetite from VLCC owners should the contango structure return positive, whether those owners would be willing to put more vessels away on similar deals, I can't speak for them. We will continue to look at the impact that has on the Aframax and the Suezmax segments, which I think certainly for Suezmax is, the more ships, the more VLCCs that go into storage, the more beneficial it is for TNK with our Suezmax trading on the spot market. In terms of at one point the inventory levels onshore top out and there is a move to greater floating storage on tankers, I read the same figures you do. And the estimates are that globally, we're running thin on capacity. And in the U.S., between Cushing and the U.S. Gulf, we've got maybe 50, 60 million barrels of capacity left. And at current production levels of 1 million barrels per day exceeding what refinery demand is in the U.S., you can forecast that out, that at some point in the second quarter, we would anticipate at the current run-rate, that floating storage becomes a necessity rather than a luxury.
  • Fotis Giannakoulis:
    Do you have any view about the storage capacity outside of the U.S.? For example, in our discussion about China and India and if you could also comment about Europe?
  • Kevin Mackay:
    Not a lot of detail on countries outside of the U.S. I have read commentary that the strategic petroleum reserves in China still have a ways to fill. In Europe, the analyses seem suggest that they are fairly close to full. But I think the real spare capacity still lies in the U.S.
  • Fotis Giannakoulis:
    And can you also give us your view of -- and how different the market as compared to 2009 and 2010, both in terms of the contango trade? And also about the supply demand from the members -- and the reason I'm asking, is the contango is steep, it might get even steeper, but at some point it might go away. How do you view the market after the contango goes away and if you have a view of when this might happen?
  • Kevin Mackay:
    I think there has been an awful lot of interest and media buzz around contango. But fundamentally, I draw people's attention to the fact that the fundamentals in the mid-sized tanker space are strong. And we've been saying this for close to a year now that the supply of ships is low and will continue to remain low over the coming year or couple of years. And demand, oil demand, unlike 2009, the oil demand is continuing to increase. So Contango aside, I think the fundamentals in the mid-sized tanker space are very positive and we'll continue to see that. Contango is sort of the icing on the cake, if it happens in a deeper way. But we're not looking at contango as the save all, because the fundamentals are so strong.
  • Fotis Giannakoulis:
    In terms of growing your fleet, is the intention to stay on Aframaxes and Suezmaxes or there are also discussions about potentially expand your fleet on the VLCC front? And how do you view the market going forward between crude and products? You recently bought a Aframax fleet which is primarily focused on product trade rather than the crude trade. And also, if you can comment about any potential discussions that you might have had with private equity companies, that they have tried in the past to go public? And if there are any possibilities to see some major transaction where you absorb a lot of the fleet?
  • Kevin Mackay:
    Okay. Let me take each of those in turn. I think with regards to our immediate fleet growth and area of the market that we will be concentrating on, Teekay Tankers core business is Suezmaxes and Aframax is in that mid-sized tanker space. And as such, acquisitions will be in fleets or organizations with strength in those areas. So at this point in time, Fotis, I think it's important that we bolster up our core business, before looking to expand into anything else, if we were to ever do that. I think the acquisitions to your second point, yes, the four out of the five ships we bought were LR2's. We did that for deliberate reasons, specifically in terms of the longer term view of running the organization. The LR2 does provide us flexibility to trade both clean and dirty, depending on what our forward view of those respective markets are. So that is the primacy behind looking at those assets and we believe that fundamentally both of those trades have a good run to go in 2015. With regards to your last question regarding conversations with any private equity companies as I have said we're talking to various kinds of parties about what their desires are to sell fleets and we will continue to have those conversations.
  • Operator:
    Our next question comes from the line of Spiro Dounis at UBS. Please go ahead.
  • Spiro Dounis:
    Just two quick ones for me. First question, is on the potential impact, I guess of U.S. production cuts. It looks like a lot of cuts have been announced so far. Just wondering specifically, does condensate export trade build as big as opportunity? And I guess two, could we see a rekindling of Suezmaxes moving back toward the U.S., from West Africa to make up any shortfalls?
  • Kevin Mackay:
    I think in the immediate term, yes, production growth is tailing off, but production is still increasing. And I think as I said earlier, you've got to about 1 million barrels per day of excess production relative to refining capacity. So our view for this year is certainly that, with the relaxation in the government's view on crude or slightly altered crude condensate exports, that remains definitely a viable cargo source for Aframaxes as well as Suezmaxes through the second half of this year.
  • Spiro Dounis:
    And then just second question on the naphtha trade to Asia. I guess, some of that is a bit seasonal in nature. And so was just wondering if you can give us a sense for maybe how much room there is to run in this trade? I guess as long as crude prices are low, do you see naphtha really competing with LPG for a good portion of the year?
  • Kevin Mackay:
    Yes, I think you are correct in saying is somewhat seasonal. But it is also, I think fundamentally, the price of oil dropping has made naphtha a decent competitor to LPGs for the chemical feedstock's into Asia. So you are seeing a lot of Middle Eastern and European naphtha as well, from as far as the UK continent, moving across which is really increasing the voyage lengths of the LR2's. And as long as oil price stays low, we fundamentally see that continuing. You tie that with the 1.2 million barrels of additional capacity coming out of the Middle-East with their new refineries coming on stream that is really why we're also positive on the LR2 sector.
  • Operator:
    Our next question comes from the line of Jon Chappell at Evercore ISI. Please go ahead.
  • Jon Chappell:
    Just a couple quick company-specific questions. First, how do you plan on trading the new LR2s? It seems like the crude market is stronger than the coated right now. Just wondering how you took delivery of them? Were they were already trading clean or were they trading dirty and you are just going to continue to trade in the dirty markets?
  • Kevin Mackay:
    The vessels have been trading clean in our Taurus pool. Going forward, what we have -- our strategy around that is on a ship by ship, voyage by voyage basis, the [inaudible] Spirit which delivered earlier in the month went straight into dirty, because she's in an advantageous position to do so. The vessel that has delivered this morning is already fixed for a follow-on clean voyage, because the returns were in the low $30,000 range, which relative to the crude voyages in that position was better. So at this point in time as we assimilate ships into the fleet, we're going to look at it on a case-by-case, voyage by voyage basis.
  • Jon Chappell:
    Okay. Were there any vettings that you had to get for these ships? They were already in your pool, should we just assume they were generating revenue from the day that you take delivery of them?
  • Kevin Mackay:
    They are generating revenue immediately on delivery.
  • Jon Chappell:
    Okay. And then one last thing on the acquisition. Of that $127 million of debt, is that all a first quarter event or was any of that in the fourth quarter? It looked like the total debt number inched up a little bit sequentially in 4Q.
  • Vincent Lok:
    No, that is the first quarter event. That would be tied to the individual ship deliveries, so we're drawing on that as the ships deliver.
  • Jon Chappell:
    Okay. Just two more quick ones. The 2017 debt facility, we've been talking about that for years. You've already cover the priorities of the uses of cash. Is it too early to think about refinancing that facility, would the banks be willing to have that conversation to potentially free up some capital in this upturn, whether it is for changing the dividend policy or more assets?
  • Vincent Lok:
    Well first of all, it's a very attractive facility for TNK. So we don't have any plans to refinance that, unless we were to, unless there was a big acquisition or something like that we would sort of roll it into something like that. So in terms of the 2017, we're not in a huge rush to do anything on that. And given where we're in terms of our delevering plan and the amount of cash flow that we're generating, we feel very comfortable in that with the 2017 refinancing or whenever that's occurs.
  • Jon Chappell:
    Okay. One last thing, I noticed in the appendix, there is one fixed rate tanker that is undergoing a drydock with 134 off-hire days. I seem to recall, something with an incident with one of the ships late last year. Can you remind us, is there insurance on the costs associated with that off-hire time? And also, is there insurance associate with the loss of revenue?
  • Vincent Lok:
    Yes it, that was the Australian Spirit, is undergoing repairs in [inaudible]. The insurance is fully covered with a minor deductible of I think at $225,000. Everything else is fully insured and covered. On the loss supplier, we don't carry loss supplier insurance, so that will be a loss of revenue to the organization in the first quarter or I mean, the second quarter.
  • Jon Chappell:
    Okay. So just to be clear on the accounting side, it would be the normal OpEx associated with that ship for the entirety of this quarter and first half of next, but no revenue contribution over that same time period?
  • Vincent Lok:
    We're taking steps to reduce our OpEx by taking off some of the manning, while the ship is in drydock for that extended time.
  • Operator:
    Our next question comes from the line of Amit Mehrotra at Deutsche Bank. Please go ahead.
  • Amit Mehrotra:
    I guess, most of my questions have been answered here. But maybe I can just follow up on one of your comments regarding the fundamentals being so strong. Given the free cash flow yield that you highlighted in the prepared remarks, it sort of clear to me, at least that the market has questions around the sustainability of the strong environment. And I guess, that makes sense because obviously past cycles have shown that good times don't really last a very long time. So are there any factors that makes this up cycle different? Or what are the risks you think aside from just over ordering a vessel. I mean for example, does the potential conversion of more dry bulk vessels in the order book into product tankers or potentially crude tankers concern you at all, vis-a-vis the sort of strong fundamentals?
  • Kevin Mackay:
    Yes, I think if you look at it from the demand side, oil growth continues to move forward and the source of oil is stretching out the vessel voyages, so thereby ergo increasing demand. But on the supply side, really fundamentally over the next at least two years, fleet supply is minimal and that will continue to be a tailwind for both crude and product LR2 fleets over the course of the next couple of years. Even with the rumored conversions, which I think there has been a fair amount of hype and confusion and misreporting of conversions, into various classes of ships. The analysis that we have done shows that fleet growth is, across both the Suezmax and the Afra, LR2 segments is still very low and very manageable given the continued demand.
  • Amit Mehrotra:
    Okay. And just one follow up for Vince on the leverage. I mean, it makes complete sense, a lot of that deleveraging should ultimately accrue to the equity value of the company. But do you have some target in mind, in terms of where you think you can get the net leverage relative to total capital of the Company over the next call it, 12 months or 18 months? Do you have something in mind that maybe can give us a level of magnitude, in terms of how much do leverage we can expect?
  • Vincent Lok:
    I guess, if you look at it on a net debt to capitalization, looking at the book capitalization, we're on a pro forma basis after this five ship acquisition, we will be in sort of the low 60%s. And given the level of cash flow we're generating, if you looked at the fourth quarter we generated over $30 million and the first quarter is looking to be even stronger than that. So if rates hold up, you can probably see us move into the 50%s by the end of 2015 or the low 50%s. It's a pretty, I guess, a quick fix delevering of the balance sheet. So obviously, that is dependent upon the rates staying firm, which we believe it will. But also depends on what we do, in terms of some of any vessel acquisitions that Kevin referred to earlier.
  • Operator:
    Our next question comes from the line of [inaudible] at Bank of America. Please go ahead.
  • Unidentified Analyst:
    Just had two quick questions. First, I was wondering, is there a level of oil prices that you think would cause market conditions to change? And how does that think -- or how does that impact your thinking around the potential for locking in rates and also how quickly could you pivot if that were to be the case, if your thinking were to change around that?
  • Kevin Mackay:
    Well I can't speak for the Saudis at what price point they would feel that a change in their current strategy would be mandated. But in terms of what Teekay Tankers can do, one of the strengths of Teekay Tankers as an organization, is our fully integrated approach to running a shipping organization and what that means for our customer base. So while the spot market is strong and robust, those relationships that we have with customers as you saw us do in 2009. We were able to on a dime really turn the fleet exposure from spot to time-charter very rapidly. And we maintain those relationships and are actually growing them with new customers, in order to give us that nimbleness, that if we do see signals in the market, that things will change we can look to cover, with some of those long-standing relationships that we have with a global variety of customers.
  • Unidentified Analyst:
    Are there any kind of -- I don't know if I want to say leading indicators I guess, but what would you look at other than just direct rates? Like what would you look at that would suggest a change in the environment?
  • Kevin Mackay:
    Mainly look at the fundamentals, what is happening to oil demand on the fleet supply side, what is happening with the order book.
  • Unidentified Analyst:
    And then, just in terms of financing plans for 2015. Obviously, free cash flow is pretty strong right now. But just to confirm, you guys don't have any or anticipate any raising of capital in 2015 or any additional of raising capital, is that fair to say?
  • Vincent Lok:
    Well on the debt financing side, there is nothing other than a small debt facility coming up for renewal, which we're already working on. If you are referring to equity financing, it would be only be tied to any large acquisitions. Otherwise, we're generating out a lot of free cash flow as you mentioned.
  • Operator:
    [Operator Instructions]. There are no further questions at this time. Please continue.
  • Kevin Mackay:
    Okay. Thanks very much everybody. Bye, bye.
  • Operator:
    Ladies and gentlemen, this concludes the conference call for today. We thank you for your participation. You may now disconnect your line and have a great day.