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Teekay Tankers Ltd. Acquisition of 13 Vessels From Teekay Corporation Conference Call Presenation

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Conference Call
April 17, 2012
Time: 09:00 AM EST


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Teekay Tankers Ltd. Acquisition of 13 Vessels From Teekay Corporation Conference Call Presenation

  1. 1. Overview of Strategic 13 Vessel Acquisition from Teekay Corporation April 17, 2012 1
  2. 2. Forward Looking StatementsThis release contains forward-looking statements (as defined in Section 21E of the Securities Exchange Act of 1934, asamended) which reflect management’s current views with respect to certain future events and performance, includingstatements regarding: the Company’s pending acquisition of 13 conventional tankers from Teekay Corporation, including thepurchase price, timing and certainty of completing the transaction, and the effect of this transaction on the Company’s cashavailable for distribution per share, dividend per share, and liquidity; tanker market fundamentals and the Company’s outlookfor an improving spot tanker market commencing in 2013; the Company’s financial position and ability to pursue furtheraccretive growth opportunities; the Companys mix of spot market and time-charter trading; and fixed-rate cover for the 12-month period commencing July 1, 2012. The following factors are among those that could cause actual results to differmaterially from the forward-looking statements, which involve risks and uncertainties, and that should be considered inevaluating any such statement: failure to satisfy the closing conditions or obtain the necessary third party consents for theCompany’s pending 13-vessel acquisition from Teekay Corporation or unexpected results from the technical inspection ofthese vessels which would result in a change to the transaction purchase price; changes in the production of or demand foroil or petroleum products; changes in trading patterns significantly affecting overall vessel tonnage requirements; lower thanexpected level of tanker scrapping; changes in applicable industry laws and regulations and the timing of implementation ofnew laws and regulations; the potential for early termination of time-charter out contracts and inability of the Company torenew or replace time-charter out contracts; changes in interest rates and the capital markets; the ability of the owner of thetwo VLCC newbuildings securing the two first-priority ship mortgage loans to continue to meet its payment obligations;increases in the Companys expenses, including any dry docking expenses and associated off-hire days; the ability ofTeekay Tankers Board of directors to establish cash reserves for the prudent conduct of Teekay Tankers business orotherwise; failure of Teekay Tankers Board of Directors and its Conflicts Committee to accept future acquisitions of vesselsthat may be offered by Teekay Corporation or third parties; the number of additional conventional and product tankeropportunities, if any, Teekay Corporation develops and offers to the Company under the three-year non-competitionagreement; market opportunities to acquire additional assets; and other factors discussed in Teekay Tankers’ filings fromtime to time with the United States Securities and Exchange Commission, including its Report on Form 20-F for the fiscalyear ended December 31, 2011. The Company expressly disclaims any obligation or undertaking to release publicly anyupdates or revisions to any forward-looking statements contained herein to reflect any change in the Company’sexpectations with respect thereto or any change in events, conditions or circumstances on which any such statement isbased. 2
  3. 3. Transaction Overview» Teekay Tankers has agreed to acquire 13 conventional tankers from Teekay Corporation for a total purchase price of approximately $455 million • 7 mid-size conventional oil tankers and 6 product tankers with average age of only 7 years • 9 of the thirteen vessels come with fixed-rate charters at an average rate of over $20,000 per day • Post-transaction, fixed-rate coverage will increase from 29% to 43% for 12-month period commencing July 1, 2012» Transaction expected to be accretive to TNK’s Cash Available for Distribution1 per share and cash dividend per share» To be financed with $25 million of new TNK Class A common shares at $5.60 per share and assumption of existing in-the-money debt facilities secured by the acquired vessels • Acquisition includes assumption of approximately $180 million of term debt, approximately $290 million of available revolving credit facilities (of which approximately $40 million will be undrawn), and a $200 million interest rate swap priced at 2.6% • Post-transaction, TNK’s liquidity will increase by approximately $40 million to approximately $400 million» Non-competition agreement provides TNK with a right of first refusal to participate in any conventional tanker projects developed by Teekay Corporation for a period of 3 years» Transaction is expected to close in Q2 2012 1. Cash Available for Distribution represents net income (loss) excluding depreciation and amortization, unrealized (gains) losses from derivatives, any non-cash items or write-offs of other non- recurring items, and net income attributable to the historical results of vessels acquired by the Company from Teekay for the period when these vessels were owned and operated by Teekay. 3
  4. 4. Strategic Rationale» Modern, double-hull fleet acquired at a cyclical-low fair market value • Mid-size Aframax and Suezmax vessels complement existing TNK fleet • Diversification into product tanker market, supported by attractive fundamentals • Well-maintained vessels managed by Teekay with no loss of customer trading approvals» Fixed-rate charter profile provides additional downside protection to TNK’s dividend and is consistent with TNK’s outlook for improving spot tanker market fundamentals commencing in 2013 • 7 of the 13 acquired vessels will provide upside to spot market by Q2-2013» Acquired vessels come with attractive, ‘covenant-lite’ debt facilities with favorable repayment profiles» Assumed revolving credit facilities come with $40 million of undrawn capacity which further enhances TNK’s liquidity to ~$400 million • Provides TNK with significant financial flexibility to pursue further accretive growth opportunities» Non-competition agreement with Teekay Corporation further strengthens sponsor relationship 4
  5. 5. Acquired Fleet - Good Fit with Existing Business Charter Acquired Vessel Year Contract Employment Rate Vessels Class Built Expiry ($ per day) Zenith Spirit Suezmax 2009 Spot Pinnacle Spirit Suezmax 2008 Fixed Oct 2014 21,000Crude Summit Spirit Suezmax 2008 Fixed Oct 2014 21,000 Godavari Spirit Suezmax 2004 Fixed Dec 2012 21,000 Australian Spirit Aframax 2004 Fixed Jan 2016 21,000 Axel Spirit Aframax 2004 Fixed Dec 2016 19,500 Americas Spirit Aframax 2003 Fixed Sep 2015 21,000 Galway Spirit LR2 2007 Spot Limerick Spirit LR2 2007 SpotProduct Donegal Spirit LR2 2006 Spot Hugli Spirit MR 2005 Fixed Mar 2015 30,600* Teesta Spirit MR 2004 Fixed Mar 2013 21,500 Mahanadi Spirit MR 2000 Fixed May 2013 21,500 *Charter rate covers incremental Australian crewing expenses of approximately $14,000 per day above international crewing costs. Average Vessel Age: 7 Years Average Charter Duration: 2.3 Years 5
  6. 6. Pro Forma Fleet EmploymentName Class Y/Built Fixed-Rate CoverageErik Spirit Aframax 2005Kareela Spirit Aframax 1999 Pre- Post-Nassau Spirit Aframax 1998 Transaction TransactionAshkini Spirit Suezmax 2003 12 months endingIskmati Spirit Suezmax 2003 Trading in June 30, 2013 (Estimated) 29% 43%Kaveri Spirit Suezmax 2004Zenith Spirit Suezmax 2009 Teekay PoolsDonegal Spirit LR2 2006 2013 (Estimated) 23% 34%Limerick Spirit LR2 2007 Existing Vessels Charter rate per dayGalway Spirit LR2 2007 Vessels to be Acquired Charter rate per dayGanges Spirit Aframax 1998 $30,5001Yamuna Spirit Aframax 1998 $30,5001Everest Spirit Aframax 2004 $17,000Esther Spirit Aframax 2004 $18,2002Kanata Spirit Aframax 1999 $17,250Matterhorn Spirit Aframax 2005 $21,375Narmada Spirit Suezmax 2003 $21,0003Godavari Spirit Suezmax 2004 $21,000Teesta Spirit MR 2004 $21,500VLCC Mortgage AVLCC Mortgage BMahanadi Spirit MR 2000 $21,500Kyeema Spirit Aframax 1999 $17,000Helga Spirit Aframax 2004 $18,000Pinnacle Spirit Suezmax 2008 $21,000Summit Spirit Suezmax 2008 $21,000Hugli Spirit MR 2005 $30,600*Americas Spirit Aframax 2003 $21,000Australian Spirit Aframax 2004 $21,000Axel Spirit Aframax 2004 $19,500Newbuilding J/V VLCC 2013 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 * Charter rate covers incremental Australian crewing expenses of approximately $14,000 per day above international crewing costs. 1. Plus profit share. Profit share above $30,500 per day entitles Teekay Tankers to the first $3,000 per day plus 50% thereafter of vessel’s incremental Gemini Pool earnings, settled in the second quarter of each year. 2. Includes profit share paying 49% of earnings in excess of $18,700 generated December 1 through March 20. 3. Profit share above the applicable minimum time-charter rate entitles Teekay Tankers to 50% of the difference between the average TD5 BITR rate and the minimum rate. 6
  7. 7. Tanker Market: Fundamentals Point to a 2013 Recovery Demand Range Supply Range Source: Platou / Internal estimates Global Floating Slowdown in Moving towards Tanker market recession; storage demand; balance by end recovery on of 2012 – accelerating steadied the fleet growth the back of economy / fleet growth market dominates demand is the lower fleet wild card growth 7
  8. 8. Strong Product Tanker Market Fundamentals Product tanker ton-miles set to grow as fleet growth slows to a 10-year low Fleet Growth* (mdwt) Fleet Growth (%) 10 14% Million Deadweight 9 % Fleet Growth 12% 8 7 10% 6 8% 5 4 6% 3 4% 2 1 2% 0 0% 2012E 2013E 2005 2006 2007 2008 2009 2010 2011 *All product tankers >10,000 dwt» Global refining capacity expected to increase by ~8 mb/d in the period 2012-2016 • ~40% of new capacity is from export-oriented facilities in India / MEG» Older / less efficient refineries in the Atlantic Basin are closing / converting to storage» Product tanker fleet growth falls to ~2-3% in 2012 / 13 as the orderbook rolls off Low fleet growth and the development of longer haul product trades expected to increase product tanker fleet utilization 8
  9. 9. Acquisition Provides TNK with Significant Scale» Post-transaction, TNK will become one of the world’s largest owners of mid-size conventional tanker tonnage Comparable Fleet Size* 8 (MDWT of Owned Tonnage) 7 6MDwt 5 4 3 2 1 0 Sovcomflot AET Teekay Fredriksen Dynacom NAT Minerva Tsakos Marmaras General Teekay Tankers Group Marine Navigation Maritime Tankers Pro Forma Pre- Transaction Source: Owner websites/Clarksons * Fleet data includes top owners of Aframax/LR2 and Suezmax tankers only. 9
  10. 10. Transaction is Immediately Accretive to CAD1 and Dividend Per Share Illustrative CAD 1 and $15,000 / $20,000 2 Dividend Accretion (Aframax / Suezmax) Pre- Pro For every $1,000 per day Transaction Forma Accretion 0.50 0.79 increase in spot rates, CAD per share 58% Less: Drydocking Reserve per share (0.11) (0.17) CAD1 and dividend per Less: Principal Reserve per share (0.02) (0.19) share increase by Dividend per Share 0.37 0.43 16% approximately $0.075 Cash Dividend Yield3 7% 8% 3 Total Yield Including Principal Repayments 7% 11%1. Cash Available for Distribution represents net income (loss) excluding depreciation and amortization, unrealized (gains) losses from derivatives, any non-cash items or write-offs of other non- recurring items, and net income attributable to the historical results of vessels acquired by the Company from Teekay for the period when these vessels were owned and operated by Teekay.2. Based on illustrative spot tanker rates of $15,000 per day for Aframax and $20,000 per day for Suezmax.3. Based on closing share price of $5.43 on April 16, 2012. 10
  11. 11. Key Transaction Metrics (1) Pre-Transaction Adjustment Pro-Forma Fleet Size (Owned Vessels) 15 13 28 Average Vessel Age 9.6 years 8.3 years Liquidity (as at December 31, 2011) $293m $105m $398m Net Debt (as at December 31, 2011) $333m $366m $699m Net Debt / Total Capitalization 40.5% 49.8% Net Debt / Total Capitalization, net of 30.8% 45.3% VLCC Mortgage Loans 2 Book Equity $489m $216m $706m1. Liquidity, Net Debt, and Book Equity adjustments include $66.4m net proceeds from February 8, 2012 follow-on equity raise.2. Book Equity adjustment includes a credit of $125 million relating to dropdown predecessor accounting whereby TNK records the difference between Teekay Corporation’s book value ($580 million) and the purchase price as an increase to equity. TNK will incur annual depreciation expense on the acquired vessels of approximately $29 million, reflecting the Teekay Corporation book values. Book Equity adjustment also includes $25 million to be issued to Teekay Corporation as part of this transaction. 11
  12. 12. Favorable Debt Profile Maintained» No financial covenant concerns – only requirement to maintain liquidity equivalent to 5% of total debt, or minimum of $35 million» Average cost of debt remains at approximately 3.7%» Low principal repayments through 2016 *Based on estimated amount drawn upon closing. 12