Teekay Tankers Ltd.

03/14/2025 | Press release | Distributed by Public on 03/14/2025 12:08

Annual Report for Fiscal Year Ending December 31, 2024 (Form 20-F)

Operating and Financial Review and Prospects
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Annual Report.
Management's Discussion and Analysis of Financial Condition and Results of Operations
General
We were formed in October 2007 by Teekay Corporation Ltd. (NYSE: TK) (or Teekay) and we completed our initial public offering in December 2007. Our business is to own and operate crude oil and product tankers, and we employ a chartering strategy that seeks to capture upside opportunities in the tanker spot market while using fixed-rate time charters and full service lightering (or FSL) contracts to reduce potential downside risks. Our mix of vessels trading in the spot market, or subject to fixed-rate time charters will change from time to time. In addition to our core business, we also provide operational and maintenance marine services and ship-to-ship (or STS) support services, along with our tanker commercial management and technical management operations. We believe this improves our ability to manage the cyclicality of the tanker market through the less volatile cash flows generated by these operational areas. Historically, the tanker industry has experienced volatility in profitability due to changes in the supply of, and demand for, tanker capacity. Tanker supply and demand are each influenced by several factors beyond our control.
On October 1, 2024, Teekay Tankers transferred its legal domicile by changing its jurisdiction of incorporation from the Republic of the Marshall Islands to Bermuda. Following the redomiciliation, Teekay Tankers is registered with the Bermuda Registrar of Companies as an exempted company.
On December 31, 2024, we acquired the Acquired Operations, including the transfer to us of Teekay's supplemental retirement defined contribution plan liability, which relates to the management service companies included in the Acquired Operations. Under the acquired Australian operations, we provide operational and maintenance marine services to the Australian government, Australian energy companies and other third parties.
Teekay holds a majority of the voting power of our common shares, which includes Class A common shares and Class B common shares.
Significant Developments in 2024 and Early 2025
Senior Management Team Changes
In August 2024, we made changes to our senior management team, including the appointments of Kenneth Hvid as President and Chief Executive Officer (CEO), Brody Speers as Chief Financial Officer (CFO), and Mikkel Seidelin as Chief Commercial Officer. Messrs. Hvid and Speers also serve as Teekay's President and CEO and CFO, respectively.
Board of Directors Changes
Effective December 31, 2024, the following changes were made to our Board of Directors (or Board): directors Richard du Moulin and Sai Chu retired from the Board, and Alan Semple and Poul Karlshoej were appointed to fill the resulting vacancies; Mr. Semple was appointed as the Chair of the Audit Committee; the size of our Board was increased from five to seven members, and the Board appointed Heidi Locke Simon and Rudolph Krediet to fill the newly created positions; and Kenneth Hvid, who remains as a director, stepped down from his role as Chair of our Board, and Heidi Locke Simon was appointed to such position.
Vessel Sales
During the fourth quarter of 2023, we agreed to sell one Aframax / LR2 tanker for $23.5 million, which resulted in a gain on sale of $11.6 million during the year ended December 31, 2024. The tanker, which was classified as held for sale as at December 31, 2023, was delivered to its purchaser in February 2024.
In May 2024, we agreed to sell one Suezmax tanker and one Aframax / LR2 tanker for a combined sales price of $64.8 million, which resulted in an aggregate gain on sale of $27.9 million during the year ended December 31, 2024. The Suezmax tanker and Aframax / LR2 tanker were delivered to their purchaser in October 2024 and December 2024, respectively.
In January 2025, we entered into agreements to sell one Aframax / LR2 tanker and two Suezmax tankers for a combined sales price of $95.5 million. The Aframax / LR2 tanker and one Suezmax tanker were delivered to their purchasers in February 2025, and the remaining Suezmax tanker is expected to be delivered to its purchaser during March 2025.
In March 2025, we entered into agreements to sell one Aframax / LR2 tanker and one Suezmax tanker for a combined sales price of $59.0 million. The Aframax / LR2 tanker is expected to be delivered to its purchaser during March 2025, and the Suezmax tanker is expected to be delivered to its purchaser during the second quarter of 2025.
Vessel Sale-Leaseback Repurchases
In March 2024, we completed the repurchase of eight Suezmax tankers for a total cost of $137.0 million, pursuant to repurchase options under related sale-leaseback arrangements. Currently, the eight vessels are unencumbered.
Vessel Acquisitions
In July 2024, we completed the acquisition of one 2021-built Aframax / LR2 tanker for a purchase price of $70.5 million.
In February 2025, we signed an agreement to acquire one 2019-built Aframax / LR2 tanker for a purchase price of $63.0 million. The vessel is expected to be delivered to us during the second quarter of 2025.
Time Chartered-in Vessels
In May 2024, we extended one chartered-in contract for an Aframax / LR2 tanker for 12 months at a rate of $34,000 per day and secured an additional 12-month optional period at the same daily rate.
During the third and fourth quarters of 2024, three chartered-in Aframax / LR2 tankers were redelivered to their owners following the expiry of their time chartered-in contracts.
Time Chartered-out Vessel
During the second quarter of 2024, we entered into a one-year time charter-out contract for an Aframax / LR2 tanker at a rate of $49,750 per day, which commenced at the beginning of June 2024.
Bunker Tanker Bareboat and Time Charter Agreements
In September 2024, we entered into an agreement to bareboat charter-in a bunker tanker for a period of four and a half years. At the same time, we entered into an agreement to time charter-out this bunker tanker to a third party for a corresponding period at a rate that is equal to the bareboat cost plus an operational element, which is subject to certain escalations each year. The bunker tanker was delivered to us in November 2024, at which time these two agreements commenced.
Investment in Marketable Securities
In December 2024, we acquired shares in a publicly traded company which owns and manages a fleet of Medium-Range product and chemical tankers, at a cost of $21.0 million, representing a passive minority investment.
European Union Emissions Trading System (or EU ETS)
Since January 1, 2024, as part of our compliance with the EU ETS requirements, we have acquired EU allowances (or EUAs) related to greenhouse gas emissions from our vessels and those third-party vessels subject to RSAs that trade to, from, and within the EU and European Economic Area. During the year ended December 31, 2024, we acquired EUAs for a cost of $5.9 million, which were recorded as indefinite-lived intangible assets. As at December 31, 2024, these intangible assets are presented as other current assets in our consolidated balance sheet as the EUAs will be surrendered to our Union Registry account within one year from the balance sheet date, and we also recorded an accrued liability of $6.6 million in relation to our obligation under EU ETS. In addition, we recorded voyage expenses related to EU ETS of $6.7 million for the year ended December 31, 2024. Please see "Item 18 - Financial Statements: Note 1 - Summary of Significant Accounting Policies", "Item 18 - Financial Statements: Note 7 - Goodwill and Intangible Assets" and "Item 18 - Financial Statements: Note 8 - Accrued Liabilities and Other Long-Term Liabilities" of this Annual Report for information about EU ETS requirements and our obligation related to EU ETS.
Purchase of Teekay's Australian Operations and Management Service Companies
On December 31, 2024, we completed our acquisition of the Acquired Operations, which include (a) Teekay's Australian operations for a purchase price of $65.0 million plus a related working capital adjustment of $15.9 million, and (b) all of Teekay's management service companies not previously owned by us for a price of $17.3 million, which was the net working capital value of the entities being transferred to us. As part of the acquisition, Teekay transferred to us its supplemental retirement defined contribution plan liability of $6.0 million, which plan relates to the management service companies included in the Acquired Operations. This liability was deducted from the total $98.2 million purchase price for Teekay's Australian operations and Teekay's management service companies, resulting in net consideration of $92.2 million paid to Teekay. All information in this Item 5 - Operating and Financial Review and Prospects has been retroactively adjusted or recast to include the Acquired Operations on a consolidated basis for all periods presented. Please see "Item 18 - Financial Statements: Note 3 - Acquisitions of Entities under Common Control" of this Annual Report for additional information about this transaction.
Important Financial and Operational Terms and Concepts
We use a variety of financial and operational terms and concepts when analyzing our performance. These include the following:
Revenues.Revenues primarily include revenues from time charters, voyage charters, full service lightering and lightering support services. In addition, revenues include revenues from operational and maintenance marine services. Revenues related to our crude oil and product tankers are affected by hire rates and the number of days a vessel operates. Revenues are also affected by the mix of our business between time charters and voyage charters and to a lesser extent, whether our vessels are subject to an RSA. Hire rates for voyage charters are more volatile, as they are typically tied to prevailing market rates at the time of a voyage. Our charters are explained further below.
Voyage Expenses.Voyage expenses are all expenses unique to a particular voyage, including any fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions. Voyage expenses are typically paid by the shipowner under voyage charters and the customer under time charters, except when the vessel is off-hire during the term of a time charter, in which case, the shipowner pays voyage expenses.
Net Revenues.Net revenues represent income or loss from operations before vessel operating expenses, charter hire expenses, depreciation and amortization, general and administrative expenses, gain or loss on sale and write-down of assets, and restructuring charges. This is a non-GAAP financial measure; for more information about this measure, please read "Item 5 - Operating and Financial Review and Prospects - Non-GAAP Finance Measures".
Vessel Operating Expenses.Under all types of charters and contracts for our vessels, except for bareboat charters, we are responsible for vessel operating expenses, which include crewing, repairs and maintenance, insurance, stores, lube oils, communication expenses and ship management services. The two largest components of our vessel operating expenses are crew costs and repairs and maintenance. We expect these expenses to increase as our fleet matures and to the extent that it expands. We seek to maintain these expenses at a stable level but expect an increase in line with inflation in respect of crew, material and maintenance costs. The strengthening or weakening of the U.S. Dollar relative to foreign currencies may result in significant decreases or increases, respectively, in our vessel operating expenses, depending on the currencies in which such expenses are incurred.
Income or Loss from Operations.To assist us in evaluating our operations by segment, we analyze the income or loss from operations for each segment, which represents the income or loss we generate or incur from the segment after deducting operating expenses, but prior to interest expense, interest income, realized and unrealized gains or losses on non-designated derivative instruments, equity income or loss, other income or expenses and income taxes.
Dry Docking.We must periodically dry dock each of our vessels for inspection, repairs and maintenance and any modifications to comply with industry certification or governmental requirements. Generally, we dry dock each of our vessels every two and a half to five years, depending upon the age of the vessel. We capitalize a substantial portion of the costs incurred during dry docking and amortize those costs on a straight-line basis from the completion of a dry docking over the estimated useful life of the dry dock. We expense, as incurred, costs for routine repairs and maintenance performed during dry dockings that do not improve or extend the useful lives of the assets. The number of dry dockings undertaken in a given period and the nature of the work performed determine the level of dry docking expenditures.
Depreciation and Amortization.Our depreciation and amortization expense typically consists of charges related to the depreciation of the historical cost of our fleet (less an estimated residual value) over the estimated useful lives of our vessels, charges related to the amortization of dry-docking expenditures over the estimated number of years to the next scheduled dry docking, and charges related to the amortization of our intangible assets over the estimated useful life of 10 years.
Time-Charter Equivalent (TCE) Rates.Bulk shipping industry freight rates are commonly measured in the shipping industry at the net revenues level in terms of "time-charter equivalent" (orTCE) rates, which represent net revenues divided by revenue days. We calculate TCE rates as net revenue per revenue day before costs to commercially manage our vessels, and off-hire bunker expenses.
Revenue Days.Revenue days are the total number of calendar days our vessels were in our possession during a period, less the total number of off-hire days during the period associated with major repairs or modifications, dry dockings, or special or intermediate surveys. Consequently, revenue days represents the total number of days available for the vessel to earn revenue. Idle days, which are days when the vessel is available for the vessel to earn revenue yet is not employed, are included in revenue days. We use revenue days to explain changes in our net revenues between periods.
Average Number of Ships.Historical average number of ships consists of the average number of vessels that were in our fleet during a period. We use average number of ships primarily to highlight changes in vessel operating expenses and depreciation and amortization.
Our Charters
As part of our operations related to crude oil and product tankers, we generate revenues by charging customers for the transportation of their crude oil using our vessels. Historically, these services generally have been provided under the following basic types of contractual relationships:
•Voyage charters are charters for shorter intervals that are priced on a current or spot market rate; and
•Time charters, whereby vessels are chartered to customers for a fixed period of time at rates that are generally fixed, but may contain a variable component based on inflation, interest rates or current market rates.
The table below illustrates the primary distinctions among these types of charters and contracts:
Voyage Charter Time Charter
Typical contract length Single voyage One year or more
Hire rate basis (1)
Varies Daily
Voyage expenses(2)
We pay Customer pays
Vessel operating expenses (3)
We pay We pay
Off hire (4)
Customer does not pay Customer does not pay
(1)Hire rate refers to the basic payment from the charterer for the use of the vessel.
(2)Voyage expenses are all expenses unique to a particular voyage, including any fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions.
(3)Vessel operating expenses include crewing, repairs and maintenance, insurance, stores, lube oils and communication expenses.
(4)Off hire refers to the time a vessel is not available for service.
Summary Financial Data
Set forth below is summary consolidated financial and other data of Teekay Tankers Ltd. and its subsidiaries for fiscal years 2024, 2023 and 2022, which have been derived from our consolidated financial statements. The following table should be read together with, and is qualified in its entirety by reference to, the consolidated financial statements and accompanying notes for the years ended December 31, 2024, 2023 and 2022 (which are included herein).
On December 31, 2024, we acquired from Teekay the Acquired Operations. This transaction was deemed to be a business acquisition between entities under common control. As a result, our consolidated financial statements prior to the date we acquired the Acquired Operations have been retroactively adjusted or recast to include 100% of the assets and liabilities and results of the Acquired Operations during the periods they were under common control of Teekay, which include all periods presented in this Annual Report. As such, certain figures in this Annual Report have been retroactively adjusted or recast on this basis to include the Acquired Operations. All intercorporate transactions between us and the Acquired Operations that occurred prior to the acquisition of the Acquired Operations by us have been eliminated upon consolidation.
Year Ended December 31,
(in thousands of U.S. dollars, except share and fleet data) 2024 2023 2022
GAAP Financial Comparison:
Income Statement Data:
Revenues 1,229,336 1,473,699 1,177,956
Income from operations 380,143 546,764 263,823
Net income 403,667 519,890 235,427
Earnings per share - diluted 11.63 15.04 6.87
Balance Sheet Data (at end of year):
Cash and cash equivalents 511,888 391,464 206,926
Total vessels and equipment (1)
1,184,271 1,234,524 1,296,262
Total debt (2)
- 139,599 532,760
Total equity 1,756,550 1,550,157 1,091,817
Non-GAAP Financial Comparison: (3)
Net revenues - Tankers (4)
700,732 890,081 567,507
EBITDA 466,467 638,242 363,050
Adjusted EBITDA 420,850 623,562 348,095
Fleet Data:
Average number of tankers (5)
Suezmax 25.8 26.0 25.1
Aframax / LR2 23.7 25.6 23.8
Bunker tanker 0.2 0.0 0.0
VLCC 0.5 0.5 0.5
(1)Total vessels and equipment consist of (a) our vessels, at cost less accumulated depreciation, (b) vessels related to finance leases, at cost less accumulated depreciation, and (c) operating lease right-of-use assets.
(2)Total debt includes short-term debt, current and long-term portion of long-term debt, and current and long-term portion of obligations related to finance leases.
(3)Net revenues, EBITDA and Adjusted EBITDA are non-GAAP financial measures. A definition and an explanation of the usefulness and purpose of this measure, as well as a reconciliation to the most directly comparable financial measure calculated and presented in accordance with GAAP are contained in the section "Non-GAAP Financial Measures" at the end of this Item 5 - Operating and Financial Review and Prospects.
(4)Relates to net revenues from Tankers which excludes net revenues from Marine Services and Other. Please see section "Tankers - Operating Results" below in this Item 5 - Operating and Financial Review and Prospects.
(5)Average number of tankers consists of the average number of vessels that were in our possession during a period, including chartered-in vessels, and the VLCC which is owned through our 50/50 High-Q Investments Ltd. (or High-Q) joint venture with Wah Kwong Maritime Transport Holdings Ltd.
Items You Should Consider When Evaluating Our Results of Operations
You should consider the following factors when evaluating our historical financial performance and assessing our future prospects:
•Our financial results reflect the results of the Acquired Operations acquired from Teekay for all periods the Acquired Operations were under common control.Our acquisition of the Acquired Operations represents a business acquisition between entities under common control. Accordingly, we have accounted for this transaction in a manner similar to the pooling of interests method. Under this method of accounting, our consolidated financial statements, for periods prior to December 31, 2024, the date that the interests in the applicable businesses were actually acquired by us, are retroactively adjusted or recast to include the results of the Acquired Operations. The periods retroactively adjusted include all periods that we and the Acquired Operations were both under common control of Teekay and had begun operations, which include all periods presented in this Annual Report. All financial or operational information contained in these financial statements for the periods prior to the respective dates the interests in the businesses were actually acquired by us, and during which we and the applicable businesses were under common control of Teekay, are retroactively adjusted or recast to include the results of these Acquired Operations and are collectively referred to as the "Entities under Common Control".
•Our voyage revenues are affected by cyclicality in the tanker markets.The cyclical nature of the tanker industry causes significant increases or decreases in the revenue we earn from our vessels, particularly those we trade in the spot market.
•Tanker rates also fluctuate based on seasonal variations in demand.Tanker markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere but weaker in the summer months as a result of lower oil consumption in the northern hemisphere and increased refinery maintenance. In addition, unpredictable weather patterns during the winter months tend to disrupt vessel scheduling, which historically has increased oil price volatility and oil trading activities in the winter months. As a result, revenues generated by our vessels have historically been weaker during the quarters ended June 30 and September 30, and stronger in the quarters ended December 31 and March 31.
•The conflicts in the Middle East and Ukraine have had and may continue to have material effects on our business, results of operations or financial condition.Since December 2023, Iran-backed Houthi rebels in Yemen have carried out numerous attacks on vessels in the Red Sea area, ostensibly in response to the Israel-Hamas war. As a result of these attacks, many shipping companies continue to suspend transit through the Red Sea, which has affected trading patterns, rates and expenses. The Houthi group in Yemen has pledged to stop attacks on shipping in the Red Sea should the ceasefire in Gaza hold. This could result in the resumption of tanker transits through the Red Sea area, which could impact seaborne trade patterns and reduce tanker tonne-mile demand. Continued escalation or expansion of hostilities in the Middle East, interventions by other groups or nations, the imposition of economic sanctions on any major oil producing nations, disruption of shipping transit in the Straits of Hormuz or other significant trade routes, such as the Red Sea, or similar outcomes could adversely affect the tanker industry, demand for our services, our business, results of operations, financial condition and cash flows.
The Russia-Ukraine war has disrupted energy supply chains, caused instability and significant volatility in the global economy and resulted in economic sanctions on Russia by several nations. The ongoing conflict has contributed significantly to related increases in spot tanker rates. Additional sanctions and executive orders have been implemented and authorities are actively investigating compliance with the price cap requirement placed on Russian oil exports. This could further impact the trade of crude oil and petroleum products, as well as the supply of Russian oil to the global market and the demand for, and price of, crude oil and petroleum products.
Please read "Item 3 - Key Information - Risk Factors" for additional information about risks to us and our business relating to political instability, terrorist or other attacks, war or international hostilities and the conflicts in Israel and Ukraine.
•Our U.S. Gulf lightering business competes with alternative methods of delivering crude oil to ports and exports to offshore for consolidation onto larger vessels, which may limit our earnings in this area of our operations.Our U.S. Gulf lightering business faces competition from alternative methods of delivering crude oil shipments to port and exports to offshore for consolidation onto larger vessels, including the Louisiana Offshore Oil Platform and deep water terminals in Corpus Christi and Houston, Texas which can partially load VLCCs. While we believe that lightering offers advantages over alternative methods of delivering crude oil to and from U.S. Gulf ports, our lightering revenues may be limited due to the availability of alternative methods.
•Vessel operating and other costs are facing industry-wide cost pressures.The shipping industry continues to forecast a shortfall in qualified personnel, particularly with the projected increase of dual fuel vessels. We will continue to focus on our manning and training strategies to meet future needs. In addition, factors such as client demands for enhanced training and physical equipment, pressure on commodity and raw material prices, tariffs, an increasing cost of freight, as well as changes in regulatory requirements could also contribute to operating expenditure increases. We continue to take action aimed at improving operational efficiencies, and to temper the effect of inflationary and other price escalations; however, increases to operational costs may occur in the future.
•The amount and timing of vessel dry dockings and major modifications can significantly affect our revenues between periods.Our vessels are normally off-hire when they are being dry docked. We had 13 vessels dry dock in 2024, compared to seven vessels in 2023 and nine vessels in 2022. We also had three vessels off-hire during 2022 while completing BWTS installations. The total number of off-hire days relating to dry dockings and BWTS installations during the years ended December 31, 2024, 2023 and 2022 were 478, 304 and 561, respectively. For our current fleet, there are 11 vessels scheduled to dry dock in 2025.
•Our financial results are affected by fluctuations in currency exchange rates. Under GAAP, all foreign currency-denominated monetary assets and liabilities (including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities,
advances from affiliates and advances to affiliates) are revalued and reported based on the prevailing exchange rate at the end of the period. These foreign currency translation fluctuations are based on the strength of the U.S. Dollar relative mainly to the Australian Dollar, Canadian Dollar, Singaporean Dollar, British Pound, Euro, Philippine Peso and Japanese Yen are included in our results of operations. The translation of all foreign currency-denominated monetary assets and liabilities at each reporting date results in unrealized foreign currency exchange gains or losses.
Results of Operations
In accordance with GAAP, we report gross revenues in our consolidated statements of income and include voyage expenses among our operating expenses. However, ship-owners base economic decisions regarding the deployment of their vessels upon anticipated TCE rates, which represent net revenues (or income or loss from operations before vessel operating expenses, charter hire expenses, depreciation and amortization, general and administrative expenses, gain or loss on sale and write-down of assets, and restructuring charges), which includes voyage expenses, divided by revenue days; in addition, industry analysts typically measure bulk shipping freight and hire rates in terms of TCE rates. This is because under time charter-out contracts, the customer usually pays the voyage expenses, while under voyage charters the ship-owner usually pays the voyage expenses, which typically are added to the hire rate at an approximate cost (as is also described in "Our Charters" above). Accordingly, the discussion of revenue below focuses on net revenues and TCE rates (both of which are non-GAAP financial measures) where applicable.
The results of operations that follow have been divided into (a) tankers, which consists of the operation of all of our Suezmax and Aframax / LR2 tanker as well as our 50% ownership interest in a VLCC tanker (including the operations from those of our tankers employed on full service lightering contracts), and our U.S. based ship-to-ship support service operations (including our lightering support services provided as part of full service lightering operations); and (b) marine services and other, which consists of operational and maintenance marine services provided to the Australian government, Australian energy companies and other third parties, as well as management services provided to Teekay and third parties.
As a result of our acquisition of the Acquired Operations, our results of operations for all periods have been retroactively adjusted or recast to include 100% of the results related to marine services activities.
Year Ended December 31, 2024 versus Year Ended December 31, 2023
Summary
Our consolidated income from operations was $380.1 million for the year ended December 31, 2024, compared to $546.8 million for the year ended December 31, 2023. The primary reasons for this net decrease in income are as follows:
•a decrease of $155.4 million as a result of lower overall average realized spot TCE rates earned by our Suezmax tankers and Aframax / LR2 tankers in 2024 compared to 2023;
•a decrease of $27.2 million due to the sale of three Aframax / LR2 tankers and one Suezmax tanker at various times between the fourth quarter of 2023 and the fourth quarter of 2024;
•a decrease of $4.6 million due to an increase in operating expenses in 2024, primarily due to higher costs for maintenance and communication services, higher ship management costs, as well as higher costs for insurance and crew-related expenditures;
•a decrease of $4.0 million due to an increase in restructuring charges in 2024, related to changes made to our senior management team;
•a net decrease of $3.9 million due to the redelivery of three chartered-in tankers to their owners during the second half of 2024, partially offset by the addition of three Aframax / LR2 chartered-in tankers and one bareboat bunker tanker that were delivered to us during the first quarter of 2023 and the fourth quarter of 2024; and
•a decrease of $2.9 million due to an increase in general and administrative expenses in 2024, primarily resulting from higher expenditures related to compensation, benefits and payroll taxes, as well as higher general corporate expenditure compared to 2023;
partially offset by:
•an increase of $29.1 million due to the gain on sale of two Aframax / LR2 tankers and one Suezmax tanker in 2024 compared to the gain on sale of one Aframax / LR2 tanker in 2023; and
•an increase of $3.2 million due to improved results from our operational and maintenance marine services in Australia during 2024 compared to 2023.
Tankers - Operating Results
The following table presents the Tankers operating results for the years ended December 31, 2024 and 2023, and includes a comparison of net revenues, a non-GAAP financial measure, for those periods to income from operations, the most directly comparable GAAP financial measure.
Year Ended December 31,
(in thousands of U.S. dollars, except percentages) 2024 2023 % Change
Revenues
1,106,278 1,364,452 (19)%
Voyage expenses (405,546) (474,371) (15)%
Net revenues 700,732 890,081 (21)%
Vessel operating expenses (150,605) (148,960) 1%
Charter hire expenses (74,379) (70,836) 5%
Depreciation and amortization (93,582) (97,551) (4)%
General and administrative expenses (48,833) (45,936) 6%
Gain on sale and write down of assets 38,080 10,360 268%
Restructuring charges (5,952) (1,248) 377%
Income from operations 365,461 535,910 (32)%
Equity income 2,767 3,432 (19)%
Net Revenues.Net revenues were $700.7 million for the year ended December 31, 2024 compared to $890.1 million for the year ended December 31, 2023. The net decrease was primarily due to:
•a decrease of $155.4 million due to lower overall average realized spot rates earned by our Suezmax tankers and Aframax / LR2 tankers in 2024 compared to 2023;
•a net decrease of $37.4 million due to the sale of three Aframax / LR2 tankers and one Suezmax tanker at various times between the fourth quarter of 2023 and the fourth quarter of 2024, as well as the redelivery of three chartered-in tankers to their owners during the second half of 2024, partially offset by the addition of three Aframax / LR2 chartered-in tankers that were delivered to us during the first quarter of 2023, and the acquisition of one Aframax / LR tanker that was completed in the third quarter of 2024; and
•a decrease of $2.8 million due to higher off-hire bunker expenses and more off-hire days during 2024, primarily related to more scheduled dry dockings compared to 2023;
partially offset by:
•an increase of $3.2 million due to a higher volume of STS support service activities in 2024 compared to 2023;
•an increase of $2.2 million due to one extra calendar day in 2024 compared to 2023; and
•an increase of $1.3 million due to commercial claims from charterers during 2023.
Vessel Operating Expenses. Vessel operating expenses were $150.6 million for the year ended December 31, 2024 compared to $149.0 million for the year ended December 31, 2023. The net increase was primarily due to:
•an increase of $4.5 million resulting from higher costs for maintenance and communication services, as well as higher ship management costs in 2024; and
•an increase of $1.2 million related to higher costs for insurance and crew-related expenditures in 2024;
partially offset by:
•a net decrease of $4.0 million resulting from the sale of three Aframax / LR2 tankers and one Suezmax tanker at various times between the fourth quarter of 2023 and the fourth quarter of 2024, as well as the acquisition of one Aframax / LR2 vessel that was completed in the third quarter of 2024.
Charter Hire Expenses.Charter hire expenses were $74.4 million for the year ended December 31, 2024 compared to $70.8 million for the year ended December 31, 2023. The net increase was primarily due to:
•an increase of $4.2 million resulting from the addition of three Aframax / LR2 chartered-in tankers that were delivered to us during the first quarter of 2023;
•an increase of $3.9 million resulting from an increase in daily hire rates for certain Aframax / LR2 tankers after extending their chartered-in contracts during the second half of 2023 and first half of 2024; and
•an increase of $1.1 million due to more hire days for chartered-in tankers during 2024 resulting from the timing of scheduled dry dockings;
partially offset by:
•a decrease of $5.8 million resulting from the redelivery of three chartered-in tankers to their owners during the second half of 2024.
Depreciation and Amortization.Depreciation and amortization was $93.6 million for the year ended December 31, 2024 compared to $97.6 million for the year ended December 31, 2023. The net decrease was primarily due to one Aframax / LR2 tanker and one Suezmax tanker being classified as held for sale since the first quarter of 2024, with both sales being completed in the fourth quarter of 2024, as well as the sale of two Aframax / LR2 tankers at various times during the fourth quarter of 2023 and first quarter of 2024, partially offset by the acquisition of one Aframax / LR2 tanker that was completed in the third quarter of 2024.
General and Administrative Expenses.General and administrative expenses were $48.8 million for the year ended December 31, 2024 compared to $45.9 million for the year ended December 31, 2023. The increase was primarily due to higher expenditures related to compensation, benefits and payroll taxes, as well as higher general corporate expenditures during the year ended December 31, 2024.
Gain on sale and write-down of assets. The gain on sale and write-down of assets of $38.1 million for the year ended December 31, 2024 was related to:
•the sale of two Aframax / LR2 tankers and one Suezmax tanker, which resulted in an aggregate gain on sales of $39.5 million during the year ended December 31, 2024;
partially offset by:
•the impairment recorded on three of our operating lease right-of-use assets resulting from a decline in the prevailing short-term time-charter rates, which resulted in a write-down of $1.4 million during the year ended December 31, 2024.
The gain on the sale and write-down of assets of $10.4 million for the year ended December 31, 2023 was related to the sale of one Aframax / LR2 tanker in December 2023.
Restructuring Charges. Restructuring charges of $6.0 million for the year ended December 31, 2024 were related to changes made to our senior management team. Restructuring charges of $1.2 million for the year ended December 31, 2023 were related to organizational changes made to our commercial and technical operations teams.
Equity Income. Equity income was $2.8 million for the year ended December 31, 2024 compared to $3.4 million for the year ended December 31, 2023. The decrease was primarily due to lower average spot rates realized by our 50% ownership interest in a VLCC, which has been trading in a third-party managed VLCC pooling arrangement, as well as off-hire days resulting from repairs completed in the third quarter of 2024. For additional information, please refer to "Item 18 - Financial Statements: Note 6 - Investment in and Advances to Equity-Accounted Joint Venture" of this Annual Report.
Tanker Market
Mid-size crude tanker spot rates were counter-seasonally lower during the fourth quarter of 2024, but remained above long-term average levels for a fourth quarter, and well above Teekay Tankers' free cash flow break-even level of approximately $14,300 per day. Spot tanker rates were below expectations as weak Chinese oil demand weighed on the VLCC sector, which in turn dampened demand for Aframax and Suezmax tankers. Weather delays, which typically help spot tanker rates during the winter, have not had a material impact on the market thus far.
Average spot tanker rates to date during the first quarter of 2025 are approximately in line with fourth quarter 2024 levels. However, the recent imposition of additional U.S. sanctions on Russian shipping has increased rate volatility, particularly in the larger crude tanker asset classes. In January 2025, the U.S. placed sanctions on 153 tankers servicing the Russian oil trade. Freight rates for large crude tankers rose following the announcement as replacement vessels were booked for transporting oil to China and India. In addition, Atlantic based crude oil has been priced attractively compared to Middle Eastern crude in recent weeks, which has opened the arbitrage for the long-haul movement of oil from the Atlantic Basin to Asia. This has been positive for tanker tonne-mile demand in the near-term, particularly for VLCC and Suezmax tankers.
For the balance of 2025, underlying oil market fundamentals appear supportive of tanker demand growth. Global oil demand is projected to grow by 1.3 million barrels per day (or mb/d) in 2025 based on the average of forecasts from the International Energy Agency (or IEA), the U.S. Energy Information Administration (or EIA) and OPEC. Virtually all of this demand growth is being driven by non-OECD countries, led by Asia. Oil supply from non-OPEC+ countries is projected by the IEA to increase by 1.5 mb/d during 2025, led by the United States, Brazil, Norway, Canada, and Guyana. Given that these sources of oil are mostly in the Atlantic Basin, while oil demand growth is focused on Asia, we expect an increase in long-haul crude oil movements from West to East, which we anticipate will support tanker tonne-mile demand. The OPEC+ group could provide additional seaborne transportation volumes should they start unwinding voluntary oil supply cuts from April 2025 onwards, consistent with their most recently announced plan.
Tanker fleet growth is expected to remain relatively low during 2025. The pace of newbuilding deliveries during 2025 is expected to increase compared to 2024 levels; however, with the average age of the global tanker fleet at its highest point since 2002, we expect that the phase-out of older vessels will act as a partial offset. Looking further ahead, the number of mid-size tankers currently on order compared to the number of ships reaching 20 years of age over the same timeframe suggests continued low fleet growth over the medium term. In addition, there are a further 301 mid-size tankers which are currently over the age of 20 years, the majority of which operate as part of the "shadow" fleet servicing sanctioned trades and which are facing increased scrutiny from U.S. and European authorities. With a lack of available shipyard capacity until 2028, we believe that the combination of a modest orderbook, an aging tanker fleet, and constraints on available yard space will result in continued low levels of tanker fleet growth over the next three years.
While underlying tanker market fundamentals continue to appear supportive, there are a number of geopolitical factors which are likely to have an impact on the direction of the tanker market in the near term. These include:
•War in Ukraine. A potential end to the Russia-Ukraine war could impact tanker tonne-miles should sanctions be removed while also potentially eliminating the need to utilize the "shadow" fleet of ships currently servicing Russian oil exports. Until the Russia-Ukraine war ends, sanctions against Russia and the fleet of ships transporting Russian oil may continue to increase. This could lead to reduced Russian oil exports, which would lead to China and India looking for replacement barrels from alternative sources, or may force Russia to use compliant tankers to carry their oil at a price below the G7's price cap of $60 per barrel.
•Iranian sanctions. The United States has reimposed its "maximum pressure" campaign against Iran in a bid to reduce Iranian oil exports to zero. In 2024, Iranian crude oil exports averaged 1.5 mb/d, the majority of which went to China. Tougher sanctions on Iranian crude oil exports could lead China to import oil from other sources via the compliant fleet, which would be positive for tanker demand.
•Return of Red Sea tanker transits. The Houthi group in Yemen has pledged to stop attacks on shipping in the Red Sea should the ceasefire in Gaza hold. This may result in the resumption of tanker transits through the Red Sea region, which could impact seaborne trade patterns and reduce tanker tonne-mile demand.
•Impact of U.S. tariffs on China, Canada, and Mexico. The imposition of any tariffs on U.S. imports of Canadian and Mexican oil could lead to an increase in U.S. seaborne imports from other sources while also pushing more Canadian and Mexican oil to Asia, both of which could be positive for tanker tonne-mile demand. The impact of U.S. tariffs on China is less certain but could impact levels of Chinese oil demand and imports as well as seaborne oil trade patterns. Future tariffs by the U.S. on other countries or economic blocs could also affect seaborne oil trade patterns.
At this stage it is difficult to predict how these factors will unfold during 2025, what their impact will be on the tanker market, or if there will be additional geopolitical events. However, geopolitical uncertainty, and changes to seaborne oil trade patterns, typically lead to increased tanker market volatility.
In summary, we believe that underlying tanker supply and demand fundamentals continue to be supportive of tanker market strength over the medium term. However, geopolitical events are likely to have an impact on the direction of the tanker market in the near-term.
Tankers - Fleet and TCE Rates
As at December 31, 2024, we owned 41 double-hulled oil and product tankers and chartered-in four Aframax / LR2 tankers, one Suezmax tanker, one bunker tanker and two STS support vessels. We also owned a 50% interest in one VLCC tanker, the results of which are included in equity income.
As defined and discussed above, we calculate TCE rates as net revenue per revenue day before costs to commercially manage our vessels, and off-hire bunker expenses. The following tables highlight the average TCE rates earned by our spot vessels (including those trading on voyage charters, in RSAs and in FSL) and our time charter-out vessels for 2024, 2023 and 2022:
Year Ended December 31, 2024
Revenues(1)
Voyage Expenses (2)
Adjustments (3)
TCE Revenues Revenue Days
Average TCE per Revenue Day (3)
(in thousands) (in thousands) (in thousands) (in thousands)
Voyage-charter contracts - Suezmax (4)
$ 547,261 $ (216,951) $ 2,788 $ 333,098 8,779 $ 37,941
Voyage-charter contracts - Aframax / LR2 (4)
$ 519,702 $ (192,126) $ 1,224 $ 328,800 8,234 $ 39,933
Time charter-out contracts - Suezmax $ 12,767 $ (725) $ 1 $ 12,043 321 $ 37,513
Time charter-out contracts - Aframax / LR2 $ 12,006 $ (424) $ 300 $ 11,882 243 $ 48,879
Total $ 1,091,736 $ (410,226) $ 4,313 $ 685,823 17,577 $ 39,018
(1)Excludes $11.2 million of revenues related to our STS support services operations, $1.9 million of bunker commissions earned, and $1.4 million of revenue earned from our responsibilities in employing the vessels subject to RSAs.
(2)Includes $4.7 million of operating expenses related to providing lightering support services to our FSL operations.
(3)Adjustments primarily include off-hire bunker expenses, which are excluded from Average TCE per Revenue Day.
(4)Includes $51.0 million of revenues and $24.3 million of voyage expenses related to our FSL operations.
Year Ended December 31, 2023
Revenues (1)
Voyage Expenses (2)
Adjustments (3)
TCE Revenues Revenue Days
Average TCE per Revenue Day (3)
(in thousands) (in thousands) (in thousands) (in thousands)
Voyage-charter contracts - Suezmax $ 669,334 $ (256,166) $ 1,591 $ 414,759 8,922 $ 46,485
Voyage-charter contracts - Aframax / LR2 (4)
$ 652,153 $ (228,203) $ 1,747 $ 425,697 8,680 $ 49,045
Time charter-out contracts - Suezmax $ 14,280 $ (556) $ (31) $ 13,693 365 $ 37,513
Time charter-out contracts - Aframax / LR2 $ 16,869 $ (405) $ 8 $ 16,472 382 $ 43,123
Total $ 1,352,636 $ (485,330) $ 3,315 $ 870,621 18,349 $ 47,448
(1)Excludes $7.9 million of revenues related to our STS support services operations, $2.3 million of revenue earned from our responsibilities in employing the vessels subject to RSAs, and $1.6 million of bunker commissions earned.
(2)Includes $11.0 million of operating expenses related to providing lightering support services to our FSL operations.
(3)Adjustments primarily include off-hire bunker expenses and an expense related to a claim from a charterer in relation to a mechanical issue on one vessel, which are excluded from Average TCE per Revenue Day.
(4)Includes $81.5 million of revenues and $44.6 million of voyage expenses related to our FSL operations.
Year Ended December 31, 2022
Revenues(1)
Voyage Expenses (2)
Adjustments (3)
TCE Revenues Revenue Days
Average TCE per Revenue Day (3)
(in thousands) (in thousands) (in thousands) (in thousands)
Voyage-charter contracts - Suezmax $ 557,971 $ (273,517) $ 2,232 $ 286,686 8,888 $ 32,257
Voyage-charter contracts - Aframax / LR2 (4)
$ 481,291 $ (233,757) $ 2,829 $ 250,363 7,652 $ 32,721
Time charter-out contracts - Suezmax $ 49 $ (1) $ - $ 48 1 $ 37,611
Time charter-out contracts - Aframax / LR2 $ 14,689 $ (272) $ (505) $ 13,912 660 $ 21,070
Total $ 1,054,000 $ (507,547) $ 4,556 $ 551,009 17,201 $ 32,034
(1)Excludes $4.6 million of revenues related to our STS support services operations, $3.1 million of revenue earned from our responsibilities in employing the vessels subject to RSAs, and $1.4 million of bunker commissions earned.
(2)Includes $11.9 million of operating expenses related to providing lightering support services to our FSL operations.
(3)Adjustments primarily include off-hire bunker expenses and a fee earned based on the redelivery location of one time chartered-out Aframax / LR2 tanker during the second quarter of 2022, which are excluded from Average TCE per Revenue Day.
(4)Includes $123.5 million of revenues and $79.0 million of voyage expenses related to our FSL operations.
Marine Services and Other - Operating Results
The following table presents the Marine Services and Other operating results for the years ended December 31, 2024 and 2023.
Year Ended December 31,
(in thousands of U.S. dollars, except percentages) 2024 2023 % Change
Revenues
123,058 109,247 13%
Vessel operating expenses (110,509) (100,313) 10%
Charter hire expenses (416) - -%
General and administrative expenses (1)
2,549 2,269 12%
Restructuring charges - (349) (100)%
Income from operations 14,682 10,854 35%
(1)Includes certain services which were provided to us by the Entities under Common Control, which offset the corresponding expense we paid to the Entities under Common Control prior to our acquisition of the Acquired Operations on December 31, 2024.
Income from operations for Marine Services and Other was $14.7 million for the year ended December 31, 2024, compared to $10.9 million for the year ended December 31, 2023. The increase is primarily due to improved results from our operational and maintenance marine services in Australia related to an increase in the number of vessels under management, lower crew-related expenditures, an increase in performance based revenues, and a higher volume of project activity during the year ended December 31, 2024 compared to the year ended December 31, 2023.
Other Consolidated Operating Results
The following table compares our other consolidated operating results for 2024 and 2023:
Year Ended December 31,
(in thousands of U.S. dollars, except percentages) 2024 2023 % Change
Interest expense (7,472) (27,713) (73)%
Interest income 24,076 10,952 120%
Realized and unrealized gain on derivative instruments - 449 (100)%
Other income (expense) 4,558 (1,402) (425)%
Income tax expense
(405) (12,592) (97)%
Interest Expense.Interest expense was $7.5 million for the year ended December 31, 2024 compared to $27.7 million for the year ended December 31, 2023. The decrease was primarily due to our repurchase of 11 Aframax / LR2 tankers and 16 Suezmax tankers during 2023 and the first quarter of 2024, all of which vessels were previously held under sale-leaseback arrangements.
Interest IncomeInterest income was $24.1 million for the year ended December 31, 2024 compared to $11.0 million for the year ended December 31, 2023. The increase was primarily due to interest income earned on higher cash balances.
Realized and Unrealized Gain on Derivative Instruments. Realized and unrealized gain on derivative instruments was $nil for the year ended December 31, 2024 compared to $0.4 million for the year ended December 31, 2023.
From time to time, we enter into interest rate swap agreements which exchange a receipt of floating interest for a payment of fixed interest to reduce our exposure to interest rate variability on our outstanding floating-rate debt. During 2023, we terminated our interest rate swap agreement that we entered into in March 2020. As at December 31, 2024, we were not committed to any interest rate swap agreements.
During the year ended December 31, 2023, we recognized a realized gain of $4.2 million and an unrealized loss of $3.7 million under the now-terminated interest rate swap agreement.
Other Income (Expense). Other income was $4.6 million for the year ended December 31, 2024, compared to other expense of $1.4 million for the year ended December 31, 2023. The fluctuation was primarily due to a non-cash loss on disposal of the defined benefit pension plans related to the Australian operations in 2023, changes in foreign currency exchange rates related to our accrued tax and working capital balances, an unrealized gain on marketable securities in the fourth quarter of 2024, premiums paid in relation to the repurchase of certain vessels previously under sale-leaseback arrangements during the first three quarters of 2023, and a recovery related to the settlement of a claim in the third quarter of 2024, partially offset by an amount recognized in our favor in relation to a legal claim during 2023.
Income Tax Expense. Income tax expense was $0.4 million for the year ended December 31, 2024 compared to $12.6 million for the year ended December 31, 2023. The net decrease was primarily due to a reversal of, and a lower accrual for, certain freight tax liabilities based on an assessment of our tax position for certain jurisdictions, a higher recovery related to the expiry of the tax limitation period in a certain jurisdiction, changes in vessel trading activities, as well as a deferred income tax recovery recognized in 2024, partially offset by a higher income tax expense related to our Australian operations resulting from a higher net income earned during the year ended December 31, 2024 compared to the year ended December 31, 2023. For additional information, please read "Item 18 - Financial Statements: Note 18 - Income Tax Expense" of this Annual Report.
Year Ended December 31, 2023 versus Year Ended December 31, 2022
Summary
Our consolidated income from operations was $546.8 million for the year ended December 31, 2023, compared to $263.8 million for the year ended December 31, 2022. The primary reasons for this net increase in income are as follows:
•an increase of $237.4 million as a result of higher overall average realized spot TCE rates earned by our Suezmax tankers and Aframax / LR2 tankers, as well as higher earnings from our FSL dedicated vessels;
•an increase of $28.4 million due to the addition of four Aframax / LR2 chartered-in tankers and one Suezmax chartered-in tanker that were delivered to us at various times between the third quarter of 2022 and the first quarter of 2023;
•an increase of $17.5 million due to certain vessels returning from time charter-out contracts at various times between the second quarter of 2022 and the first quarter of 2023 and earning higher average spot rates in 2023 compared to previous fixed rates;
•an increase of $7.0 million due to fewer off-hire days and off-hire bunker expenses during 2023, primarily related to fewer scheduled dry dockings compared to 2022; and
•an increase of $3.0 million due to improved results from our operational and maintenance marine services in Australia during 2023 compared to 2022;
partially offset by:
•a decrease of $6.2 million due to the sale of four Aframax / LR2 tankers and one Suezmax tanker at various times during the first three quarters of 2022 and the fourth quarter of 2023; and
•a decrease of $4.2 million due to an increase in general and administrative expenses during 2023, primarily resulting from higher expenditures related to compensation, benefits and payroll taxes compared to 2022, as well as higher general corporate expenditures.
Tankers - Operating Results
The following table presents the Tankers operating results for the years ended December 31, 2023 and 2022, and includes a comparison of net revenues, a non-GAAP financial measure, for those periods to income from operations, the most directly comparable GAAP financial measure.
Year Ended December 31,
(in thousands of U.S. dollars, except percentages) 2023 2022 % Change
Revenues
1,364,452 1,063,111 28%
Voyage expenses (474,371) (495,604) (4)%
Net revenues 890,081 567,507 57%
Vessel operating expenses (148,960) (150,448) (1)%
Charter hire expenses (70,836) (27,374) 159%
Depreciation and amortization (97,551) (99,033) (1)%
General and administrative expenses (45,936) (41,769) 10%
Gain on sale and write down of assets 10,360 8,888 17%
Restructuring charges (1,248) (1,822) (32)%
Income from operations 535,910 255,949 109%
Equity income 3,432 244 1,307%
Net Revenues.Net revenues were $890.1 million for the year ended December 31, 2023 compared to $567.5 million for the year ended December 31, 2022. The net increase was primarily due to:
•an increase of $217.8 million due to higher overall average realized spot rates earned by our Suezmax tankers and Aframax / LR2 tankers in 2023 compared to 2022;
•a net increase of $60.3 million due to the addition of four Aframax / LR2 chartered-in tankers and one Suezmax chartered-in tanker that were delivered to us at various times between the third quarter of 2022 and the first quarter of 2023, partially offset by the sale of four Aframax / LR2 tankers and one Suezmax tanker at various times during the first three quarters of 2022 and the fourth quarter of 2023;
•an increase of $19.6 million primarily due to higher average FSL spot and spot voyage charter rates for our FSL dedicated vessels in 2023 compared to 2022;
•an increase of $17.5 million due to certain vessels returning from time charter-out contracts at various times between the second quarter of 2022 and the first quarter of 2023 and earning higher average spot rates in 2023 compared to previous fixed rates;
•an increase of $7.0 million due to fewer off-hire days and off-hire bunker expenses during 2023, primarily related to fewer scheduled dry dockings compared to 2022; and
•an increase of $2.4 million due to higher STS support services revenues resulting from an increase in the average rate earned per operation in 2023 compared to 2022;
partially offset by:
•a decrease of $1.3 million due to commercial claims from charterers during 2023; and
•a decrease of $0.8 million due to lower revenue earned from our responsibilities in employing the vessels subject to RSAs in 2023 compared to 2022.
Vessel Operating Expenses. Vessel operating expenses were $149.0 million for the year ended December 31, 2023 compared to $150.4 million for the year ended December 31, 2022. The net decrease was primarily due to:
•a decrease of $4.1 million resulting from the sale of three Aframax / LR2 tankers and one Suezmax tanker at various times during the first three quarters of 2022; and
•a decrease of $1.1 million resulting from lower crewing-related expenditures in 2023;
partially offset by:
•an increase of $2.3 million related to higher repair and maintenance costs on certain tankers in 2023;
•an increase of $0.7 million related to higher expenditures for ship management in 2023; and
•an increase of $0.7 million resulting from a higher volume of STS support service activities in 2023.
Charter Hire Expenses.Charter hire expenses were $70.8 million for the year ended December 31, 2023 compared to $27.4 million for the year ended December 31, 2022. The net increase was primarily due to:
•an increase of $43.6 million resulting from the addition of four Aframax / LR2 chartered-in tankers and one Suezmax chartered-in tanker that were delivered to us at various times between the third quarter of 2022 and the first quarter of 2023; and
•an increase of $1.3 million resulting from an increase in daily hire rates for two Aframax / LR2 tankers after extending their chartered-in contracts during the first three quarters of 2023;
partially offset by:
•a decrease of $1.1 million resulting from fewer hire days for a chartered-in tanker due to its dry dock during 2023.
Depreciation and Amortization.Depreciation and amortization was $97.6 million for the year ended December 31, 2023 compared to $99.0 million for the year ended December 31, 2022. The decrease was primarily due to the sale of three Aframax / LR2 tankers and one Suezmax tanker during first three quarters of 2022.
General and Administrative Expenses.General and administrative expenses were $45.9 million for the year ended December 31, 2023 compared to $41.8 million for the year ended December 31, 2022. The increase was primarily due to higher expenditures related to compensation, benefits and payroll taxes, as well as higher general corporate expenditures during the year ended December 31, 2023.
Gain on sale and write-down of assets. The gain on sale and write-down of assets of $10.4 million for the year ended December 31, 2023 was related to the sale of one Aframax / LR2 tanker in December 2023.
The gain on the sale and write-down of assets of $8.9 million for the year ended December 31, 2022 was related to:
•the sale of three Aframax / LR2 tankers and one Suezmax tanker in 2022, which resulted in an aggregate gain of $9.4 million during the year ended December 31, 2022, and the reversal of a previous write-down of one of these tankers that had been recorded during the fourth quarter of 2021, which reversal was made to reflect the tanker's agreed sales price and resulted in a gain of $0.6 million during the year ended December 31, 2022;
partially offset by:
•the impairment recorded on two of our operating lease right-of-use assets resulting from a decline in the prevailing short-term time-charter rates, which resulted in a write-down of $1.1 million during the year ended December 31, 2022.
Restructuring Charges. Restructuring charges of $1.2 million for the year ended December 31, 2023 were primarily related to organizational changes made to our commercial and technical operations teams. Restructuring charges of $1.8 million for the year ended December 31, 2022, were primarily related to organizational changes following divestments by Teekay related to Teekay LNG Partners L.P. (now known as Seapeak LLC) in January 2022.
Equity Income. Equity income was $3.4 million for the year ended December 31, 2023 compared to $0.2 million for the year ended December 31, 2022. The increase was primarily due to higher spot rates realized by our 50% ownership interest in a VLCC, which has been trading in a third-party managed VLCC pooling arrangement, as well as fewer off-hire days during 2023 resulting from the dry dock of the VLCC during 2022. For additional information, please refer to "Item 18 - Financial Statements: Note 6 - Investment in and Advances to Equity-Accounted Joint Venture" of this Annual Report.
Marine Services and Other - Operating Results
The following table presents the Marine Services and Other operating results for the years ended December 31, 2023 and 2022.
Year Ended December 31,
(in thousands of U.S. dollars, except percentages) 2023 2022 % Change
Revenues(1)
109,247 114,845 (5)%
Vessel operating expenses (100,313) (99,528) 1%
General and administrative expenses (2)
2,269 657 245%
Restructuring charges (1)
(349) (8,100) (96)%
Income from operations 10,854 7,874 38%
(1) During the year ended December 31, 2022, we incurred restructuring charges of $8.1 million primarily related to the reorganization and realignment of resources of our and Teekay's shared service functions and the separation of information technology systems following divestments by Teekay related to Teekay LNG Partners L.P. (now known as Seapeak LLC) in January 2022. These costs were recovered from Teekay and Teekay LNG Partners and were recorded as part of revenues.
(2) Includes certain services which were provided to us by the Entities under Common Control, which offset the corresponding expense we paid to Entities under Common Control prior to our acquisition of the Acquired Operations on December 31, 2024.
Income from vessel operations for Marine Services and Other was $10.9 million for the year ended December 31, 2023 compared to $7.9 million for the year ended December 31, 2022. The increase is primarily due to improved results from our operational and maintenance services in Australia during the year ended December 31, 2023 compared to the year ended December 31, 2022.
Other Consolidated Operating Results
The following table compares our other consolidated operating results for 2023 and 2022:
Year Ended December 31,
(in thousands of U.S. dollars, except percentages) 2023 2022 % Change
Interest expense (27,713) (35,752) (22)%
Interest income 10,952 1,460 650%
Realized and unrealized gain on derivative instruments 449 5,179 (91)%
Other (expense) income (1,402) 2,709 (152)%
Income tax expense
(12,592) (2,236) 463%
Interest Expense.Interest expense was $27.7 million for the year ended December 31, 2023 compared to $35.8 million for the year ended December 31, 2022. The decrease was primarily due to the repurchase of 11 Aframax / LR2 tankers and eight Suezmax tankers during the first three quarters of 2023, all of which were previously held under sale-leaseback arrangements, as well as the repayment in full of our previous term loan during the second half of 2022, partially offset by a higher average benchmark interest rate for our tankers under sale-leaseback arrangements during the year ended December 31, 2023.
Interest IncomeInterest income was $11.0 million for the year ended December 31, 2023 compared to $1.5 million for the year ended December 31, 2022. The increase was primarily due to interest income earned on higher cash balances earning higher interest rates during the year ended December 31, 2023.
Realized and Unrealized Gain on Derivative Instruments. Realized and unrealized gain on derivative instruments was $0.4 million for the year ended December 31, 2023 compared to $5.2 million for the year ended December 31, 2022.
In March 2020, we entered into an interest rate swap with a notional amount of $50.0 million and a fixed rate of approximately 0.8%, which swap agreement was scheduled to mature in December 2024. In June 2023, we terminated this interest rate swap agreement. We recognized a realized gain under the swap agreement of $4.2 million during the year ended December 31, 2023, compared to $0.5 million during the prior year, primarily due to the termination of the interest rate swap agreement in 2023 and a higher average benchmark interest rate for the year ended December 31, 2023.
We recognized an unrealized loss of $3.7 million during the year ended December 31, 2023, compared to an unrealized gain of $3.2 million during the prior year under the interest rate swap agreement, primarily due to the termination of the interest rate swap agreement in 2023.
From time to time, we use forward freight agreements (or FFAs) to increase or decrease our exposure to spot market rates, within defined limits. We recognized a realized gain of $1.5 million during the year ended December 31, 2022 under the FFAs.
Other (expense) income. Other expense was $1.4 million for the year ended December 31, 2023, compared to other income of $2.7 million for the year ended December 31, 2022. The fluctuation was primarily due to premiums paid during 2023 in relation to the repurchase of 19 tankers which were previously under sale-leaseback arrangements and changes in foreign currency exchange rates related to our accrued tax and working capital balances, partially offset by an amount recognized in our favor in relation to a legal claim during 2023 and a payment made in relation to the settlement of a legal claim during 2022.
Income Tax Expense. Income tax expense was $12.6 million for the year ended December 31, 2023 compared to $2.2 million for the year ended December 31, 2022. The increase was primarily due to changes in vessel trading activities and higher gross revenues and net income during the year ended December 31, 2023, as well as lower recoveries during 2023 related to the expiry of the limitation period in certain jurisdictions. The increase was partially offset by the net change resulting from the reversal of certain freight tax liabilities during 2023 and 2022 based on an assessment of our tax position for a jurisdiction. For additional information, please read "Item 18 - Financial Statements: Note 18 - Income Tax Expense" of this Annual Report.
Liquidity and Capital Resources
Sources and Uses of Capital
We generate cash flows primarily from chartering out our vessels, from managing vessels for the Australian government and from providing management services to Teekay and certain third parties. We employ a chartering strategy for our tanker segment that seeks to capture upside opportunities in the tanker spot market while using fixed-rate time charters and FSL contracts to reduce potential downside risks. Our short-term charters and spot market tanker operations contribute to the volatility of our net operating cash flow, and thus may impact our ability to generate sufficient cash flows to meet our short-term liquidity needs. Historically, the tanker industry has been cyclical, experiencing volatility in profitability and asset values resulting from changes in the supply of, and demand for, vessel capacity. In addition, tanker spot markets historically have exhibited seasonal variations in charter rates. Tanker spot markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere and unpredictable weather patterns that tend to disrupt vessel scheduling. However, there can be other factors that override typical seasonality, such as global oil trade routes and tonne-mile demand being impacted by Russia's invasion of Ukraine. While exposure to the volatile spot market is the largest potential cause for changes in our net operating cash flow from period to period, variability in our net operating cash flow also reflects changes in interest rates, fluctuations in working capital balances, the timing and the amount of dry-docking expenditures, repairs and maintenance activities, the average number of vessels in service, including chartered-in vessels, and vessel acquisitions or vessel dispositions, among other factors. The number of vessel dry dockings varies each period depending on vessel maintenance schedules.
Our other primary sources of cash are long-term bank borrowings, lease or equity financings, and the proceeds from the sales of our older vessels.
As at December 31, 2024, we have one credit facility, our 2023 Revolver, and we had no vessels subject to finance leases. Our 2023 Revolver is described in "Item 18 - Financial Statements: Note 9 - Long-Term Debt" of this Annual Report. Our 2023 Revolver contains covenants and other restrictions that we believe are typical of debt financing collateralized by vessels, including those that restrict the relevant subsidiaries from: incurring or guaranteeing additional indebtedness; making certain negative pledges or granting certain liens; and selling, transferring, assigning or conveying assets. Our 2023 Revolver requires us to maintain certain financial covenants. The terms of and compliance with these financial covenants are described in further detail in "Item 18 - Financial Statements: Note 9 - Long-Term Debt" of this Annual Report. If we do not meet these financial or other covenants, the lenders may declare our obligations under the agreement immediately due and payable and terminate any further loan commitments, which depending upon our other liquidity at the time, could significantly affect our short-term liquidity requirements. As at December 31, 2024, we were in compliance with all covenants under our 2023 Revolver. Our 2023 Revolver requires us to make interest payments based on SOFR plus a margin. Depending upon the amount of our floating-rate credit facility and balance from time to time, significant increases in interest rates could adversely affect our results of operations and our ability to service our debt. From time to time, we use interest rate swaps to reduce our exposure to market risk from changes in interest rates. As at December 31, 2024, we were not committed to any interest rate swap agreements. The extent of our exposure to changes in interest rates is described in further detail in "Item 11 - Quantitative and Qualitative Disclosures About Market Risk" of this Annual Report.
Our primary uses of cash include the payment of operating expenses, dry-docking expenditures, costs associated with modifications to our vessels, funding our other working capital requirements, dividend payments on our common shares, repurchase of our common shares under our share repurchase program, providing funding to our equity-accounted joint venture from time to time, debt servicing costs, as well as scheduled repayments of long-term debt. In addition, we may use cash to acquire new or second-hand vessels. The timing of the acquisition of vessels depends on a number of factors, including newbuilding prices, second-hand vessel values, the age, condition and size of our existing fleet, the commercial outlook for our vessels and other considerations. As such, vessel acquisition activity may vary significantly from year-to-year.
Cash Flows
The following table summarizes our consolidated cash and cash equivalents provided by (used for) operating, financing and investing activities for the periods presented:
Year Ended December 31,
(in thousands of U.S. dollars) 2024 2023 2022
Net cash flow provided by operating activities 471,912 631,245 199,689
Net cash flow used for financing activities (343,398) (470,128) (113,048)
Net cash flow (used for) provided by investing activities (5,108) 17,263 51,216
Net Operating Cash Flow
The $159.3 million decrease in net operating cash flow for the year ended December 31, 2024, compared to the prior year, was primarily due to:
•a net decrease of $167.5 million in cash inflows primarily due to lower operating earnings during the year ended December 31, 2024, resulting from lower average realized spot tanker rates, the sale of three Aframax / LR2 tankers and one Suezmax tanker during the fourth quarter of 2023 and the year ended December 31, 2024, as well as more off-hire days related to the timing of scheduled dry dockings, partially offset by lower interest expense resulting from the repurchase of 27 tankers during the year ended December 31, 2023 and the first quarter of 2024, all of which were previously held under sale-leaseback arrangements, higher interest income, as well as higher operating earnings from our Australian operations; and
•an increase of $12.3 million in cash outflows related to expenditures for dry-docking activities during the year ended December 31, 2024 compared with the prior year;
partially offset by:
•a decrease of $20.4 million in cash outflows related to changes in net working capital during the year ended December 31, 2024.
The $431.6 million increase in net operating cash flow for the year ended December 31, 2023, compared to 2022, was primarily due to:
•an increase of $295.6 million in cash inflows primarily due to higher operating earnings during the year ended December 31, 2023, resulting from higher average realized spot tanker rates, the addition of five chartered-in vessels at various times between the third quarter of 2022 and the first quarter of 2023, certain vessels returning from time charter-out contracts and earning higher average spot rates during 2023 compared to previous fixed rates, fewer off-hire days related to fewer scheduled dry dockings, as well as higher earnings from our FSL dedicated vessels; and
•a decrease of $137.8 million in cash outflows related to changes in net working capital during the year ended December 31, 2023;
partially offset by:
•an increase of $1.8 million in cash outflows related to expenditures for dry-docking activities during the year ended December 31, 2023 compared with 2022.
Net Financing Cash Flow
The $126.7 million decrease in net cash flow used for financing activities for the year ended December 31, 2024, compared to the prior year, was primarily due to:
•a decrease of $256.1 million in cash outflows during the year ended December 31, 2024, primarily due to a decrease in prepayments and scheduled repayments on our finance lease obligations resulting from the repurchase of eight Suezmax tankers under their previous sale-leaseback financing agreements during the year ended December 31, 2024 compared to the repurchase of eight Suezmax tankers and 11 Aframax / LR2 tankers during the year ended December 31, 2023;
•a decrease of $4.5 million in cash outflows due to debt issuance costs paid in relation to the setup of the 2023 Revolver that was entered during the year ended December 31, 2023; and
•an increase of $2.9 million in cash inflows due to proceeds received upon the exercise of stock options during the year ended December 31, 2024;
partially offset by:
•an increase of $92.2 million in cash outflows related to our acquisition of the Acquired Operations from Teekay during the year ended December 31, 2024; and
•an increase of $43.3 million in cash outflows due to cash dividends on our common shares paid during the year ended December 31, 2024.
The $357.1 million increase in net cash flow used for financing activities for the year ended December 31, 2023, compared to 2022, was primarily due to:
•a net increase of $635.8 million in cash outflows during the year ended December 31, 2023, primarily resulting from the repurchases of 11 Aframax / LR2 tankers and eight Suezmax tankers under their previous sale-leaseback financing agreements and a decrease in cash inflows resulting from the sale-leaseback financing transactions completed during the year ended December 31, 2022, partially offset by a decrease in scheduled repayments on our finance lease obligations during the year ended December 31, 2023;
•an increase of $59.5 million in cash outflows due to cash dividends on our common shares paid during the year ended December 31, 2023;
•an increase of $5.4 million in cash outflows related to the Acquired Operations due to a distribution from Entities under Common Control to Teekay for the year ended December 31, 2023; and
•an increase of $4.5 million in cash outflows due to debt issuance costs paid in relation to the setup of the 2023 Revolver that was entered during the year ended December 31, 2023;
partially offset by:
•a decrease of $324.5 million in cash outflows due to a decrease in prepayments and repayments during the year ended December 31, 2023 on our revolving credit facilities and term loan (which was fully repaid during the year ended December 31, 2022); and
•a decrease of $25.0 million in cash outflows due to a decrease in net repayments during the year ended December 31, 2023 for our working capital loan facility (which was voluntarily cancelled in September 2023).
Net Investing Cash Flow
The $22.4 million decrease in net cash flow provided by investing activities for the year ended December 31, 2024, compared to the prior year, was primarily due to:
•an increase of $70.5 million in cash outflows resulting from the acquisition of one Aframax / LR2 tanker during the year ended December 31, 2024;
•an increase of $21.0 million in cash outflows resulting from an investment in marketable securities during the year ended December 31, 2024; and
•a decrease of $1.4 million in cash inflows resulting from a partial loan repayment from our equity-accounted joint venture during the year ended December 31, 2024 compared to the prior year;
partially offset by:
•an increase of $65.2 million in cash inflows resulting from higher net proceeds received from the sale of two Aframax / LR2 tankers and one Suezmax tanker during the year ended December 31, 2024 compared to net proceeds received from the sale of one Aframax / LR2 tanker during the year ended December 31, 2023; and
•a decrease of $5.4 million in cash outflows resulting from lower capital expenditures for the fleet during the year ended December 31, 2024.
The $34.0 million decrease in net cash flow provided by investing activities for the year ended December 31, 2023, compared to 2022, was primarily due to:
•a decrease of $46.1 million in cash inflows resulting from net proceeds received from the sale of one Aframax / LR2 tanker during the year ended December 31, 2023 compared to higher net proceeds received from the sale of one Suezmax tanker and three Aframax / LR2 tankers during the year ended December 31, 2022;
partially offset by:
•a decrease of $5.2 million in cash outflows resulting from lower capital expenditures for the fleet during the year ended December 31, 2023; and
•an increase of $3.9 million in cash inflows resulting from loan repayments from our equity-accounted joint venture during the year ended December 31, 2023, as well as a decrease of $3.0 million in cash outflows due to an advance provided to our equity-accounted joint venture during the year ended December 31, 2022.
Liquidity
Our primary sources of liquidity are cash and cash equivalents, net operating cash flow, our undrawn credit facility and capital raised through financing transactions. The primary objectives of our cash management policy are to preserve capital, to ensure that cash investments can be sold readily and efficiently, and to provide an appropriate return. The nature and extent of amounts that can be borrowed under our 2023 Revolver are described in "Item 18 - Financial Statements: Note 9 - Long-Term Debt" of this Annual Report.
In May 2023, we announced a capital allocation plan, which, after repaying debt, aims to provide sufficient capital for fleet renewal. As part of this plan, our Board of Directors approved the initiation of a regular, fixed quarterly cash dividend in the amount of $0.25 per outstanding Class A and B common share. Pursuant to this dividend policy, our Board of Directors declared a regular cash dividend of $0.25 per common share commencing with the first quarter of 2023. In addition, our Board of Directors declared a special cash dividend of $1.00 per common share in May 2023 and another special cash dividend of $2.00 per common share in May 2024. In May 2023, our Board of Directors also authorized a new share repurchase program for the repurchase of up to $100 million of our outstanding Class A common shares to be utilized at our discretion. As at December 31, 2024, no shares were repurchased under this program.
Our total consolidated liquidity, including cash, cash equivalents and undrawn credit facilities, increased by $78.8 million during the year ended December 31, 2024 from $687.1 million at December 31, 2023 to $765.9 million at December 31, 2024. The increase was primarily a result of the following events or changes during the year ended December 31, 2024: $440.6 million of net operating cash inflow; $88.8 million of net proceeds received from the sale of two Aframax / LR2 tankers and one Suezmax tanker; $49.5 million of cash acquired as part of the Acquired Operations; $2.9 million of proceeds received upon the exercise of stock options; and $2.5 million of loan repayments from our equity-accounted joint venture; partially offset by a $137.0 million payment for the repurchase of eight Suezmax tankers that were previously under sale-leaseback arrangements; $102.8 million of cash dividends paid on our common shares; $92.2 million paid for the acquisition of the Acquired Operations from Teekay; $70.5 million paid for the acquisition of one Aframax / LR2 tanker; $67.8 million of reduction in the borrowing capacity of our 2023 Revolver; $21.0 million paid for an investment in marketable securities; $5.2 million of scheduled repayments of obligations related to finance leases; and $4.8 million of expenditures for capital upgrades for vessels and equipment.
We anticipate that our liquidity as at December 31, 2024, combined with cash we expect to generate for the 15 months following such date, will be sufficient to meet our cash requirements for at least the one-year period following the date of this Annual Report.
Our 2023 Revolver matures in May 2029, and there was no amount outstanding under the facility as at December 31, 2024. Our ability to refinance our 2023 Revolver will depend upon, among other things, the estimated market value of our vessels, our financial condition and the condition of credit markets at such time. In addition, as at December 31, 2024, we did not have any capital commitments related to the acquisition of new or second-hand vessels. In February 2025, we signed an agreement to acquire one 2019-built Aframax / LR2 tanker for a purchase price of $63.0 million, and we have a purchase commitment related to this vessel acquisition. We expect to take delivery of this vessel during the second quarter of 2025. Approximately 60% of our fleet is currently aged 15 years and older, and we may continue the process of fleet renewal in the coming years. We expect that any fleet renewal expenditures will be funded using cash on hand, the undrawn revolving credit facility and new financing arrangements, including bank borrowings, finance leases and, potentially, the issuance of debt and equity securities.
The following table summarizes our contractual obligations as at December 31, 2024:
Total 2025 2026 2027 2028 2029
(in millions of U.S. dollars)
U.S. Dollar-Denominated Obligations
Chartered-in vessels (operating leases) (1)
93.8 43.4 21.1 13.4 8.5 7.4
Total 93.8 43.4 21.1 13.4 8.5 7.4
(1)Excludes payments required if we exercise options to extend the terms of in-chartered leases signed as of December 31, 2024.
Other risks and uncertainties related to our liquidity include changes to income tax legislation or the resolution of uncertain tax positions relating to freight tax liabilities as described in "Item 18 - Financial Statements: Note 18 - Income Tax Expense" of this Annual Report, which risks and uncertainties could have a significant financial impact on our business, which we cannot predict with certainty at this time. In addition, as at December 31, 2024, the High-Q joint venture had a loan outstanding with a financial institution with a balance of $16.9 million, and we guarantee 50% of the outstanding loan balance. Finally, existing or future climate control legislation or other regulatory initiatives that restrict emissions of greenhouse gases could have a significant financial and operational impact on our business, which we cannot predict with certainty at this time. Such regulatory measures could increase our costs related to operating and maintaining our vessels and require us to install new emission controls, acquire allowances or pay taxes related to our greenhouse gas emissions, or administer and manage a greenhouse gas emissions program. The inclusion of the maritime industry in the European Union Emissions Trading System (or EU ETS) as of January 1, 2024, requires us to acquire allowances related to our greenhouse gas emissions. (Please see "Item 18 - Financial Statements: Note 1 - Summary of Significant Accounting Policies", "Item 18 - Financial Statements: Note 7 - Goodwill and Intangible Assets" and "Item 18 - Financial Statements: Note 8 - Accrued Liabilities and Other Long-Term Liabilities" of this Annual Report.) In addition to the EU ETS, the introduction of the FuelEU Maritime regulation by the European Union as of January 1, 2025, will require us to pay a financial penalty in relation to certain voyages when not using low emission intensity fuels, for which the impact on our business is not determinable with certainty at this time. Increased regulation of greenhouse gases may, in the long-term, lead to reduced demand for oil and reduced demand for our services.
Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with GAAP, which requires us to make estimates in the application of our accounting policies based on our best assumptions, judgments and opinions. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments in an effort to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties. For a further description of our material accounting policies, please read "Item 18 - Financial Statements: Note 1 - Summary of Significant Accounting Policies" included in this Annual Report.
Revenue Recognition
Description.We recognize voyage revenue on either a load-to-discharge or discharge-to-discharge basis. Voyage revenues are recognized ratably from the beginning of when product is loaded to when it is discharged (unloaded) if using a load-to-discharge basis, or from when product is discharged at the end of the prior voyage to when it is discharged after the current voyage, if using a discharge-to-discharge basis. However, we do not begin recognizing revenue for any of our vessels until a charter has been agreed to by the customer and us, even if the vessel has discharged its cargo and is sailing to the anticipated load port on its next voyage.
Judgments and Uncertainties.Whether to use the load-to-discharge basis or the discharge-to-discharge basis depends on whether the customer directs the use of the vessel throughout the period of use, pursuant to the terms of the voyage charter. This is a matter of judgement. However, we believe that if the customer has the right to direct the vessel to different load and discharge ports, among other things, a voyage charter contract contains a lease, and the lease term begins on the later of the vessel's last discharge or inception of the voyage charter contract. As such, in this case revenue is recognized on a discharge-to-discharge basis. Otherwise, it is recognized on a load-to-discharge basis. As at December 31, 2024, 2023 and 2022, revenue from voyages then in progress were recognized on a discharge-to-discharge basis.
Effect if Actual Results Differ from Assumptions.If our assessment of whether the customer directs the use of the vessel through-out the period of use is not consistent with actual results, then the period over which voyage revenue is recognized would be different and as such our revenues could be overstated or understated for any given period by the amount of such difference. Had revenue from voyages in progress been recognized on a load-to-discharge basis, our income from operations for the year ended December 31, 2024 would have increased by $1.8 million.
Vessel Depreciation
Description.The carrying value of each of our vessels represents its original cost at the time of delivery or purchase less depreciation and impairment charges. We depreciate the original cost, less an estimated residual value, of our vessels on a straight-line basis over each vessel's estimated useful life. The carrying values of our vessels may not represent their market value at any point in time because the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings, among other factors. Both charter rates and newbuilding costs tend to be cyclical in nature.
Judgments and Uncertainties.For the years ended December 31, 2024, 2023 and 2022, depreciation was calculated using an estimated useful life of 25 years, commencing on the date the vessel is delivered from the shipyard. The estimated useful life of our vessels involves an element of judgment, which takes into account design life, commercial considerations and regulatory restrictions.
Effect if Actual Results Differ from Assumptions.The actual life of a vessel may be different than the estimated useful life, with a shorter actual useful life resulting in an increase in depreciation expense and potentially resulting in an impairment loss. A longer actual useful life will result in a decrease in depreciation expense. Had we depreciated our vessels using an estimated useful life of 20 years instead of 25 years effective December 31, 2023, our depreciation for the year ended December 31, 2024 would have increased by approximately $58.9 million.
Vessel Impairment
Description.We review vessels and equipment for impairment whenever events or circumstances indicate the carrying value of an asset, including the carrying value of the charter contract, if any, under which the vessel is employed, may not be recoverable. This occurs when the asset's carrying value is greater than the future estimated undiscounted cash flows the asset is expected to generate over its remaining useful life. If the estimated future undiscounted cash flows of an asset exceed the asset's carrying value, no impairment is recognized even though the fair value of the asset may be lower than its carrying value. If the estimated future undiscounted cash flows of an asset are less than the asset's carrying value and the fair value of the asset is less than its carrying value, the asset is written down to its fair value. Fair value is determined based on appraised values or discounted cash flows. In cases where an active second-hand sale and purchase market exists, an appraised value is generally the amount we would expect to receive if we were to sell the vessel. The appraised values are provided by third parties where available or prepared by us based on second-hand sale and purchase market data. In cases where an active second-hand sale and purchase market does not exist, or in certain other cases, fair value is calculated as the net present value of estimated future cash flows, which, in certain circumstances, will approximate the estimated market value of the vessel. For a vessel under charter, the discounted cash flows from that vessel may exceed its market value, as market values may assume the vessel is not employed on an existing charter.
Judgments and Uncertainties.Our evaluation of events or circumstances that may indicate impairment, include, amongst others, an assessment of the intended use of the assets and anticipated operating cash flows, which is primarily influenced by the estimate of future charter rates for the vessels. Our estimates of future undiscounted cash flows used to determine whether a vessel's carrying value is recoverable involve assumptions about future charter rates, vessel utilization, operating expenses, dry-docking expenditures, vessel residual values, the probability of the vessel being sold and the remaining estimated life of our vessels. Our estimated charter rates are based on rates under existing vessel contracts and market rates at which we expect we can re-charter our vessels. Such market rates for the first three years are based on prevailing market 3-year time-charter rates and thereafter, a 10-year historical average of actual spot-charter rates earned by our vessels. Our estimated charter rates are discounted for the years when the vessel age is 15 years and older, as compared to the estimated charter rates for years when the vessel is younger than 15 years. Such discounts primarily reflect expectations of lower utilization for older vessels. During the fourth quarter of 2024, we changed our historical reference period used to estimate future charter rates from the average of the most recent ten historical years, adjusted to exclude years which management determined are outliers, to the average of the most recent ten historical years, without excluding any years. This update related to how we determine the 10-year historical average did not result in a material change to our estimated future charter rates.
Our estimates of vessel utilization, including estimated off-hire time, are based on historical experience. Our estimates of operating expenses and dry-docking expenditures are based on historical operating and dry-docking costs as well as our expectations of future inflation, operating and maintenance requirements, and our vessel maintenance strategy. Vessel residual values are a product of a vessel's lightweight tonnage and an estimated scrap rate per tonne. The probability of a vessel being sold is based on our current plans and expectations. The remaining estimated lives of our vessels used in our estimates of future cash flows are consistent with those used in the calculations of depreciation.
In our experience, certain assumptions relating to our estimates of future cash flows are more predictable by their nature, including estimated revenue under existing contract terms, on-going operating costs and remaining vessel life. Certain assumptions relating to our estimates of future cash flows require more judgement and are inherently less predictable, such as future charter rates beyond the firm period of existing contracts, the probability and timing of vessels being sold and vessel residual values, due to their volatility. We believe that the assumptions used to estimate future cash flows of our vessels are reasonable at the time they are made. We can make no assurances, however, as to whether our estimates of future cash flows, particularly future vessel charter rates or vessel values, will be accurate.
Effect if Actual Results Differ from Assumptions.If we conclude that a vessel or equipment is impaired, we recognize a loss in an amount equal to the excess of the carrying value of the asset over its fair value at the date of impairment. The written-down amount becomes the new lower cost basis and will result in a lower annual depreciation expense than for periods before the vessel impairment. Consequently, any changes in our estimates of future undiscounted cash flows may result in a different conclusion as to whether a vessel or equipment is impaired, leading to a different impairment amount, including no impairment, and a different future annual depreciation expense.
Consistent with our methodology in prior years, we have determined that none of our vessels have a market value less than their carrying value as of December 31, 2024. The recognition of an impairment in the future for our vessels may depend on future vessel values and charter rates, vessel utilization, operating expenses, dry-docking expenditures, vessel residual values, the probability of the vessel being sold and the remaining estimated life of our vessels.
Taxes
Description.The expenses we recognize relating to taxes are based on our income, statutory tax rates and our interpretations of the tax regulations in the various jurisdictions in which we operate. We review our tax positions quarterly and adjust the balances as new information becomes available.
Judgments and Uncertainties. We recognize the tax benefits of uncertain tax positions only if it is more likely than not that a tax position taken or expected to be taken in a tax return will be sustained upon examination by the taxing authorities, including resolution of any related appeals or
litigation processes, based on the technical merits of the position. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in evaluating uncertainties.
Effect if Actual Results Differ from Assumptions. If we determined that an uncertain tax position was sustained upon examination, and such amount was in excess of the net amount previously recognized, we would increase our net income or decrease our net loss in the period such determination was made. Likewise, if we determined that an uncertain tax position was not sustained upon examination, we would typically decrease our net income or increase our net loss in the period such determination was made. See "Item 18 - Financial Statements: Note 18 - Income Tax Expense" of this Annual Report. As at December 31, 2024, the total amount of recognized uncertain tax liabilities was $41.4 million (December 31, 2023 - $47.8 million). If the uncertainty about these freight tax liabilities is resolved in the our favor, we would concurrently reverse these liabilities.
Non-GAAP Financial Measures
Net Revenues - Tankers
Net revenues is a non-GAAP financial measure. Consistent with general practice in the shipping industry, we use "net revenues" (defined as income or loss from operations before vessel operating expenses, charter hire expenses, depreciation and amortization, general and administrative expenses, gain or loss on sale and write-down of assets, and restructuring charges) as a measure of equating revenues generated from voyage charters to revenues generated from time charters, which assists us in making operating decisions about the deployment of our vessels and their performance. Since under time charters the charterer pays the voyage expenses, whereas under voyage charters, the ship-owner pays these expenses, we include voyage expenses in net revenues. Some voyage expenses are fixed, and the remainder can be estimated. If we, as the ship owner, pay the voyage expenses, we typically pass the approximate amount of these expenses on to our customers by charging higher rates to them. As a result, although revenues from different types of contracts may vary, the net revenues are comparable across the different types of contracts. We principally use net revenues because it provides more meaningful information to us than income from operations, the most directly comparable GAAP financial measure. Net revenues is also widely used by investors and analysts in the shipping industry for comparing financial performance between companies and to industry averages. The following table reconciles net revenues with income from operations.
Year Ended December 31,
(in thousands of U.S. Dollars) 2024 2023 2022
Tankers
Income from operations 365,461 535,910 255,949
Add (subtract) specific items affecting income from operations:
Vessel operating expenses 150,605 148,960 150,448
Charter hire expenses 74,379 70,836 27,374
Depreciation and amortization 93,582 97,551 99,033
General and administrative expenses 48,833 45,936 41,769
Gain on sale and write-down of assets (38,080) (10,360) (8,888)
Restructuring charges 5,952 1,248 1,822
Net revenues 700,732 890,081 567,507
EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA are non-GAAP financial measures. EBITDA represents net income or loss before net income or loss attributable to the Entities under Common Control, interest, taxes, depreciation and amortization. Adjusted EBITDA represents EBITDA before gain or loss on sale and write-down of assets, realized gain or loss on interest rate swaps, unrealized gain or loss on derivative instruments, equity income or loss, and certain other income or expenses. EBITDA and Adjusted EBITDA are used as supplemental financial performance measures by management and by external users of our financial statements, such as investors. EBITDA and Adjusted EBITDA assist our management and investors by increasing the comparability of our fundamental performance from period to period and against the fundamental performance of other companies in our industry that provide EBITDA or Adjusted EBITDA-based information. This increased comparability is achieved by excluding the potentially disparate effects between periods or companies of interest expense, taxes, depreciation or amortization (or other items in determining Adjusted EBITDA), which items are affected by various and possibly changing financing methods, capital structure and historical cost basis and which items may significantly affect net income between periods. We believe that including EBITDA and Adjusted EBITDA benefits investors in (a) selecting between investing in us and other investment alternatives and (b) monitoring our ongoing financial and operational strength and health in order to assess whether to continue to hold our equity.
Neither EBITDA nor Adjusted EBITDA should be considered an alternative to net income, operating income, or any other measure of financial performance presented in accordance with GAAP. EBITDA and Adjusted EBITDA exclude some items that affect net income and operating income, and these measures may vary among other companies. Therefore, EBITDA and Adjusted EBITDA as presented below may not be comparable to similarly titled measures of other companies.
The following table reconciles our consolidated EBITDA and Adjusted EBITDA to net income.
Year Ended December 31,
(in thousands of U.S. Dollars) 2024 2023 2022
Reconciliation of "EBITDA" and "Adjusted EBITDA" to "Net income"
Net income 403,667 519,890 235,427
Subtract:
Net income attributable to the Entities under Common Control (i)
(11,744) (6,219) (6,341)
Net income attributable to shareholders of Teekay Tankers 391,923 513,671 229,086
Depreciation and amortization 93,582 97,551 99,033
Interest expense, net of interest income (15,355) 17,528 34,402
Income tax (recovery) expense (3,683) 9,492 529
EBITDA 466,467 638,242 363,050
Gain on sale and write-down of assets (38,080) (10,360) (8,888)
Realized gain on interest rate swap - (953) (532)
Realized gain from early termination of interest rate swap - (3,215) -
Unrealized loss on derivative instruments - 3,709 (3,163)
Equity income (2,767) (3,432) (244)
Other income (ii)
(4,770) (429) (2,128)
Adjusted EBITDA 420,850 623,562 348,095
(i)For information on Entities under Common Control, please see "Item 18 - Financial Statements: Note 3 - Acquisition of Entities under Common Control"
(ii)The amount recorded for the year ended December 31, 2024, primarily relates to foreign exchange gains, recoveries related to the settlement of prior year claims, an unrealized gain on investment in marketable securities, and the premium paid as part of the exercise of early purchase options in relation to the repurchase of certain sale-leaseback vessels. The amount recorded for the year ended December 31, 2023, primarily relates to the settlement of a legal claim, foreign exchange gains, and the premium paid as part of the exercise of early purchase options in relation to the repurchase of certain sale-leaseback vessels. The amount recorded for the year December 31, 2022 primarily relates to foreign exchange gains and an expense related to the settlement of a legal claim.