Been a busy week for tanker company reporting and/or news- Teekay parent, its three subsidiaries, FRO, and a surprise move by NNA. I had originally planned on reviewing Teekay Offshore (TOO), butI have opted to look at TNK first. An idea that I own takes priority over a potential idea.Last year, I reviewed some tanker companies twice, once during each half of the year. TeekayTankers (TNK) was one of those ideas, with a revisit in early October 2012.http://boards.fool.com/revisiting-tnk-in-2012-30296675.aspxAs mentioned, I was concerned about the company have a bad Q3 earning report ahead of theseasonally rough Q3. The stock was trading around $3.75/sh when October 2012 started, and lostabout a third of its value when the company reported results about six weeks later. As predicted,it was a rough quarter, and results included a dividend cut. Since the company had a variabledividend policy in effect in 2012, the dividend cut didn't surprise me. The severity of thedividend cut, 11c/sh => 2c/sh did surprise me. I also questioned the rosy picture that TNK tried to portray on the 13-vessel acquisitionof vessels from Teekay parent (TK) implemented during the first half of 2012. That chartercoverage ratio was carefully worded. If one was not paying attention one missed it. Theproduct tankers seem to be helping the mix, but is this a short-term phenomena, or can itbe sustained over a year or two? No idea. But let me lay the table afresh for 2013.Teekay Corporation (TK) has three publicly traded subsidiaries, and Teekay Tankers (TNK) isthe newest and the smallest of the three. TNK started out just operating mid-sized (Aframaxand Suezmax) vessels in 2007. Over the years, TNK added other pieces to its business. These include,1. Financing a pair of ship mortgages- a three-year deal that expires in mid 20132. From time-to-time, having a couple of charter-in vessels- some risk, but it saves on hugecapex spending3. A joint-venture project, a 50% interest to acquire a Very Large Crude Carrier (VLCC)-vessel delivers in 2013, and has a medium-term charter in place.Not really a separate item, but a tweak of the main business- the 2012 13-vessel acquisitionincluded 6 vessels on the product/refined fuel side of the tanker business.Let me break down the fleet11 Aframax vessels10 Suezmax vessels 3 Long Range (LR2) vessels- similar size as an Aframax, but carries refined fuels 3 Medium Range (MR2) vessels - also product vessels, carry about half the capacity of an LR2 2 charter-in Aframax vesselsThe vessels range in age from 3 1999-built Aframax vessels to a 2009-built Suezmax,or 13.5 - 3.5 year old vessels. In Jan 2013, TNK disposed a 1998-built Aframax for $9.1M. As mentioned in another thread, this vessel had an upcoming dry-docking, but I stillthink it sold for less than its worth. Maybe not too big a surprise in a bloated tanker market.Earlier, I talked about the variable dividend policy. When TNK reported their Q4 2012 results, the dividend got bumped up to 3c/sh. Company management thenadded, the dividend policy going forward was a fixed dividend. They said 12c/sh, or 3c/sh quarterly starting in Q1 2013. Now understand, "fixed" can be interpreted two ways,fixed for the year (quarterly payout the same each quarter in a given year), or fixed fora given year (12c in 2013 does not automatically mean 12c in 2014). Why do I point this out?Let me just say quirky nuances on how Teekay or TNK management choose to phrase things(Slide 11)http://teekaytankers.com/files/presentations/2012/TNK%20Q4-1...Why did TNK put the word "initially" in there? FWIW, it may mean nothing. They couldjust be saying the 12c/sh dividend is fixed for 2013. Next year could be the same (12c/sh),... or higher, ... or lower :)The second big item in the Q4 2012 release was the impairment charge on some vessels, a totalof $325M worth. Okay, that's a huge amount- I mean, vessels and equipment went from$1.266B (end of Q3) => $886M (end of Q4). Again, not too shocking to me. My first takein Nov 2012 was $1.034B, and a monthly shipping broker report forced me to reprice it lowerabout a week later. Now let us understand. One is trying to price second-hand vessels-of different ages, of different sizes, different quality (built at different yards), operated differently, probably slightly different maintenance, etc. When all is said and doneI think a reasonable outcome is to say, I have a range of values and that range encompassesa high probability (say 85% - 95%) of being right. Let me just say the second calculation gaveme a net asset value around $2.91/sh on the lower side, and lowballing the JV VLCC. So I hada range $2.91 - $5.17 determined during a week's time, but a lot of things had to be going right to get $5.17/sh. That was late Nov 2012.So where does TNK go in 2013?Before I get to my new value range, let me mention a few things. The older Aframax hadbeen a concern of mine in December 2012. The vessel disposal was a double-edge sword.I was glad it was sold, just not pleased with the price. Perhaps I made a miscalculation,but I did end up with the lower value under $2. Not sure if I trust that number, so Itried again today. My updated range is $2.16 - $3.80/sh valid through mid-2013.Why mid-2013? Well, in mid-2013, the VLCC ship mortgage deals expire. That was a $2.8M quarterlyinfusion that went to TNK's bottom line. Can TNK replace that cash flow? Well, some of itwill likely be replaced by the VLCC JV project. Definitely not all of it, since TNK is onlya 50% partner in the JV. The earnings presentation included the dry-dock schedule- 9vessels taken off-line in 2013, 1/3 of TNK's fleet, at various times of the year. I suppose5 of them occurring during the normally rough Q3 might be a positive. Although I have a value as high as $3.80/sh for TNK, it really expects many things to go right. I'm not really sure I see that at this time. Does parent company, TK, have anyplans for TNK? They hold a stake in TNK. Will they be proactive in boosting theirinvestment? Just thing aloud, buying shares of a subsidiary with a higher yield than TK's yield, could pay off in more than one way.Holding small TNK position.HoHum
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