Teekay Corporation (TK) Earnings

Management highlights

### Financial Results and Balance Sheet - Achieved record quarterly adjusted net income and all-time high average spot tanker rates for Q2 2026, with 50% higher net income compared to the prior quarter. - Generated ~$200 million in operating free cash flow, growing total cash to over $1.2 billion with zero debt as of quarter end, creating significant financial flexibility and optionality. - Declared a regular fixed quarterly dividend of $0.25 per share, maintaining the base dividend level that has been in place since early 2023. ### Fleet Renewal and Operational Updates - Continued executing on a disciplined fleet renewal strategy, selling older higher-cost vessels to recycle capital into modern new assets. In the past 12 months, 9 older vessels have been sold for $369.5 million for total realized gains of $125 million, while 7 modern vessels (including two Korean Suezmax newbuilds delivering in 2027) have been acquired or committed for ~$427 million total. - Completed two Suezmax newbuild acquisitions and one older Suezmax sale during Q2 2026, and completed a previously announced VLCC sale in early July 2026. All three Afromax vessels acquired at the start of 2026 have completed redelivery from bareboat charters and are now operating under TK management in the strong spot market. - The firm's average fleet age has been reduced while maintaining high operating leverage to the spot tanker market, supported by a low free cash flow breakeven of ~$9,700 per day over the next 12 months. ### Market Conditions - Q2 2026 spot tanker rates hit all-time record highs, 50% above the previous record set in Q1 2023. Suezmax rates have remained near record levels in early Q3, while Afromax rates softened mid-Q2 due to tonnage buildup and limited arbitrage in the Atlantic before rebounding to over $100,000 per day in July. - Multiple ongoing geopolitical disruptions to global oil trade flows (including hostilities in the Strait of Hormuz, Houthi attacks in the Red Sea, and attacks on Russian Black Sea oil infrastructure) have created widespread trading inefficiencies, extended voyage distances, and taken tonnage off-line, all of which have supported elevated spot tanker rates. - Global OECD oil and strategic inventories are at a 20-year low, with U.S. Strategic Petroleum Reserve inventories at a 43-year low. The eventual replenishment of these depleted inventories is expected to provide a significant boost to future tanker demand. - On the supply side, the current order book stretches to 2030 following elevated newbuilding activity in 2026, but scrapping pressure is growing on the older dark fleet amid increased regulatory scrutiny. The average age of the global midsize tanker fleet is the oldest it has been in over 30 years, and future removal of these older vessels is expected to offset the impact of new vessel deliveries in coming years.

Guidance

Management did not issue full-year formal guidance, but provided the following forward-looking updates: - As of the Q2 earnings call, approximately 44% of Q3 2026 spot voyage dates have been secured at average fixed rates of $104,800 per day for the Suezmax fleet and $59,900 per day for the Afromax LR2 fleet. - The firm projects 260 total off-hire days in Q3 2026 related to scheduled dry dockings, with operating expenses and G&A expected to be $3 million lower in Q3 compared to Q2 2026, alongside slightly lower projected tax expense. - Management maintains that any material contribution to tanker demand from global inventory restocking will depend on a resolution of current Middle East geopolitical disruptions; when restocking begins, it is expected to provide a material long-term tailwind to the tanker market. - Management maintains that the removal of older vessels from the global fleet will offset the impact of new tanker deliveries in coming years, supporting a balanced medium-term supply outlook.

Segment performance

TK Tankers, the only reported operating segment, posted a reported net income of $226 million ($6.49 per diluted share) and an adjusted net income of $194 million ($5.56 per diluted share) for Q2 2026, which was 50% higher than the prior quarter and represented an all-time record high quarterly adjusted net income for the firm. The segment generated approximately $200 million in free cash flow from operations during the quarter, bringing the total cash position to over $1.2 billion with no outstanding debt as of quarter end. Average spot rates hit record levels for the quarter: $109,200 per day for the Suezmax fleet and $74,100 per day for the Afromax LR2 fleet, with an overall average midsize tanker rate of approximately $91,000 per day. A gain of $32.3 million was recorded on the sale of one 2009-built Suezmax vessel during the quarter, and an expected gain of approximately $23 million from a VLCC sale completed in early July will be recorded in Q3 2026.

Risks & headwinds

Geopolitical and operational risks: - Ongoing attacks on commercial vessels in three critical global oil trade chokepoints (Strait of Hormuz, Red Sea, Black Sea) create direct safety risks for crews and vessels, and lead to heightened spot rate volatility and uncertainty around future trade flows. - Geopolitical hostilities in the Strait of Hormuz have caused sharp reductions in transit volumes, and the ongoing uncertain situation creates unpredictability for global oil supply and tanker demand. - Near-term market conditions remain highly complex, unpredictable, and heavily influenced by geopolitical events that cannot be forecast accurately. Strategic risks: - Elevated asset prices for modern tankers in the current strong market environment means disciplined capital allocation is required to continue fleet renewal at attractive entry points. - Scheduled dry dockings in Q3 2026 cannot be further delayed despite current record high rates, leading to planned off-hire that will reduce available tonnage for revenue generation in the quarter.

Analyst Q&A

• Q: In the new trade dynamic where Saudi crude is increasingly routed through the Mediterranean following Red Sea/Strait of Hormuz disruptions, how do Suezmax and Afromax segments fit into long-term demand, especially as VLCC activity has grown to handle these new cargo flows?

  A: Current trade patterns are unprecedented, but Suezmax vessels have performed extremely well, trailing VLCC rate growth, and their flexibility makes them ideal for new routes: VLCCs can only transit the Suez Canal partially laden, requiring additional transfers, so Suezmax vessels are often more economical for shorter routes with standard-sized cargo parcels. Afromax vessels traditionally fill smaller cargo/port slots that Suezmax vessels cannot access. While Afromax rates diverged from Suezmax rates mid-quarter, Afromax rates have rebounded recently and are now matching or exceeding Suezmax rates in recent fixtures, with all three vessel classes currently performing very well.

• Q: Given record earnings and a much stronger balance sheet than when the $0.25 base quarterly dividend was set in 2023, will management revisit the base dividend level?

  A: Management is comfortable with the current cadence of a fixed base dividend plus annual special dividends reviewed after the first quarter each year, and does not expect this cadence to change. However, the unprecedented current cash generation has intensified capital allocation discussions with the board of directors, as the firm has generated substantial excess cash. Management remains focused on disciplined fleet renewal first, but recognizes shareholder priorities for returning excess cash and will evaluate dividend levels as part of ongoing annual reviews.

• Q: Have operational or insurance changes been made in response to elevated security risks in multiple key shipping regions, and are inventory drawdowns continuing in Q3 2026?

  A: TK prioritizes crew and vessel safety above all, and has already proactively avoided transits through high-risk areas including the Strait of Hormuz and southbound Red Sea for some time. The number of regions classified as unsafe is higher than at any point in history, leading to greater trade inefficiencies that support elevated rates. Regarding inventories, drawdowns are continuing in Q3 2026 amid ongoing supply disruptions at the Strait of Hormuz. Restocking will only begin once the Middle East situation is resolved; when it does, large-scale replenishment of 20-year low OECD inventories will create significant additional tanker demand.

• Q: Can you share assumptions behind Q3 2026 guidance, and will you delay scheduled Q3 dry dockings to take advantage of current record high rates?

  A: Dry dockings were already pushed back from Q2 to Q3, and there is very little remaining flexibility to delay further, as regulatory anniversaries require the work to be completed this year. TK will complete dry dockings as scheduled, and will focus on fast turnaround to return vessels to service quickly. For guidance, 260 off-hire days are planned for dry dockings, and all unfixed spot days are projected to trade at prevailing market rates. Operating and G&A costs are expected to be $3 million lower than Q2, with slightly lower tax expense expected as well.