Q3 2022 Frontline Ltd Earnings Call
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[music].
Yeah.
Good day and thank you for standing by welcome to the Q3 2022 frontline limited earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one.
and thank you for standing by. Welcome to the Q3 2022 Frontline Limited earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised.
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I didn't have an automated message advisor in your hand is Reyes. Please be advised that today's conference is being recorded I would now like turn the conference over to your speaker today CEO . Mr lost Pos side could you just go ahead.
Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. See you Mr. Last Bastard, please go ahead.
Thank you very much and good morning, Good afternoon, Joe welcome to Frontline's third quarter earnings call.
Thank you very much. Good morning and good afternoon to you all. Welcome to Frontline's third quarter earnings call. It's quite gratifying to be able to report from a corner of the market that sees spectacular earnings these days. I have jokingly referred to tankers as a safe heaven during market turmoil. Well, it's proven true the last six months.
Its quite gratifying to be able to report from a corner if the markets, let's see it's a spectacular earnings these days.
I've jokingly referred to tankers as a safe Haven during market turmoil well, it's proven true the last six months.
In the third quarter, we saw all the asset classes frontline trade is starting to perform.
In the third quarter we saw all the asset classes from plant traders starting to perform.
I'd say, starting as there has been some water under the bridge since September .
Yeah.
I say starting as there has been some water under the bridge since end September .
There are three key headlines I will talk more about later in this presentation.
Product displacement due to the sanctions on Russia, Chinese imports starting to Rick <unk>.
There are three key headlines I'll talk more about later in this presentation. Crude and product displacement due to the sanctions on Russia, Chinese imports starting to recoup lost terrain from COVID-19 lockdowns, and the US export situation.
Lost terrain from Covid, 19, Lockdowns and the U S export situation.
Before we get to the third quarter financials, and a place to head, let's have a look at the highlights on slide three in the deck.
Before we get to the third quarter financials and what lays ahead, let's have a look at the highlights on slide 3 in the deck.
In the third quarter frontline achieved $25000 per day on our VLCC fleet.
In the third quarter Frontline achieved $25,000 per day on our BLTC fleet.
$41100 per day on our Suezmax fleet and $14200 per day from our LR shoot slash Aframax fleets.
$41,100 per day on our SUSMIC fleet and $40,200 per day on our LR2-AFRA MIC fleet.
So far in the first quarter of 2020, sorry in the third quarter of 2022 were booked 75% of our VLCC days at a solid $77200 per day.
So far in the third quarter of 2022, we have booked 75% of our VLCC days at a solid $77,200 per day, 76% of our SUSMAX days at $65,400 per day, and 70% of our LR2 slash APRA MAX days.
76% of our Suezmax days of $65400 per day.
70% of our ally to slash Aframax days cool $58000 per day.
And again all numbers in this table are on the load to discharge basis.
at a cool $58,000 per day.
Will be affected by the amount of ballast days, we end up having at the end of the quarter.
And again, all numbers in this table are on a low to discharge basis and will be affected by the amount of ballast days we end up having at the end of the quarter. But it does hint to an OK Q4 regardless.
But it does hinge to an okay Q4, regardless.
If we quickly jump to slide 4 in the deck, I'll repeat a few key points on the frontline fleet composition.
Okay.
[noise].
Uh huh.
Mind kind of all the listeners that we continue to have one of the youngest demo center.
I just want to remind all the listeners that we continue to have one of the youngest and most...
We have won.
Seed a few new new buildings during the year and there are two more to come in January on the VLCC side.
in the jet fuel industry.
We have received a few new buildings during the year and there are two more to come in January on the VLCC side.
Post delivery I'm coast installment of scrubbers in Q4, and Q1 will have 21 of our 23 vlccs will be fitted with scrubbers.
Post delivery and post installment of scrubbers in Q4 and Q1, we'll have 21 of our 23 veal disease will be fitted with a scrubber.
On the Suezmax side 21 marked our 29 suezmax are fitted with scrubbers and on the LR twos.
On the SUSMAX side, 21 of our 29 SUSMAXs are fitted with scrubbers and on the LR2s
Four out of 18.
Okay.
As you can see on the right hand side there.
4 out of 18.
Average or the spread between kind of the eco scrubber segments and the non he kos.
As you can see on the right hand side there, the spread between the eco scrubber segments and the non-ecos looks to have shrunk.
It looks to have shrunk.
Haven't really it's just that the absolute rates have increased so it looks less prominent.
But they haven't really. It's just that the absolute rates have increased. So it looks less prominent now. A EECO VLCC fitted with a scrubber will earn $24,200 per day compared to a non-aircon non-scrubber. The same relationship is at $13,500 today for the SUSmax and $12,300 per day.
Hum.
The C.
Eco vlccs fitted with scrubbers will I'm $24200 per day compared to a non they're called non scrubber. The same relationship is that touch on $5000 today for the Suezmax This $12300 per day.
They are allowed to use.
Now I'll, let senior take you through the financial highlights.
on the LR2s. Now I'll let Inir take you through the financial highlights.
Thank you, Josh and good morning, and good afternoon, ladies and gentlemen, and now we can turn to slide five.
Thank you, Losh, and good morning and good afternoon, ladies and gentlemen. Then we can turn to slide five.
And again it goes back not a phone.
<unk> achieved total operating revenues that the voyage expenses of 209 million and adjusted EBITDA of 148 million in the third quarter of 2022.
And look at the EECO statement. Flansign achieved total operating revenues, debt or voyage expenses of 209 million and adjusted EBITDA of 148 million in 2022.
We report net income of 154 million or 69 cents per share and I just didn't I. Thank them, all 82 9 million or circa seven cents per share.
We report net income of 154 million or 69 cents per share and adjusted net income of 82.9 million or 37 cents per share in this quarter.
In this quarter.
On the right hand side of this slide showing the adjustments made this quarter.
On the right hand side of this slide we have shown the adjustments made this quarter.
Which consist of one and $15 8 million gain on derivatives.
which consists of 15.8 million gain on derivatives.
$5 7 million share of itself.
Companies.
Our favorite point that you made and I want to say something that quiet time charters at 2.8 million gain on insurance and other claims and that's what the $7 1 million gain on that.
5.7 million shares of results from associated companies.
a 0.3 million amortization of the acquired time sharders, a 2.8 million gain on insurance and other claims, and a 47.1 million gain on marketable securities.
Marketable securities.
Adjusted net income in the third quarter increased by 47 million compared with the second quarter.
Just the net income in the third quarter increased by $40.7 million compared with the second quarter.
The increase in adjusted net income was driven by an increase in other times darker equivalent over nice due to higher T X in the quarter, partly offset by an increase in interest expense as a result of higher interest rates.
The increase in adjusted net income was driven by an increase in our time charted equivalent earnings due to higher TCE rates in the quarter, partly offset by an increase in interest expense as a result of higher interest rates.
An increase in administrative expense after startup costs in relation to the proposed business combination of in here at all.
An increase in administrative expense as a result of costs in relation to the proposed business combination with the URL.
Yeah.
as a result of costs in relation to the proposed business combination with urinal.
The board of directors announced its intention to declare and pay a cash dividend in respect of the third quarter of 2022 only after the tender offer has been completed.
The Board of Directors announces its intention to declare and pay cash dividends in respect to the third quarter of 2022, only after the tender offer has been completed.
This dividend is expected to be in the amount of 80% of adjusted net income for the third quarter was 22 payable to record holders. After the completion of the tender offer in 2023.
This dividend is expected to be in the amount of 80% of adjusted net income for the third quarter of 2022, payable to record holders after the completion of the tender offer in 2023.
So then let's move to slide six.
Yeah.
And take a look at the balance sheet.
Then let's move to slide 6.
And this quarter the total balance sheet numbers have increased by 194 million.
and take a look at the balance it
This quarter the total balance sheet numbers have increased by 184 million.
And the balance sheet and then you mentioned the third quarter are primarily related to taking delivery of Iranian you're building there.
The balance sheet movements in the third quarter are primarily related to taking delivery of one new building VCC, the Fontana, the increase in carrying value of the shares held in Euronab, the increase in other current assets due to increase in voyages in progress and trade accounts receivable and also the net income in the quarter.
Comma.
Increase in carrying value of the shares held in euro and an increase in other current assets do tend to see some voyages in progress and trade accounts receivable and also the net income in the quarter.
As of September 30th Frontline had 460 million in cash and cash equivalents.
As of September the 30th, the plan had $406 million in cash and cash equivalent.
Including Undrawn amounts under our senior unsecured loan facility marketable securities and minimum cash requirements.
including ungrown amounts under our Senior Unsecured Loan Facility, multiple securities, and minimum cash requirements.
Yeah.
Let's.
I can tell suddenly it gets like for them.
Comparison with Paris.
Let's then take a closer look at slide seven.
Keeping costs down has always been and sometimes DNA and the core values of the frontline platform is to keep it simple and focused on maintaining a lean and efficient manner.
cost comparison with pairs.
Keeping costs down has always been in frontline's DNA and the core values of the frontline platform is to keep it simple and focused and maintain a lean and efficient management team.
Management teams.
This slide shows that we outperformed our peers in terms of lower Opex and interest expense in the third quarter.
This slide shows that we outperformed our peers in terms of lower OPEX and interest expense in the third quarter.
On DNA, one parent slower than frontline this quarter due to increased administrative expenses after the startup cost in relation to the proposed business combination with you or no.
On DNA, one pair is lower than frontline this quarter due to increase in administrative expenses as it is subtle cost in relation to the proposed business combination with EuRMO.
Then I think they shouldn't move to slide eight.
Then I think we should move to slide A.
Cash breakeven and cash generation potential.
Cash break-even and cash generation potential.
We estimate that risk cash cost breakeven rates for the remainder of 2022 of approximately $25000 per day for Vlccs $20200 per day for Suezmax tankers.
We estimate the risk cash cost per day for Jim Maine 2020 to over approximately $25,000 per day for these disease.
And $17200 per day for two tankers.
$20,200 per day for SUSMEC tankers and $17,200 per day for LR2 tankers, with a fleet average estimate of about $20,900 per day.
So with the fleet that Richard Smith.
Of about 20 to $20900 per day.
The praetor vicious domestic could you start up all that first of all I'm going to see and one that our crew tanker into things you've got yourself in 'twenty two.
The fleet average estimate includes start-up of two vessels, one VCC and one LR2 tanker inha Put sharply.
Okay.
With an impact of about eight.
$8 per day.
Alright.
With an impact of about $380 per day.
He reported opex expenses, including dry dock in the third quarter or $8800 per day for this disease.
We reported off-tax expenses including drydock in the third quarter of $8,800 per day for this disease.
$7500 per day for Suezmax tankers.
And 18000 $8900 per day for all of our two tankers.
$7,500 per day for SUSNAC tankers.
We dry docked for vessels in the third quarter.
N$8,900 per day for AELA2 tankers.
Well I mean to see one suezmax tanker into industry sectors.
We dry docked four vessels in the third quarter.
Yeah.
Okay.
One leads to C, one to spec tanker and two LR2 tankers.
The graph on the right hand side of the slide show.
Free cash flow per share after debt service and free cash flow yield they just can't treat and share price.
the graph on the right hand side of the slide.
shows free cash flow per share after debt service and free cash flow yield, basis current fleet and share price.
And remember twenty-nine at alternative TCE rates.
Based on historic Alex I'm interested in your head for non eco vessels in the period.
November 29 at alternative TCE rates.
Based on historic car accident TCE rates for non-eco vessels in the period
10002 year to date 2022.
Yeah Justin.
Adjusted for payments on scrubbers and glasses, so I'm sorry about that.
2002, year-to-date 2022.
Free cash flow per share of $2.37.
We adjusted for premiums on scrubbers and eco-vesters. Frontline has a free cash flow per share of $2.37 and a free cash flow yield of 18%.
And our free cash flow of 18%.
Free cash flow yield potential increases with higher student TCE rates and also on a fully delivered basis.
Free cash flow yield potential increases with higher student TCE rates and also on a fully delivered basis. Free cash flow yield potential increases with higher student TCE rates and also on a fully
We did fund the indirect or loss again.
Yes.
Thank you in here.
With this I leave the world to Lars-Adria.
Let's start to dig into the tanker market. So if we look at slide in mind.
Thank you, Inge. And let's start to dig into the tank market. So if we look at slide 9.
The headline our chosen this time as there is this the start up a new bull market.
The headline I have chosen this time is, is this the start of a new bull market?
So global oil supply is back to 2019 levels.
Around 100 million barrels per day.
So global oil supply is back to 2019 levels, around 100 million barrels per day. EIA in September reported 101 million barrels per day of production and 100 million barrels per day of consumption.
September reported 101 million barrels per day of production on the 100 million barrels per day of consumption.
Global crude oil exports reached four 2 million barrels per day during the third quarter.
Global crude oil exports reach 40 million barrels per day during the third quarter. And this is approximately 40% of global production that moves to the oceans. And this is a normalized situation for tankers.
This is approximately 40% of global production.
Moves kind of to the oceans.
Is that a normalized situation for <unk>.
For tankers.
Oil in transit, though.
Secondly, reaching the high.
Hum 20, and you can see this on the shops at the bottom left here, where global crude oil exports.
Oil in transit though, grew significantly up, reaching the highest levels of the global economy.
20. And you can see this on the chart at the bottom left here where global crude oil exports is around or about 40 millimarals per day but the yellow line global oil in transit is actually flirting with the levels we saw in Q1 2020 when Saudi and Russia were engaged in a crude oil price war.
Around or about 14 million barrels per day, but the yellow line global oil in transit, it's actually a flirting with the levels. We saw in Q1 2020, 2021 when Saudi and Russia, we're engaged in a in a crude oil price war.
The explanation for this is to target large systems.
The explanation for this is to a large extent around the situation with sanctions on Russia.
Around the situation within the sanctions on Russia.
I'm going to come back to that but I would like to note that laden days are only up 10% year on year, whilst the load to load.
I'm going to come back to that, but I would like to note that laden days are only up 10% year on year, whilst the load to load distances are up 10% year on year.
Businesses.
The distance between a.
Ship load the cargo until it gets to its next cargo or engagement is up 20%.
meaning that the distance between a ship loads the cargo until it gets to its next cargo or engagement is up 20%. If you look at the chart on the right, and this is important, right now in particular, as we were overwhelmed with news of OPEC, news of Russian sanctions, news of absolutely everything.
If you look at the chart on the right on this is important right now in particular as we you know what.
Overwhelmed with new support pecking yourself Russian sanctions, new sofa, absolutely everything.
Tend to forget that China is actually starting to move.
So Chinese oil imports are on the rise, they're actually up to a million barrels per day in Q3 alone and this is steep.
and the people tend to forget that China is actually starting to move. So Chinese oil imports are on the rise. They're actually up to a million barrels per day in Q3 alone. And this is a steep trajectory. Preliminary numbers for November tells us that Chinese crude oil imports are up to a million barrels per day in Q3 alone.
Trajectory.
Marine preliminary numbers for November Tulsa.
Chinese crude oil imports are in fact up 3 million barrels per day from the bottom in July .
And also I'm gonna come to to kind of a bit later in the presentation is that time charter market.
are in fact up 3 million barrels per day from the bottom in July .
And as I'm going to come to kind of a bit later in the presentation is that time shot a market and as the prices are on the move.
Prices are on the Moon.
Yes.
Let's move to slide 10, and look at the new trading patterns and if you look at that.
Let's move to slide 10 and look at the new trading patterns. And if you look at the somewhat confusing graph at the bottom left hand side, you'll see that European imports of oil and products from Russia are down 1.4 million barrels per day year on year. And this is November last year compared to this November .
So more confused and graph at the bottom left hand side, you'll see that European imports of oil oil products from Russia.
One 4 million barrels per day year on year and this is in November last year compared to this November .
This shortfall is to a great degree replace.
Imports from U S Latin America and.
This shortfall is to a great degree replaced.
Asia.
If you look at the two kind of under the European imported to Blue columns.
by imports from US, Latin America and Asia. And if you look at the two, kind of under the European import, the two blue columns on the right, they amount to 1.3 million barrels per day.
Columns on the right they amount to $1 3 million barrels per day.
The products and oil that comes from Asia is three times that.
The product and oil that comes from Asia is three times the length of the travel distance than from Russia. And what comes from America or Americas or Latin America is at least two times further apart than Russia.
Well the travel business stemmed from Russia.
The.
What comes from America, our Americas or Latin America.
At least two times further apart than Russia.
I wouldn't see them exports from Russia.
Same extent same pulse to Europe to Asia, and Youll find the Orange column on there under the Russian headline is one three or one 4 million barrels per day equating to what Europe , it's replacing.
And we've seen exports from Russia have to the same extent same past Europe to Asia. And you'll find the orange column under the Russian headline is 1.3 or 1.4 million barrels per day equating to what Europe is replacing.
And mind, you Europe continues to import $3 2 million barrels per day from Russia.
And mind you, Europe continues to import 3.2 million barrels per day from Russia And we're now facing the increased sanctions represented by the price cap.
We are now facing.
The kind of increased sanctions.
Represented by the price cap.
So after fiscal December the jury's still out on how this will play out but these flows may change even further.
So after fiscal December , the jury is still out on how this will play out, but these flows may change even further.
If you look at the chart on the right you have played an important CRO kind of in the in the last six months of the year.
If you look at the chart on the right, you have played an important role in the last six months of the year by adding volumes to the market through their SPR releases.
But adding volumes to the market through their SPR releases on it it is a fair in the market that wants this SPR release finishes.
And it is fair in the market that once this SPR release finishes, you know how much volume will we lose out of the US. In the bottom chart on the right hand side, I've tried to do this a little bit simplistically. And I know a lot of people would be able to arrest me on this. But the gray area is US net export. It's basically US export.
How much volume we will lose.
Our capacity will be loose out of the U S.
In the bottom chart on the right hand side I've tried to do this a little bit Simplistically and I know a lot of people would be able to arrest Memphis, but the grey area is U S. Net exports, it's basically U S exports and basically deduct SPR release.
We all know that the SPR is not connected to the ocean. So the SPR feeds the U S refining system, which on the other hand has the capability of exporting more.
But what we've seen is that despite the SPR release, the outright or the net exports.
U S has actually increased.
or the net exports from US has actually increased.
In particular, so lately.
So I would also say that the jury is still out of how significant the fall in the U S exports are going to be.
and particularly so lately.
So I would also say that the jury is still out of how significant the fall in US exports are going to be once the SPR stops releasing barrels.
Once the SPR stops releasing barrels.
If we then move to slide 11, and look at the assets.
If we then move to slide 11 and look at the assets.
The Tc markets.
As the spot markets move so will the time charter rates and asset.
on the TC markets.
Process and there has been and there still is a hectic activity in the time charter market for tankers and this is our charters tried to see cover.
As the stock markets move, so will the time charting rates and the asset prices. And there has been and there still is a hectic activity in the time charting market for tankers.
And with the current order book and the fundamentals for oil there is an increasing interest for tonnage I didn't write that but it's almost like there is a fair for not having the.
And this is a charter's try to seek cover.
And with the current order book and the fundamentals for oil, there is an increasing interest for tonnage. I didn't write it, but it's almost like there is a fair for not having the capacity to freight oil going into the future.
Capacity to freight, Oregon going into the future.
Re sales are now pricing higher than contracted and this is due to the timing of available yard space. If you look at the chart at the bottom left here business resale values have quoted.
Resales are now pricing higher than contracting and this is due to the timing of available yard space. If you look at the chart at the bottom left here, this is resale values as quoted. The dark blue one is for VLCC resales. It's actually a little bit under where the actual market is. The last kind of whisper number on the VLCC resale is $130 million.
The dark Blue is for real for series sales, it's actually a little bit under where it's the actual market. This the last kind of whisper number on the VLCC resale is hungry and $30 million for scrubber fitted prompt delivery.
Our new order will be delivered in three years at the earliest so this basically puts a hole in the whole kind of delivery of freight capacity and this is a worry to people that are short trade.
for a Scarborough Fitted prompt delivery.
A new order will be delivered in three years at the earliest. So this basically puts a hole in the whole kind of delivery chain of freight capacity and this is the worry to people that are short freight. And as the conviction in the current rate amount grows, rates will follow. I had an interesting discussion with the investor the other day.
And that's the conviction and the current rates on long term growth rates will follow at.
I had an interesting discussion with investors the other day.
We discussed the current fundamentals.
And he has suddenly realized that this could actually lasts.
and we discussed the current fundamentals and he suddenly realized that this could actually last.
Got them.
Kind of a funny one.
If you look at the long term historical and I was even surprised by this myself the weight of the tanker sector earnings are now at levels last seen in 2005. The reason for that is obviously.
and what then?
Kind of a funny one is if you look at long-term historicals, and I was even surprised by this myself, the weighted tanker sector earnings are now at levels not seen in 2005. The reason for this is obviously that the Aframax and the LR2 segments are making far more money than they have ever previously.
<unk> Candela, two segments are making far more money than they have ever previously.
So this is not typically unusual market for VLCC is a high market for Suezmax says, that's an astronomical market for Aframax and the luxury.
So this is not a typically unusual market for VLCC. It's a high market for SUS-MAX, but an astronomical market for Afro-MAX and LR2. And the current resale prices, we haven't actually seen these levels for 14 years.
On the current reset prices, we haven't actually seen this levels for <unk> yet.
Yeah.
Let's move to slide 12, and look at the tanker order books.
Let's move to slide 12 and look at the tank or our order books.
Yeah.
At least half the explanation.
For why we are here.
And this is at least half the explanation for why we are here.
On the top left hand chart, there I've tried to kind of lumped together.
On the top left-hand chart there, I've tried to lump together the asset classes that Frontline are exposed to, namely the VLC-C, the SUSE, SMEX and ELOT-CHU.
Africa upfront claim are exposed to namely the VLCC. This is nice analysis.
And if you just sum up the number of vessels that are currently over 20 years.
And if you just sum up the number of vessels that are currently over 20 years, and where we argue that your trading efficiency is not only limited, it's almost impossible in the compliant tank market.
Where we argue that you're trading efficiency is not only limited it's almost impossible in the compliant tanker market.
Thats kind of pile of ships.
That amounts to 163 vessels.
That kind of pile of <expletive> .
The order book.
For the same segments stands up 92.
amongst 163 vessels.
The order book.
And that order book is to be delivered over the next two to three years. This relationship does not make sense.
For the same segment stands at 92.
And that order book is to be delivered over the next two to three years.
If you want to really make it ridiculous you can just add some of the 303 vessels of leased asset classes that are currently over 15 years.
This relationship does not make sense.
If you want to really make it ridiculous here, you can just add some of the 303 vessels of these asset classes that are currently over 15 years. Whereas almost half of them will reach the 20-year threshold.
Whereas almost half of them will reach the 20 year threshold.
Whilst the existing order book deliveries.
Yeah.
And I think currently recycled pool order book ratio.
whilst the existing order book delivers.
I think kind of this recycled pool order book ratio, I kind of think I invented it myself, but anyway it's an interesting one.
I don't think I can answer that myself, but anyway. It is an interesting one.
So let's.
From slide 12 to slide 30 in just a few comments on our frontline you're now combinations as you know.
So let's...
We move from slide 12 to slide 13. Just a few comments on the frontline urinal combination. As you know, anything and everything around this combination is obviously quite sensitive. I just want to go through the steps. The frontline relocation comes first and it's in process. And pulls that.
Anything on everything around this combination is obviously quite sensitive.
I just want to go through the steps.
The <unk> relocation comes first and it's in process.
That will launch the tender offer.
A lot of analysts some market players have asked us about these delays these are regulatory.
will launch the tender offer. A lot of analysts and market players have asked us about these delays. These are regulatory cost delays. The process of moving from Bermuda to Cyprus has proven complicated. There are lots of regulatory bodies involved and they use time.
The life that the process of moving from plan to Bermuda to Cyprus from Bermuda Cypress has proven complicated there are lots of regulatory bodies enrolled and they use time.
But we are.
We will continue to be committed to this process. However, the launch of the tender offer has slipped to Q1 next year.
But we continue to be committed to this process. However, the launch of the Tender offer has flipped to Q1 next year.
Outcome remains the same.
Depending on how much support we get in.
The outcome remains the same.
In the tender offer if we get above 75%, we will have a merger or move for a merger.
depending on how much support we get.
in the tender offer. If we get above 75%, we will have a merger or move for a merger. If we are between 50.1% and 75%,
If we are between $50 12 months centers represent we will form a group.
Frontline will again controlling interests in both scenarios.
Let's now move to slide 14, and I'll try to summarize some of what we discussed.
Frontline will gain controlling interest in both scenarios.
Let's then move to slide 14 and then try to sum up what we discussed.
And the top months' story continues.
Efficiency inefficiencies foreign expected post the sixth of December .
And the Tomahawk story continues. And further inefficiencies are expected post to the 5th of December .
The global crude oil exports are now at pre Covid levels.
In transit continues to be very firm.
The global crude oil exports are now at pre-COVID levels and oil in transit continues to be very firm.
The order book to recycled pool ratio at some precedented levels.
The order book to recycle pool ratio at unprecedented levels.
The order book is around 5% of the existing fleet and then I'm only speaking about the segments, we are exposed to versus 9% in the so called recycling pool.
The order book is around 5% of the existing fleet and then I'm only speaking about the segments we are exposed to versus 9% is in the so-called recycling pool.
The markets are in fact pricing in limited supply both almost in the stock market in the PC market and also on assets.
The markets are in fact pricing in limited free supply, both in the stock market, in the TC market and also on assets.
And in all of this frontline has a modern efficient spotless spot exposed fleet fleet.
In all this, FRONPLAN has a modern, efficient spot-exposed fleet.
As the story unfolds.
Winter is in fact a poem.
Most now.
and as the story unfolds, and winter is in fact...
So with that I'll sell on the open up for questions.
Almost now.
Thank you as a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced once again. Please press star one on one if you would like to ask a question.
So with that, I'll say thank you and open up for questions.
Thank you. As a reminder, to ask a question you will need to press star 1 and 1 on your telephone and wait for your name to be announced. Once again, please press star 1 and 1 if you would like to ask a question.
We will now take your first question.
Well ma'am please.
We will now take your first question.
And your first question comes from the line of EMR knocked her from Jefferies. Please go ahead.
One moment please.
And your first question comes from the line of Umar Nocta from Jefferies, please go ahead.
Thank you Hey, guys. Good afternoon, Hi, Lawrence Hi, Inger.
Good afternoon good afternoon.
Thank you. Hey guys, good afternoon. Hi Lars, hi Inger. Good afternoon.
Yeah. Thanks for the.
Obviously, very very exciting times across the tanker space.
Thanks for the update. Obviously very exciting times across the tanker space. Wanted to ask obviously on the latest topic you had in the presentation about the merger and then maybe just on the redomicide from Bermuda to Cyprus. I know obviously there is regulatory issues there. Does that require ultimately a shareholder vote to do or can that be...
Wanted to ask obviously on the.
The latest topic you had in the presentation about the merger.
And then maybe just on the re domicile from Bermuda, Cyprus I know, obviously, there is regulatory issues there, but does that require ultimately a shareholder vote to do or can that be done in the ordinary course of business.
Now it will require a shareholder vote.
Okay Alright.
Alright, and then.
When you think and I hate to not.
I'm not trying to back into a corner, but when you. When you think about the tender offer timing in the first quarter based off of the dialogue, you're having with the different authorities can you can you see that happening is that more of a January event or do you think that happens more in March.
with the different authorities. Can you see that happening? Is that more of a January event or do you think that happens more in March? Any way you can handicap that for us?
Any way you can handicap that for us.
It's.
It's almost impossible to answer.
Hum.
To improve them the timing.
It's almost impossible to answer and as we've proven the timing with kind of the filing of relocation has obviously taken an unexpected long time. But we remain positive and optimistic and the documentation has been done in parallel here.
The kind of the filing of relocation.
Taken unexpected long time.
But we remain positive and optimistic.
Kind of the documentation has been done in parallel here. So so we do hope that that process will be far more efficient and in fact, we can style documentation for tender offer before.
The relocation is effective.
Yeah.
Okay. Thanks.
Yeah. Thanks, Thanks for that and maybe just more about the market. Obviously you were talking about the Aframax LR twos beat.
At exceptionally high levels at rates, we haven't seen before historically how are you.
were talking about the Aframaxes and the LR2s, you know, being at exceptionally high levels and at rates we haven't seen before historically. How are you thinking about that segment right now? You've got those 18 ships, two of them I see are on those attractive longer term contracts, but the remaining 16 or so, how are you trading those? Are those in the clean trades or some of those shifted into dirty?
Are you thinking about that segment right now.
<unk> got those 18 ships two of them I think around those attractive longer term contracts, but the remaining 16 or so.
Are you trading those are those.
Clean trades or some of that shifted into dirty.
Well they are kind of the majority of them remain in the clean I think last quarter I mentioned that we had.
Well, the majority of them remain in the clean. I think last quarter I mentioned that we had 6 out of 18 trading in the OTC. Now that number is temporarily 7. Basically because one ship was offered the cargo it couldn't refuse. But overall I think you need to look at this in two...
<unk> South of 80 in trading and say now that number is temporarily server.
Basically because one staples often offer the cargo it couldnt refuse.
But overall.
I think you need to look at this in two dimensions, one is kind of the general macro or micro or whatever change here, where refining capacity has increased further away from key demand centers.
The COVID-19 pandemic wasn't depth blow to quite a lot of refining capacity in Europe and some in the U S.
So that's kind of me.
Fundamental change in trading patterns and that's here to stay and then obviously this has.
That's under the pin, a fundamental change in training patterns, and that's here to stay. And then obviously, this has been turbocharged with kind of the inefficiencies surrounding the sanctions on Russia. Europe is dependent on or has been dependent on quite significant product imports from Russia.
Being turbocharge wins.
Kind of the inefficiencies surrounding the sanctions on Russia Europe is dependent on our hospital dependent on quite significant product imports from Russia in particular diesel and this now needs to be sourced from elsewhere and it's costing a refinery margin environment that we haven't.
in particular diesel, and this now needs to be sourced from elsewhere. And it's causing a kind of refinery margin environment that we haven't really seen before, or at least not in a very long time. So I think kind of short term that will continue so we can actually
<unk> seen before or at least not in the very long time. So I think kind of short term that will continue so we can actually.
These.
No.
Super inflated the clean rates.
<unk>.
expect these super inflated clean rates continue. But in the longer term we have this kind of fundamental change in the dynamics that will help this market going forward, but maybe not to the same elevated state we're seeing right now.
But.
In the longer term, we have this kind of fundamental change in the dynamics are that that will kind of help this market going forward, but maybe not to the same kind of elevated states, we're seeing right now.
Okay got it thanks Lars.
I'll pass it over.
Okay. Thank you.
Okay, got it. Thanks, Lars. I'll pass it over.
We will now go to our next question.
Thank you. Thank you.
One moment please.
We will now go to our next question.
One moment please.
And your next question comes from the line of Chris Robertson from Deutsche Bank. Please go ahead.
And your next question comes from one of Chris Robertson from Deutsche Bank. Please go ahead.
Hi, good morning, Thanks for taking our questions. This is Chris on for Amit.
Thanks, Chris and good morning.
Hi, good morning. Thanks for taking our questions. This is Chris on for a minute.
Hi, Good morning, I, just wanted to talk about the dividend for a moment not not as it stands today, but maybe in the future and Lars you've talked about maybe a stronger for longer scenario here with rate strength. So I'm just curious on.
Hi, Chris. Good morning.
Hi, good morning. Yeah, I just wanted to talk about the dividend for a moment. Not as it stands today, but maybe in the future. Lars, you talked about maybe a stronger for longer scenario here with rate strength. So I'm just curious on with 80% of adjusted net income for the dividend for 3Q, how should we think about that going forward as we get closer to maybe 2030 as there's maybe more.
With 80% of adjusted net income for the dividend for <unk>, how should we think about that going forward as we get closer to maybe 2030.
Maybe more <unk>.
Technological clarity around future fuels things like that would would there be a change. So that you can have more cash on hand, as dry powder for either pursuing additional growth opportunities or pursuing a fleet renewal in the future.
technological clarity around future fuels, things like that. Would there be a change so that you could have more cash on hand as dry powder for either pursuing additional growth opportunities or pursuing a fleet renewal in the future?
Okay.
Well you know it's a.
It's a good question.
Well, you know, it's a good question. I think if you point to history, front-line has had a tendency to actually pay out dividends and then you'd use other means of financing in order to finance, for instance, investments in new tunnels and so forth.
I think as you point to history.
From panel.
Have the tendency to actually pay out dividends.
And then you use other means of financing in order to finance.
Our investments in our new tonnage and so forth the only times, where we have kind of kept back from from paying a handsome dividend has been in a situation where it's been clearly that the markets have changed fundamentally so so I don't know if that.
The only times where we have kind of kept back from paying a handsome dividend has been in a situation where it's been clearly that the markets have changed fundamentally. So I don't know if that kind of answers your question fully. I would like to say though that 80% of net income is in line with what Frontline historically pays when we make money.
I'll answer your question fully.
I would like to say, though that the 80% of net income is in line with the Walker from time, historically pace when we make money, it's our key ambition.
Give our investors.
More or less directly to the cash we make so so so I think that's normal conduct of business.
Yes, that's fair I guess, just as a follow up.
That's the million dollar question as you mentioned is what will the market fundamentally be different as we approach 2030 as compared to today because it seems like theres quite a few years runway here with the current order book and everything else going on but then once we get closer to the end of decade. That's that's kind of the question I was trying to get at is how different is that <unk>.
today because it seems like there's quite a few years runway here with the current order book and everything else going on. But then once we get closer to the end of the decade, that's kind of the question I was trying to get at, is how different is that market? No, I'm sorry, Chris. But it's a very good question. And you called it the million dollar question. I wish I could answer it. At Frontline, we tend to be late adopters when it comes to kind of
Market.
No I'm sorry, Chris.
It's a very good question on your call. It a million dollar question I wish I could answer that.
And our weekly.
Upfront client we tend to be later doctors when it comes to kind of new taken.
Technology new fuels.
We will always try and position ourselves towards kind of regulatory change and so forth.
Execute best practice as far as we can.
<unk>.
The jury is still out.
Of our tonnage is.
Deep ocean kind of longer traveling ships.
Chip.
As it stands right now there isn't really an alternative energy source for these ships.
long traveling ships and as it stands right now there isn't really an alternative energy source for these ships. You know it could be that if gas prices or LNG prices drop significantly the econs of LNG propulsion could come back to compete. But it's kind of difficult to envision it but I think
It could be that if gas prices are LNG prices drop significantly the consult of LNG propulsion could could come back to compete.
But it's difficult to envision it but I think.
The thing that the the non Google some.
You have to.
Keep in mind that the at least the kids are going to be more expensive as we proceed.
Basically because we need to make investments to reduce your your.
Robin footprint.
So but.
I don't even they are trying to two.
Put some numbers on that or apart from kind of the general direction.
But I don't even dare trying to put some numbers on that, or apart from the general direction. In all fairness, we have actually reduced quite a bit of, and we are every year now committed to follow kind of regulatory.
Yes.
In all fairness, we have actually reduced.
Quite a bit of anomaly.
Or kind of every year now committed to follow.
Regulatory.
Sure.
Demand is reducing.
Reducing our <unk>.
Emissions.
We will do so, but obviously after a certain point of time the ships come.
you know, demands to reducing our emissions. And we will do so, but obviously at a certain point of time the ships can't really go any further.
Contrary to go any further.
Sure, yes, thanks for indulging that scenario and walking us through Thats, a great color I'll turn it over thanks.
Thanks for indulging the scenario and walking us through that. It's a great color. I'll turn it over. Thanks, Paul.
Thank you.
Thank you once again as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Thank you. Once again as a reminder if you would like to ask a question please press star 1 and 1 on your telephone keypad.
We will now go to your next question.
One moment please.
We will now go to your next question.
And your next question comes from the line of Greg Lewis from <unk>. Please go ahead.
One moment please.
And your next question comes from the line of Greg Lewis from BTIG. Please go ahead.
Yeah, Hey, guys. Thank you and good afternoon, and thank you for taking my question.
Yeah, hey guys, thank you and good afternoon and thank you for taking my question. You know, clearly you guys have been doing a lot of work. Thank you for the presentation.
Clearly you guys have been doing a lot of work.
Yeah. Thank you for the presentation.
I did have some questions.
Yes.
The Russian ruble.
I did have some questions around the impact of the Russian crew embargo.
Bart.
I'm really I guess, a couple of questions on that.
<unk>.
As these volumes.
And really I guess a couple questions I have is, you know, is these volumes need to go farther afield because they're getting diverted away from Europe ?
What types of port restrictions are there from these export areas? And really what I'm wondering is, could there be the potential for, you know, in a place like the Gulf of Mexico, there's a lot of library and ship transfers and smaller vessels that need help to port along larger vessels for their final destination.
Would there be the potential for.
Places like the Gulf of Mexico, and Theres, a lot of library and ship to ship transfers smaller vessels.
Okay.
Larger vessels for final destination.
Is that something that logistically, we should be thinking about that happening, which probably further tightened.
Is that something that logistically we should be thinking about happening, which probably further tightens?
The market.
Yeah.
First of all it's a good question.
the market.
This is kind of evolving as we as we go along.
Yeah, it's, you know, first of all it's a good question and this is kind of evolving as we go along. I've, you know, I've previously been kind of talking a lot about the dark web of oil and the markets involving Iran and Venezuela. I'd say the Russian trade.
Previously been saying kind of talking a lot about the dark web before.
The markets are evolving around on the Venezuela.
I'd say the Russian trade.
And to refer to as the gray market because these are all geared vessels.
Selling a coordinate accordance to Clos uninsured.
I tend to refer to as the gray market because these are all good vessels that are sailing according to class and insured potentially in other markets than shipping normally does and so forth. But what you're referring to here is that this largely inefficient trade which is going on now.
Potentially in other markets and then shipping normal industrial so forth but.
What you're referring to here is that this largely inefficient trade, which is coming on now.
We'll kind of grow on that you would use.
Kind of bigger in college.
will kind of grow and that you would use kind of bigger carnage to take kind of benefits of volume of scale and so forth at least if Asia is going to continue to take Russian crude. And yes, we're actually already seeing this not inside the EU territory.
Take care.
The benefits of scale and so forth at least the pace is going to continue to to take Russian crude.
And yes, we're actually already seeing this not inside kind of.
EU territories, but we are seeing other areas, where SaaS operations are happening the very very concerning part of that is that not all of these areas are suited to do NSS.
but we are seeing other areas where STS operations are happening. The very very concerning part of that is that not all of these areas are suited to do an STS and safety and pollution risk increases. But we also see there's been very high activity in the...
So safety and pollution risk increases.
But we also see and Theres been some very high activity in the.
Sale and purchase market or the asset market for kind of more of a vintage tonnage, which we are expecting to see kind of entering this market I'm talking about.
sale and purchase market or the asset market for kind of more vintage tonnage, which we are expecting to see kind of entering this market. I'm talking about the, you know, 17 to 17 and a half or even 15 year olds of SUS Maxxis MBs that have been purchased recently that may kind of appear.
17% to 17, and a half or even 15 year olds officers smacks of Smbs that havent been purchased recently that may kind of repair.
In order to make this trend a bit more efficient and to scale it towards the price cap coming in.
in order to make this trade a bit more efficient and to scale it towards the price cap coming in.
Okay.
Okay, great. Thank you for that.
Question was more around.
And you touched on it a little bit around the reinsurance or insurance.
Okay, great. Thank you for that. And then my other question was more around, and you touched on it a little bit around the uninsurance or insurance, you know, realizing that.
Realizing that.
Every trade issue.
This has happened in the past.
In parts of the middle East and elsewhere.
You know every trade this room, you know that this has happened in the past in parts of the Middle East and elsewhere
As I think about it.
Cargo looking for ensure needs.
Yes.
As I think about a car you're looking for insurance.
Right.
Good I guess <unk> Fargo.
you know, I guess in the grey or in the black market. I guess is that cargo and generally speaking are those cargo's insurable and really is it something that's usually provided by the buyer or the seller.
Generally speaking are those cargoes in the shore mall.
I guess in the grey or in the black market. I guess is that cargo and generally speaking, are those cargo's insurable? And really, is it something that's usually provided by the buyer or the seller for the ship owner?
And really is it something that's usually provided by the buyer.
Sure.
Before they ship.
So.
It's kind of the environmental risks.
It's kind of the environmental risk once the cargo is on board the ship is taken care of by the ship owner. But you're pointing to a very good question here. Russia has a big insurance market, like internal insurance market. Whether it's that insurance market can't on the right, this type of risk.
Once the car was onboard the ship.
Taken care of by the by the ship owner.
But.
Youre pointing to a very good question.
The big insurance market.
<unk> insurance market.
Whether it's that the insurance market can't underwrite this type of risk is always the big question.
And but then again kind of with this price cap and we don't know how this is going to play out we have received some indications from all facts.
It's obviously a big question. But then again, kind of with this price cap, and we don't know how this is going to play out, you know, we have received some indication from OFAC on how they kind of look at, you look to organize the price cap, but we don't really know the fine details on how this price cap is going to be imposed.
On how they kind of look gaps to elect to organize the price cap that we don't really know the final April details on how this price gap is going to be imposed.
<unk>.
But I'm, saying that because that could be a scenario here.
Well actually it will be sold according to the price cap and then akshay sanctions wouldn't apply.
And I'm saying that because there could be a scenario here where actually oil will be sold according to the price cap and then actually the sanctions wouldn't apply. So the insurance market would actually be able to, or the Western insurance market would actually be able to service it.
So so the insurance market will actually be able to.
The western insurance market would actually be able to.
Services.
So.
Just to repeat there is the question Mark is if this oil continues to trade in.
So, but I, you know, just to repeat, you know, there is the question mark if this oil continues to trade in a manner where insurance is not certain, that's obviously a big concern and a problem.
In a in a manner, where insurance is not something that's always a big concern on a problem.
Yes, definitely interesting times in the market.
Super helpful. Thank you very much.
Yeah, definitely interesting times in the market. Hey, this was super helpful. Thank you very much.
Thank you.
Thank you.
There are currently no further questions I will hand, the call back to you.
Thank you.
There are currently no further questions. I will hand the call back to you.
Okay. Thank you and thank you so much for listening in.
Okay, thank you and thank you so much for listening in.
So I think times indeed.
Very good Christmas when Dot com. Thank you.
Exciting times indeed and have a very good Christmas when that comes. Thank you.
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Yes.
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