Q2 2024 Frontline PLC Earnings Call
[music].
Okay.
Speaker Change: Good day and thank you for standing by welcome to the second quarter 2024, Frontline plc earnings conference call. At this time, we'll participants are in a listen only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session to ask a question. During this session you will need to press star one to one on your telephone will then hear an automated message advising you had this debate to withdraw your question. Please press star one that one again.
Speaker Change: Please be advised that today's conference is being recorded.
Speaker Change: Now I'd like to hand, the conference over to your first speaker today large Boston D C.
Speaker Change: See our frontline management.
Speaker Change: Please go ahead.
Speaker Change: Thank you very much for that introduction, they're all thank you for dialing into frontline's quarterly earnings call.
Speaker Change: The second quarter of 'twenty before ended up very much in line with the first with volatility.
Speaker Change: Being up on a softer note.
Speaker Change: The seasonal summer.
Speaker Change: Complication surround the war risks are in the Middle East I'm quite nice sanctions against Russia has regretfully it becomes a more and.
Speaker Change: I will touch on that later in the call. It's important to remember, though that we are at seasonal lows.
Speaker Change: I would like to say that all shareholders have a very exciting fall ahead as frontline has not had this number of potential moneymaking days going into the winter for decades.
Speaker Change: Before I give the word to in Europe, I'll run through our T. C numbers on slide three in the deck.
Speaker Change: Yeah.
Speaker Change: In the second quarter of transfer for frontline achieved.
Speaker Change: $49600 per day on our VLCC fleet 45 to $600 per day on our Suezmax fleet.
Speaker Change: <unk> $3100 per day.
Omar: Omar <unk> Slash Aframax fleet.
Omar: So far in the third quarter, 79% of our VLCC days booked at 47485% of our Suezmax days booked at $49900 and 65% of our allowed to slash Aframax days booked at $50100 per day.
Omar: Again, all these numbers are on the load to discharge basis, meaning that will be affected by the mountain States. We ended up having at the end of the third quarter.
Omar: Although Q3 bookings came in somewhat short of market expectations. Please do keep in mind that the buying the right characteristics, so far markets, especially as we come out of the seasonal lows.
Speaker Change: And then in your take you through the financial highlights.
Slash: Thanks Slash and.
Speaker Change: Morning, and good afternoon, ladies and gentlemen.
Speaker Change: And then turn to slide four.
Speaker Change: I look at the purpose statement and highlights.
Speaker Change: We report a profit of 180.
Speaker Change: 7.6 million or 84 cents per share this quarter.
Speaker Change: And adjusted profit of 178, 2 million or 62 cents per share.
Speaker Change: The adjusted profit in the second quarter was comparable to the first quarter I can see.
Speaker Change: On the slide.
Speaker Change: Hum.
Speaker Change: And the decrease in other TCE earnings with 12.4 million as a result of it is supposed to go to the phase two suspects pancreas.
Speaker Change: By a decrease in ship operating expenses administrative expenses.
Speaker Change: In addition in finance expense as well as an increase in interest income of 21 6 million, making up the check up on 2 million increase in the quarter.
Speaker Change: Let's turn it to Scott five.
Scott: And look at the balance sheet.
Scott: The balance sheet movements in this quarter are mainly related to sale of four vessels in the second quarter.
Obituary.
Speaker Change: He will help us say in the first quarter.
Speaker Change: And also to really live action part of the existing fleet used to repay debt gone to partly finance that decision at that time.
Speaker Change: Before you proceed from here now.
Speaker Change: John has a strong liquidity of 567 million in cash and cash equivalents, including Undrawn amounts of the senior unsecured revolving credit facility.
Speaker Change: Those securities and minimum cash requirements for the bank as could you cant just participate in 'twenty four.
Speaker Change: We have no remaining newbuild commitments and handle meaningful definition.
Speaker Change: Boston 27.
Speaker Change: And he can look at slide six.
Speaker Change: Yeah.
Speaker Change: In the second.
Speaker Change: And the third quarters of 2024, we completed other strategy of freeing up capital, but he loves addition, part of the existing fleet and also divesting older vessels, which enabled us to repay an aggregate of 395 million, which was strong on the shareholder loan that.
Speaker Change: Also under other evolving credit facility with an affiliate of Hamlin to partially finance the acquisition of the 21.
Speaker Change: I'm here now.
Speaker Change: Larry.
Speaker Change: Gentlemen, this slide we have made up here, we can see that this has involved optimizing the capital structure series B financing all sorts of successes.
Speaker Change: And the other thing eight older vessels.
Speaker Change: Okay.
Speaker Change: Tony.
Speaker Change: <unk>, an ongoing would be financing in a total amount of $1 $55 billion.
Speaker Change: Have secured long term financing at highly attractive terms with a maturity of about eight years.
Speaker Change: And having two different margins with about 70 basis points on a weighted average basis.
Speaker Change: And then the expected cash proceeds from the refinancings is five point, if I owned applegate millions for it and 311 million from divesting older vessels.
Speaker Change: Let's.
Speaker Change: Look at slide seven.
Speaker Change: Okay.
Speaker Change: Our fleet consists of 41 seats 23, suezmax tankers and eight it actually tankers.
Speaker Change: The average age of six years, and consistent 99% eco vessels and were up 56% is scrubber fitted.
Speaker Change: Yeah.
Speaker Change: We estimate average cash breakeven rates for the next 12 months.
Speaker Change: Approximately $29600 per day for Vlccs.
Speaker Change: $22300 per day for Suezmax tankers and $21200 per day for the other two tankers.
Speaker Change: With a fleet average estimate of about $25700 per day.
Speaker Change: It is slightly down from previous quarter, mainly as a result of the financings and refinancings.
Speaker Change: Yeah.
Speaker Change: The fleet.
Speaker Change: Irish estimate includes Drydock of two Suezmax tankers and four <unk>.
Speaker Change: In the next 12 months.
Steve: Two six in the third quarter of 24, one this is Steve.
Speaker Change: The fourth quarter or 24.
Steve: One suezmax in the first quarter of 'twenty, five and once the season, one suezmax in second quarter or 25.
Steve: We recorded Opex expenses, including dry dock in the second quarter of $8600 per day for VLCC.
Steve: <unk> $9300 per day for Suezmax tankers.
Steve: And $7600 per day for it are two tankers. This includes startup, but she expects tankers and two vlccs in the quarter.
Speaker Change: The Q2, 'twenty four fleet average opex, including Mexico, but he knows all Doug I mean, it was $7600 per day.
Speaker Change: Dan.
We've just bought H.
Speaker Change: Okay.
Speaker Change: And a good cash generation potential.
Speaker Change: Shanghai has about 30 earnings based on your left we have about 28000 of our small base.
Speaker Change: Even in this weak spot market that experienced now the cash generation potential uptrend feet in spot market earnings from Clarksons Research of August 29.
Speaker Change: It's sort of $3500 per day to $636600 for Suezmax tankers, and 28, $700 whaler, two tankers, if $242 million or $1.09 per share.
Speaker Change: The sensitivity is high from this spot market levels that you see now and 30% increase from current spot market would increase the potential cash generation with about 116%.
Speaker Change: No that's the spot market earnings at a 30% increase is only 43600 to six four to 7500 for Suezmax and 37300 for electric tankage.
Speaker Change: And the upside potential should be much higher going forward when the party begins.
Speaker Change: And then just finally, the working off of that.
Thank you very much Oh.
Speaker Change: Let's go to slide nine.
Speaker Change: Start discussion on the current market narrative.
Speaker Change: You will notice that there is a new theme, where we're focusing on.
Speaker Change: Brian.
Brian: We've been trying to kind of explain.
Brian: The developments in the current market.
Brian: We all sit all more or less the same as in the models.
Brian: Moen.
Brian: The unknown is basically how oil trades.
Brian: There is a development of a two tier market between what we would refer to as the compliance among coupon and compliance market.
Brian: The volume has grown over the last 12 to 18 months currently.
Brian: And this is quite surprising to some I would assume 23% of the global fleet is expected to be or enrolled in function trade.
Brian: In these numbers is not necessarily a ship that has lifted Russian crude because the molecule is still more function.
Speaker Change: But as the vessels that have diverse activities.
Speaker Change: Surrounding their trade, whether it fits with Russian crude or other.
Speaker Change: Sanction crudes.
Speaker Change: And so basically what these numbers tell you is at 17% of the VLCC fleet is currently under some sort of scrutiny or the Barton folk who all need or they have red flags attached to their activities.
Speaker Change: Likewise, if you move to the Suezmax says you have a 21% of the fleet is under the same client.
Speaker Change: In the same kind of situation.
Speaker Change: And we have 28% of the offer luxury fleets.
Speaker Change: Having the same characteristics.
Speaker Change: This is obviously related to the rise in the insertion scrutiny and also the volume's trending and I'll come back later come back to that later in the following slides.
Speaker Change: Geopolitical risks linked to the middle East is ever increasing.
Speaker Change: It's also quite surprising to us to see the somewhat moderate.
Speaker Change: Oil.
Speaker Change: Our momentum with <unk>.
Speaker Change: Considering this.
Speaker Change: <unk> backdrop.
Speaker Change: Chinese imports are in question are first of July but as far as we can see it August trucking imply an increase of one 2 million barrels month over month to China. So although that doesn't really make this a story fantastic if at least you should not base China on the July ops.
Speaker Change: Sure.
Speaker Change: Global oil demand.
Speaker Change: It's on track.
Speaker Change: At least looking at the numbers, we see oil in transit is in a rising trend world inventories are at historical lows.
Speaker Change: And it is there is a limited the cushion for adverse events, which also could be related to weather.
Speaker Change: The order book expansion in our industry is slowing.
Speaker Change: They are available delivery window for tankers has moved into 2028.
Speaker Change: For any substantial order that is.
Speaker Change: And there are other classes are starting to take the sand per stage.
Speaker Change: Let's move to slide 10.
Speaker Change: Discuss a little bit more on the sanction exposure trade growth.
Speaker Change: So the has been over the last months and.
Speaker Change: And increased scrutiny on the restaurant trade basically exposing more and more vessels being sanctioned by other G seven or EU in their operations surrounding the restaurant trade.
Speaker Change: We've also seen.
Speaker Change: Hip growth in Iranian exports, which basically has increased the need for tonnage for transportation.
Speaker Change: What we've ended up seeing is that we have a two tier market, which is kind of developing in front of our eyes.
Speaker Change: We have what we would refer to as the compliance markets.
Speaker Change: Which.
Speaker Change: Involves.
Speaker Change: 80% of the tanker fleets or thereabouts.
Speaker Change: And then you have the dark Grey fleet, Michigan was 20% of the tanker fleet or even up to 23% of the tanker fleet.
Speaker Change: The interesting part is that.
Speaker Change: Youre not building vessels to enter the dark grey fleets, so basically they get their fleet supply from the compliance rate. So the compliant fleet is shrinking whilst this.
Speaker Change: Kind of.
Darko Gray fleets is growing.
Speaker Change: It is supplied by the aging of the overall tanker fleet basically and.
Speaker Change: And over time through old vessels still do not trade inventory regard the conventional market.
Speaker Change: It creates an interesting dynamics, because unless nonconventional trade continues to grow.
The illicit market will soon be oversupplied.
Speaker Change: As the fleet aging accelerates, so basically vessels moving from the compliant market due to H.
Speaker Change: Basically.
Speaker Change: Because we have zero scrapping.
Speaker Change: We'll at some foreign terrorists start to Overcrowd.
Speaker Change: And one shouldn't expect scrapping to start dropping in them.
Speaker Change: The parallel or tread carries an increasing risks.
Speaker Change: Reversal of sanctions as well and that needs to be kept close two mines.
Sure.
Kind of implication here.
Speaker Change: And we can question, whereas sanctions enforcements in this picture.
Speaker Change: And also where is.
Speaker Change: I am all in respect of safety and reducing emissions et cetera, I can assure you. This fleet is not spending too much capex on reducing their carbon footprint.
At the bottom right hand side of this slide you'll see kind of how this develops on this and the red arrows basically indicate this divide.
Speaker Change: So basically the overall fleet continues to grow.
Speaker Change: Basically no fleet no ships are being recycled.
The compliant fleet vessels under 20 years of age.
Speaker Change: Is gradually shrink shrink.
Speaker Change: Great King as it proceeds.
Speaker Change: This includes the new buildings coming into the market.
Speaker Change: So we're that's a horse.
Speaker Change: Hello, everyone.
Speaker Change: Let's look at the upside potential here in the combined market.
Speaker Change: We havent done curious seasonality extremely pronounced 90% of the global population lives in the northern hemisphere.
Speaker Change: Basically where most of us on this call.
Speaker Change: <unk>.
Speaker Change: I E.
Speaker Change: Thus expect.
Speaker Change: Oil consumption increased by 111, and a half million barrels, but December basically due to some temperatures turning.
Speaker Change: On average looking back the winter market.
Speaker Change: <unk> is an increase of consumption by one five to 2 million barrels in the period from August to December.
Speaker Change: This is a long term pattern.
Speaker Change: And we see it both in oil in transit in them or with the in freight earnings.
Speaker Change: If you look at the bottom.
Speaker Change: Right, Tom Slide shot that's.
Speaker Change: Basically we're just taking the last 34 years.
Speaker Change: This is now the seasonal trend and we're basically in the weeks where this market starts to contraction is also quite encouraging to see oil in transit actually the pain out of the long term trend.
Speaker Change: And to top it we have to keep in mind that the.
Speaker Change: Inventories within always Cindy and we added China, and India as well to this.
Speaker Change: Is at historical lows.
Understood.
Speaker Change: Again, I really would like to emphasis.
Speaker Change: Offers a very limited cushion in the event of Av.
Speaker Change: Unexpected events.
Speaker Change: Well, thank you still supposed to be increased supply.
To increase supply from October.
Speaker Change: Question is whether if they will do it where oil is currently trading.
Speaker Change: But $2 2 million barrels is said to be returned between October and the end of 2025.
Speaker Change: And again.
Speaker Change: From from the previous slides in this shrinking compliant tanker fleet capacity.
Speaker Change: Sure conventional oil demand growth makes this a very interesting picture.
Speaker Change: And also I think we need to keep in mind that although the market is sluggish currently.
Speaker Change: The balance is fairly thin.
Speaker Change: Only two weeks ago, we had the VLCC rates moving up 25%.
Speaker Change: And it doesn't take much to move the needle.
Speaker Change: Let's then having looked at the order books and the overarching theme here is that the ordering we saw in the beginning or the first half of the year.
Speaker Change: There has been muted over the last month month and a half.
Speaker Change: Basically virtually zero tankers have been awarded in the last month and a half.
Speaker Change: Basically.
Speaker Change: In the same at the same time, we've seen.
Speaker Change: As the closest move in.
Speaker Change: Hum.
Speaker Change: Contracts vessels.
Speaker Change: And in particular, we've seen big orders being placed on the container side for 2028 deliveries.
Speaker Change: We think that for VLCC and Suezmax, the order book looks still looks slow.
Speaker Change: Hello for VLCC.
Medium low for Suezmax in Hawaii for a luxury.
Speaker Change: But with <unk> as I mentioned before we need to consider that there are virtually no <unk> from axis on order. So if you take that percentage and apply it or sorry to take up the number of ships on order and apply it to the overall luxury aframax flip we come in at 13%, which is still not a large.
Speaker Change: We also need to keep in mind that we're heading into a generation of ships that came post 2008, So sorry, 2008 for VLCC and Suezmax post 2007 for.
Speaker Change: LR twos, which are how usable generations of vessels, which will come to H in 2027, 2028 and onwards.
Operator: Good day, and thank you for standing by.
Operator: Welcome to the second quarter of 2024, Frontline PFC earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, though, we are questioning an answer session. To ask a question during the session, you will need to press star 1, 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1, 1 again.
Speaker Change: So to sum this up before we open up for questions.
Frontline: Frontline house.
Speaker Change: Hi earnings capacity as we are.
Moving to second half.
We have a strong balance sheet with sensible leverage on our modern fleet.
Speaker Change: There is some medicine, a growing divide between the compliant on the sanction trade.
Operator: Please be advised that today's conference has been recorded.
Speaker Change: Which can create interesting volatility going forward.
Operator: I would now like to hand the conference over to your first speaker today, Lars Barstad.
Speaker Change: The security situation in Red single source non middle East is ever increasing.
Lars Barstad: CEO or Frontline Management AS, please go ahead. Thank you very much for that introduction. They're all thank you for dialing in to Frontline's court learning school. The second quarter of 2024 ended up very much in line with the first with volatility, but ending up on the softer notes as we entered the seasonal summer lull. Complications around war risk in the Middle East and tightening sanctions against Russia has regretfully become the more, and I will be touching on that later in the call. It's important to remember, though, that we are at the seasonal lows.
Speaker Change: Delivery slots for new building moves into 2028.
Speaker Change: We haven't seen that container ordering has accelerated again.
Short term medium term oil demand looks on track, but China is of course a question.
Speaker Change: The seasonal play a song and I know of.
Speaker Change: Few people below this.
Speaker Change: It's again, a winter is coming.
Speaker Change: So with that we'll open for questions.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question you will need to press star one one on your telephone Lake Skinny to Vietnam to withdraw your question. Please press star one again.
Lars Barstad: And I would like to say that all shareholders have a very exciting fall ahead, as Frontline has not had this number of potential money-making days going into the winter for decades. Before I give the word to Ingear, I'll run through RTC numbers on slide three in the deck. In the second quarter of 2024, Frontline achieved 49,600 dollars per day on our bill of the sea fleet, 45,600 dollars per day on our seismic fleet, and 53,100 dollars per day, on our LR2 slash Aframax fleet.
Speaker Change: We will now take our first question please standby.
Speaker Change: And the first question comes from the line of Jonathan Chappell from Evercore ISI. Please go ahead. Your line is now open.
Jonathan Chappell: Thank you good afternoon.
Speaker Change: And your first question is for you slide six says you've completed the re leveraging.
Speaker Change: And the divesting of older vessels. So I just wanted to be clear there is no more big refinancings that we should expect before 2027.
Speaker Change: And the divestiture of the older vessels is mainly complete at this point.
Lars Barstad: So far in the third quarter, 79 to 7 of our VLCC days are booked at 47,485 percent of our seismic days are booked at 49,900 dollars, and 65 percent of our LR2 slash Aframax days are booked at 50,100 dollars per day. Again, all these numbers are on the low to this short basis, meaning they will be affected by the amount of ballast days we end up having at the end of the third quarter. Although Q3 bookings came in somewhat short of market expectations, please do keep in mind the binary characteristics of our market, especially as you come out of the seasonal lows.
Speaker Change: Your first question was that there were no more the refinancings until 2027, well is that correct correct yes.
Speaker Change: Not.
Speaker Change: Material once we have a few smaller ones, which will come.
Speaker Change: In 2025.
Speaker Change: Okay.
Speaker Change: And your next question I'll go to your second question was sorry.
Speaker Change: Around the divesting of the older vessels is that process completed as well.
Speaker Change: He also did that this also completed.
Speaker Change: And then just a follow up question on this latest refinancing with the sale and leaseback.
Speaker Change: It's interesting sale and leasebacks, where kind of.
A thing of the prior tanker markets, where rates were REIT week in may be financing wasn't as available are attractive and you've done most of your refinancing through traditional credit facilities. Both thought process of doing another sale and lease back at this point in the cycle to refinance the prior one.
Inger Klemp: And then I'll let Inge take you through the financial highlights.
Inger Klemp: Thanks, Lars, and good morning and good afternoon, ladies and gentlemen. Let's then turn to slide four and look at profit statement and highlights. We report profit of 187.6 million or 84 cents per share this quarter, and adjusted profit of 138.2 million or 62 cents per share. The adjusted profit in the second quarter was comparable to the first quarter as you see from the side, and the decrease in our TCE earnings with 12.4 million as a result of the disposal of 2VC's and 2C's max tankers was offset by a decrease in ship operating expenses, administrative expenses, depreciation and finance expense, as well as an increase in income of 12.6 million, making up the 0.2 million increase in the quarter.
Speaker Change: Well actually it's.
Kevin: And so this is new and is the sale leaseback Kevin spent.
Kevin: Is refinancing our current sale leaseback arrangement. So we are not actually.
And doing a more hybrid.
Speaker Change: <unk> top 10 vessels that we have today, which is just a replacing.
Speaker Change: And it's.
Speaker Change: And I'll take that sounded sale leaseback arrangement in a way you can look upon it more like a kind of bank facility they call said.
Speaker Change: Instead and leverage its only 60% to I don't think Eylea and under and then the term Saar like a bank give anything away so solid.
Speaker Change: That's why yeah. Okay. That's very helpful. Thank you for that and.
And then Lars just one for you I mean, I think the seasonality slide is pretty clear and many of us who've been around understand this very well.
Speaker Change: I guess there is some concern about China you noted in your prepared remarks, let's not extrapolate July.
Speaker Change: But is there any way to take that inventory slide that you did for slide 11, and isolate China and is there a reason that the China may be a lot more aggressive in the back half of the year or is it more of an OCD.
Inger Klemp: Let's now start the file and look at the balance sheet. The balance sheet movements in this quarter are mainly related to sale of four vessels in the second quarter, which someone with a seal was held for sale in the first quarter. And also to re-elevating part of the existing fleet used to repaid debt drawn to part of finance acquisition of the 24 businesses from UNO. Frontline has a strong liquidity of 567 million in cash and cash equivalents, including and drawn amount of the senior unsecute evolving credit facilities, remarkable securities and minimum cash requirements to the bank as per June 10th, 2020-24.
Speaker Change: E C D.
Speaker Change: Depleted inventory and maybe China doesn't have that type of.
Speaker Change: <unk> going into the winter season, where they need to be more aggressive on the imports.
Speaker Change: It's a very good for them and if we did that start with China.
Speaker Change: Isolated.
Speaker Change: Although it's implied inventory builds because.
Speaker Change: The strategic part of their inventory is not public.
Speaker Change: It doesn't look a bit different whereas China has been more or less stable running a fairly high level.
Speaker Change: A lot of inventory out ever since we came up with Covid and as you might remember they use that period was extremely weak.
Inger Klemp: We have no remaining new million commitments and we have no meaningful definite purchase until 2027.
Speaker Change: Oil prices shoot to replenish their inventories.
Inger Klemp: Then we can look at slide six. In the second and the third quarters of 2024, we completed our strategy of filling up a capital by a re-elevating part of the existing fleet, and also the investing older vessels, which enabled us to repaid an aggregate of 395 million, which was strong under the chairman, chairholder loan, and also under our evolving credit facility within a affiliate of him to part the finance acquisition of the 24-wilties from UNO earlier.
Speaker Change: With regards to China.
Speaker Change: It's.
Speaker Change: Not a mystery.
Speaker Change: It is apparent that China is not going up the speed that we would like to see.
Speaker Change: However, if you just look at our neighbors and this building being in the dry bulk market. There is somewhat of a different story. So I think it's just very important to it's very difficult to kind of read China right. Now we also need to keep in mind that of the imports China do you know that they take you close to 20.
Speaker Change: Present of their suppliers coming from either Iran.
Speaker Change: A lot of Russia, So it's kind of difficult to two two to monitor. These flows are accurately but also we know that theyre, taking more crude coming from Russia and the north.
Inger Klemp: From this slide, we have made up here. We can see that this has involved optimizing the capital structure through re-financing of 36 vessels and the investing eight older vessels. Total recent and ongoing re-financing in a total amount of $1.55 billion have secured long-term financing at highly attractive terms with maturity of about eight years and have improved its margins with about 30 basis points on a weighted average basis. The next expected cash proceeds from the re-financing is $5.58 million for it, and $311 million from the investing older vessels.
Speaker Change: So so I would say China is the dark horse.
Speaker Change: And right now it doesn't look too good to be fair.
Speaker Change: But.
Speaker Change: There are other countries in the region that are.
Speaker Change: Historically high.
Speaker Change: Higher consumers during the winter.
Speaker Change: The most notable wellness, it's in fact, India.
Speaker Change: So.
Speaker Change: But I actually think that.
Speaker Change: I don't believe we will have a mood to China into Q4 or towards Q1.
Speaker Change: Duffy doubt, whether if where you're going to have a year on year growth, that's more questionable, but I still think that with.
Inger Klemp: Let's then look at slide seven. Our fleet consists of 41 receipts, 23 suits max tankers, and 18 LR2 tankers. It has an average age of six years, and consists of 99% eco vessels, and where of 56% is clever. We estimate average cash break even rates for the next 12 months of approximately $29,600 per day for VCC, $22,300 per day for Swiss bank tankers, and $21,200 per day for the previous quarter, mainly as a result of the piloting and the financing.
Speaker Change: With the rest of it is situated in the rest of the countries that are normally grow their demand during winter I think we should still be okay.
Speaker Change: Okay, great. Thank you very much Lars thanks Inger.
Yes.
Speaker Change: Thank you we will now take our next question. Please.
Speaker Change: Please standby.
Speaker Change: And the next question comes from the line of Manav Gupta from Jefferies. Please go ahead. Your line is now open.
Manav Gupta: Thank you.
And anger good afternoon.
Just.
Manav Gupta: Got a couple of questions on the market, but also wanted to touch about I'll touch on the VLCC performance you booked thus far into the third quarter.
Speaker Change: 9% of <unk> booked at.
Speaker Change: Just over 47000, which obviously a little bit down from the first half, but still I would say quite impressive when we look at what the market has averaged since the start of say June whether you take into account <unk> and scrubber premium. So just wanted to ask whats driven that perhaps outperformance.
Inger Klemp: The fleet average estimate includes dry dock of two Swiss bank tankers and four VCCs in the next 12 months, whereas two VCCs in the third quarter of 24, one VCC in the fourth quarter of 24, one Swiss bank in the first quarter of 25, and one VCCs and one Swiss bank in the second quarter of 25. We recorded up-bex expenses including dry dock in the second quarter of $8,600 per day for VCCs, $9,300 per day for Swiss bank tankers, and $7,600 per day for relative tankers. These include start-up of two Swiss bank tankers and two VCCs in the quarter. The Q2-24 fleet average up-bex including next within the dry dock and in was $7,600 per day.
Speaker Change: In your view.
Speaker Change #100: Well first of all Omar you need to keep in mind. The fact that we report on the load to discharge basis.
Speaker Change #100: So so so that that has to be.
Speaker Change #100:
Speaker Change #101: The highlighted it's not all our peers and it's not always clear how our peers report so so.
Speaker Change #101: You should not expect us to be able to book too much towards the end of <unk>.
Speaker Change #101: End of the quarter are basically because we can't account for income.
Speaker Change #101: Until the the vessels actually load the cargo.
Speaker Change #101: Hum.
Speaker Change #101: What size.
Speaker Change #101: The Q1 list up you know we received a fairly big new fleets from Europe.
Inger Klemp: Then let's move to side 8, and look at cash generation potential. Tronfarn has about 30 earnings days annually, where about 28,000 are spot days. Even in this week's spot market, that's the experience now. The cash generation potential has turned feed and spot market earnings from stocks and research as of August 29th, over $33,500 per day for VCCs, $36,600 for Swiss bank tankers and $27,000 for relative tankers, is $242 million or $1.9 per share.
Speaker Change #102: Uh huh.
Speaker Change #102: Almost all delivered in the middle East So what we've done over the quarter has been able to kind of put this fleet into the trade are reflecting the rest of the frontline fleet.
Speaker Change #102: As we tried to keep.
Speaker Change #102: With our exposure to or.
Speaker Change #102: To try and avoid having too much exposure to one particular basin.
Speaker Change #102: Most more recently is in the middle east of the soft spots.
Speaker Change #102: One of its.
Kind of ironic that the VLCC benchmark or.
Speaker Change #102: S&P 500, Dow Jones index is based on them.
Inger Klemp: The sensitivity is high from these spot market levels that you see now, and 30% increase from current spot market will increase the potential cash generation with about 116%. Note that the spot market earnings at the 30% increase is only $43,600 for VCCs, $47,500 for Swiss bank and $37,300 for relative tankers. And the upside potential should be much higher going forward when the party begins.
Speaker Change #102: Yes.
Speaker Change #102: Since the trade in Atlantic Basin, with Africa U S Gulf Brazil.
Speaker Change #102: Regretfully, a lot of short haul them because oil hasnt really gone far.
Speaker Change #102: Well.
Speaker Change #103: The latter part of Q2 into Q3. This will also explain some of the weakness in this segment in particular and also how it's been Cannibalized sing on the Suezmax some to some extent.
Speaker Change #104: But I I I.
Speaker Change #104: I'd say that there is no magic potion portion that flows.
Inger Klemp: When this I leave the work to not again. Thank you very much, Inge.
Speaker Change #104: Portion of Harrisburg with words.
Lars Barstad: Let's go to slide 9 and start discussion on the current market narrative. You will notice that there is a new theme we're focusing on at front line, as we've been trying to explain the developments in the current market. We all sit on more or less the same as in the models. The unknown is basically how oil trades. There is a development of a true tea market between what we will refer to as a compliant market, and this divide has grown over the last 12 to 18 months.
Speaker Change #104:
Speaker Change #104: But also keep in mind that that's.
Speaker Change #105: This performance is where required okay are proud to have events. Considering also the fact that we've reduced our scrubber penetration in the fleet, having said that you probably also noticed that the spread.
Speaker Change #105: Between the high and low sulfur has been fairly narrow so you could say that the scrubber benefits.
Speaker Change #105: In the more recent months.
Speaker Change #106: <unk> not been as pronounced.
Speaker Change #107: Okay. Thanks, I appreciate that and just a quick follow up just on that point or just generally on the BS have you played into the whole product.
Speaker Change #108: Argo lifting.
Speaker Change #109: In your fleet.
Lars Barstad: Currently, and this is quite surprising to some, I would assume, 23% of the global fleet is expected to be or involved in sanctioned trade. And in this numbers is not necessarily a ship that has lifted Russian crude because the molecule is still not sanctioned, but it's vessels that have adverse activities surrounding their trade, whether it fits with Russian crude or other sanctioned goods. And so basically what these numbers tell you is that 17% of the fleet is currently under some sort of scrutiny, either by U-Fuck, U-Arne, or they have red flags attached to their activities.
Speaker Change #109: Knocked on the Vlccs, but on the Suezmax. This yes, so basically cannibalizing our own <unk>.
Speaker Change #109: Okay.
Speaker Change #109: Okay.
Speaker Change #109: And then just kind of.
Speaker Change #109: More on the market here.
Speaker Change #109: One we've seen.
The recent pullback in Libyan exports or at least production volumes.
Speaker Change #109: It seems like there may be still able to export from inventory, but if this is prolonged.
Speaker Change #110: And that volume is away from the market. How do you think that affects the different dynamics within the crude trade at this point.
Speaker Change #111: Aframax is seen more exposed to that but how do you think of vlccs and suezmax react in that type of environment.
Lars Barstad: And likewise, if you move to the Suez Maxis, you have 21% of the fleet is under the same kind of in the same plan situation. And we have 28% of the Afro-Latru fleet that is having the same characteristics. This is obviously related to the rise in sanctions scrutiny, and also the volume trading, and I will come back later to that later in the following slide.
Speaker Change #112: So maybe for the.
Speaker Change #112: The disruption started in the Suez Canal or Red Sea Gulf of Aden I would've said that this is kind of material.
Speaker Change #113: But basically what's happened kind of since those seven.
Speaker Change #114: To occur.
<unk> used to go east by way of either service or a while actually rarely all the way around but at least the three shifts.
Speaker Change #115: And with the disruptions insurers.
Lars Barstad: Geopolitical risk linked to the Middle East is ever increasing. It's also quite surprising to us to see the somewhat moderate oil movements of volatility considering this explosive backdrop. China's imports are in question after soft July, but as far as we can see it, August tracking implies an increase of 1.2 million barrels a month or a month to China. So although that doesn't really make this story fantastic, it's at least you should not base China on the July observations.
Speaker Change #115: We've seen that oil trade local so you're right that it affects the up from access.
Speaker Change #115: Yeah.
Speaker Change #116: Might have.
Speaker Change #117: Limited impact on us.
Speaker Change #117: Suezmax Sis, but.
Speaker Change #117: I would say virtually no impact from the Vlccs.
Speaker Change #117: And it's actually again than that.
Take one crude out of the equation another one comes up.
Speaker Change #117: And I guess in that situation.
Speaker Change #117: If you lose that crude from Libya and that gets made up potentially from the middle East has that become a VLCC trade.
Speaker Change #117: Potentially.
Lars Barstad: Global oil demand is on track, at least looking at the numbers we see. Oil in transit is in a rising trend. World in the North are at historical lows, and there is a limited cushion for adverse events, which also could be related to weather.
Speaker Change #117: But it could also be.
Speaker Change #117: Replenish from from Latin America, or U S. Gulf for West Africa, because ILUVIEN is now predominantly going into Europe.
Speaker Change #117: To this.
Speaker Change #117: Basically due to this disruption sensors.
Speaker Change #118: Okay got it and then one more for you just on.
Lars Barstad: The order book expansion in our industry is slowing. The available delivery window for tankers has moved into 2028, for any substantial order that is, and other other classes are starting to take the center stage.
Speaker Change #119: You talked about the sanctions.
Speaker Change #120: The dark fleet the great fleet I wanted to ask in terms of what's gone on with.
Speaker Change #120: Iran. How would you.
Speaker Change #121: Well, how do you think the market would move forward in a situation where say there is more scrutiny on Iranian crude exports and those fall back to where they were a few years ago.
Lars Barstad: Let's move into a couple of trade growths. So that has been, over the last month, an increased scrutiny on the Russian trade. Basically, it's both more and more vessels to being sanctioned by either G7 or EU in their operations surrounding the Russian trade. We've also seen steep growth in the rain and exports which basically has increased the need for tonnage for transportation. What we've ended up seeing is that we have a two-time market which is developing in front of our eyes.
Speaker Change #122: I guess you.
Speaker Change #122: That great Dark fleet, perhaps maybe makes its way back to the clean quote unquote are not clean, but the market fleet.
Speaker Change #123: How do you kind of think about that versus needing to make up those barrels.
Speaker Change #123: Thank you.
Speaker Change #125: This this development has been going on for far longer than at least I anticipated or are we anticipated.
Speaker Change #126: But it's so it's basically kind of.
Speaker Change #126: Making it less and less likely that the vessels servicing this market is ever going to be able to return to a compliant market. So it means that you know.
Speaker Change #126: Any change however, unlikely to the sanctions regime around.
Lars Barstad: We have what we would refer to as a compliant market, which involves 80% of the tanky fleets are thereabouts and then you have the dark or gray fleets which involves 20% of the tanky fleets or even up to 23% of the tanky fleets. The interesting part is that you're not building vessels to enter the dark or gray fleets so basically they get their fleets supply from the compliant fleets. So the compliant fleet is shrinking whilst this kind of dark or gray fleets is growing.
Speaker Change #126: We will be even a more positive effect on the compliance market.
Speaker Change #126: But how this.
Speaker Change #126: And this is an ongoing.
Speaker Change #126: A discussion that comes up quite often.
From our side of the equation, we struggled to understand why while this trade can even go wrong.
Speaker Change #127: But overall, if you come from a accrued short nation, who needs to refined petrol for your.
Speaker Change #126: Admittance.
Speaker Change #128: Then you will obviously take an opportunity for for any barrels that you can get hold of so so regretfully I don't think we can necessarily do much with its trade what I am saying, though is that as the.
Lars Barstad: It's supplied by the ageing of the overall tanky fleets basically and over 20% of vessels still do not trade in what we regard the conventional market. It creates an interesting dynamics because unless non-comventional trade continues to grow the illicit market will soon be oversupplied as the fleet ageing accelerates. So basically in vessels moving from the compliant market due to age and basically because we have zero scrapping, we'll at some point here start to overcrowd and once should expect scrapping to start to happen in the end.
Speaker Change #129: The compliant fleet is aging it's surprised into this fleet and this aging is accelerating as we move forward here, So I actually unless you see Iran.
Speaker Change #129: April to produce significantly more oil.
Speaker Change #129: Or same goes for a show of course I'm in seller, all three which is unlikely.
Speaker Change #129: We will actually start to have them over crowded.
Speaker Change #129: <unk>.
Speaker Change #129: Kind of are oversupplied sanction markets.
Speaker Change #129: So I think that's.
Speaker Change #129: Because I've lost all faith in enforcing sanctions solo sulfates.
Speaker Change #129: And conifer to regulate one hour to this we have a set of tanker that blue.
Lars Barstad: The parallel all trade carries an increasing risk to any reversal of sanctions as well and that needs to be kept close to mind. A kind of implication here and we can question where is sanctions enforcement in this picture and also where is IMO in respect of safety and reducing emissions etc. I can assure you this fleet is not spending too much capex on reducing their carbon footprint. At the bottom right hand side of this slide you will see kind of how this development is and the red arrows basically indicate this divide.
Speaker Change #129: Outside Singapore recently, and nobody really put too much attention to that so we have a suezmax and burning in the red CLC speak nobody really it doesn't really make much of a headline if you're outside of shipping <unk>.
Speaker Change #129: So as I kind of lost that Facebook.
Speaker Change #130: What I do believe is that we will.
Speaker Change #130: See that fleet just continue to grow because they're the source of the alternatives.
Speaker Change #130: For a ship.
Speaker Change #130: For ships, turning 20 is still it makes a lot of sense to go into that market, but once the margins in that market.
Speaker Change #130: Our destroyed will actually start to see.
Speaker Change #130: Recently.
Lars Barstad: So basically the overall fleet continues to grow as basically no fleets, no ships are being recycled but the compliant fleet that was under 20 years of age is gradually shrinking as we proceed. This includes the new buildings coming into the market.
Speaker Change #131: If that made sense sorry, if this is a very very long complicated question.
Speaker Change #130: No.
Speaker Change #132: Very interesting.
That that perspective.
Brian: So Brian.
Brian: Yes, hi.
Brian: Thanks, Laura I'll turn it over.
Omar: Thank you Omar.
Lars Barstad: So with that harsh and let's look at the upside potential here in the compliant market. We have tanker systemality and it's extremely pronounced. 90% of the global population lives in the northern hemisphere basically where most of us only call the lid and EIA just expects the oil consumption to increase by one and a half million barrels by December basically due to some temperatures turning. On average looking back the winter market sees an increase of consumption by 1.5 to 2 million barrels in the period from August to the This is a long-term pattern and we see it both in oil and transit and then obviously in freight earnings.
Omar: Thank you.
Speaker Change #133: A reminder to ask a question you will need to press star one on your telephone.
Speaker Change #134: <unk> be announced to withdraw your question. Please press star one Bryan again.
Speaker Change #135: We will now take our next question.
Speaker Change #134: Please standby.
Speaker Change #136: And the next question comes from the line of Devin Sungard from T. J investments. Please go ahead. Your line is now open.
Yes, yes.
Devin Sungard: So I just wanted to ask a question you mentioned about.
Speaker Change #138: <unk>, <unk> sheath, which happened and there were several other instances.
How do you see this dock fleet in children.
Speaker Change #139: Getting collected because don't forget in the amount of crude is moving on.
Lars Barstad: If you look at the bottom right hand slide chart, that's basically just taking the last 34 years and look at that. This is now the seasonal trend and we're basically in the weeks where this market starts to come to action. It's also quite encouraging to see oil and transit actually dipping out of the long-term trend. And to top it, we have to keep in mind that the inventories within OACD and we added China and India as well to this is at historical loss.
Speaker Change #140: Don't have a global insurance companies.
Speaker Change #140: Willing to underwrite.
Speaker Change #140: It's an extreme.
Speaker Change #140: Question.
Speaker Change #140: When we.
Speaker Change #140: <unk>.
Speaker Change #140: Then the.
Speaker Change #140: Resolute.
Speaker Change #140: We've done an exercise prior to this.
I'm trying to gauge how many ships and I'm gonna vessels are operating.
Speaker Change #140: In the sanction trades or our kind of our operating illicitly in the restaurant trade because there are owners are able to trade Russian barrels within.
Lars Barstad: And again, I would like to emphasis, it offers a very limited cushion in the event of an unexpected event. OPEC is still supposed to be increased supply from October. The question is whether they will do it where oil is currently trading. But 2.2 million barrels is said to be returned between October and the end of 2025. And again, as from the previous slide, there's shrinking compliant tank of capacity to serve conventional oil demand growth makes this a very interesting picture.
Speaker Change #140: Either by way of.
Getting up the station on the price cap or other means that they actually managed to the trade Russian crude without raising any flags that in order to to gauge how much of that.
Speaker Change #140: The oil is actually on the sanction.
Speaker Change #141: One of the studies with digital space, except to say how many many of these vessels are actually not insured by and they recognizable P&I club.
Speaker Change #141: And in that case that is basically the foundation for saying that.
Speaker Change #142: We assume.
Speaker Change #143: 75% of the restaurant volumes R. R.
Speaker Change #143: Under sanction.
Speaker Change #143: Or sanctions exposed so so that paints a horrendous picture if something happens.
Lars Barstad: And also, I think we need to keep in mind that although the market is sluggish currently, the balance is fairly thin. Only 2 weeks ago, we had wheels of sea rates moving up 25%, and it doesn't take much to move the needle.
Speaker Change #143: So.
Speaker Change #143: The Suezmax in question that is currently burning in.
Speaker Change #144: Vaden that have insurance I understand from our P&I club that's recognized but.
Speaker Change #144: Tanker that blew up outside Singapore.
Lars Barstad: Let's then have a look at the order books. And the overarching theme here is that the ordering we saw in the beginning or the first half of the year has been muted over the last month and a half. Basically, virtually zero tankers have been ordered in the last month and a half. And basically, at the same time, we've seen other as the classes move in to contract vessels. And in particular, we've seen big orders being placed on the container side for 2028 delivery.
Mike: Mike MSA, Kimberly I still think they are trying to figure out you actually own the vessel in them.
Mike: So I think this takes it paints a very very bleak picture.
Mike: If we get more events like this.
Mike: Okay. Thanks.
Mike: Second question is on if you see the B.
Speaker Change #146: Soft landing is been pushing about aldi sent out about a U S economic going into a shortfall of inflation is not soft lending and you have a Chinese economic.
Speaker Change #147: Economic not recovering to next year do you see a boom this dude.
Speaker Change #147: Recover.
Lars Barstad: We think that for wheels of sea and sue smacks, the order books still looks low, very low for wheels of sea, medium low for sue smacks and high for a lot to. But with a lot to as I mentioned before, we need to consider that there virtually no affron access on order. So if you take that percentage and apply it, or sorry, take that number of ships on order, apply it to the overall LR2 affron access fleet.
Speaker Change #147: Then.
Speaker Change #148: They'll be.
Speaker Change #149: Lower oil demand globally.
Speaker Change #150: I don't think we will have lower global oil demand.
Speaker Change #149: Globally, but.
Speaker Change #151: The expected oil demand growth will be limited.
Speaker Change #151: So so.
Speaker Change #151: But if you couple that with the fact that the.
Lars Barstad: We come in at 13%, which is still not alarming. We also need to keep in mind that we're heading into a generation of ships that came post 28, sorry, 2008 for wheels of sea and sue smacks, post 2007 for LR2s. Which are solucible generations of vessels, which will come to age in 2027, 2028 and on.
Speaker Change #151: The fleets the tanker fleet.
Is presumably shrinking at least efficient fleet is shrinking.
Speaker Change #151: We're not too worried about that from a tanker demand perspective.
Speaker Change #151: And any other.
Speaker Change #151: The factor, which can if a doctor in mind, because we've seen a significant change in ton miles of what loss.
Speaker Change #151: 12 months.
Speaker Change #152: So do you see any other factor which effects.
Positively or negatively.
Lars Barstad: So to sum this up before we open up for questions, Frontline has decades high earnings capacity as we move into second half. We have a strong balance sheet with sensible leverage on our modern fleet. There is, as mentioned, a growing divide between the clock compliant and the sanctioned trade, which can create interesting volatility going forward. The security situation in Red Siegel for Ferdinand Middle East is ever increasing. As delivery slots for new building moves into 2028, we have seen that container ordering has accelerated again. Short and medium-term oil demand looks on track, but China is, of course, a question. This is no play is on, and I know a few people below this, let us say it again, winter is coming.
Speaker Change #153: No. There is nothing really that comes to mind, we are moving into a weather wary, whether exposed period of the year, which partly explains the volatility we normally see towards winter.
Speaker Change #153: That could obviously.
Speaker Change #154: Change things up.
Speaker Change #154: And obviously you know.
Speaker Change #154: Sudden.
Speaker Change #155: Supply changes like.
Speaker Change #155: Libya was mentioned, where we're losing six it off sorry, six 760 million barrels a day or thereabouts and that it's actually enough to trigger certain changes.
Speaker Change #155: But there is nothing kind of apparent by CBC, the Tms pipe languishes, a new flow out of Canada on the U S West coast.
Speaker Change #155: It's kind of developing but it doesn't seem to have altered trading lanes materially.
Lars Barstad: So with that, we will open for our offer questions. Thank you.
Speaker Change #155: And.
Speaker Change #155: Again, one thing to watch is of course.
Operator: As a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
Speaker Change #155: Production growth in Guyana, and Brazil, and then in the U S Gulf.
Speaker Change #155: There is not so much export growth expected out two years ago for Nextera, but.
Operator: We will now take our first question. Please stand by.
Speaker Change #156: Everybody has been wrong every year.
Speaker Change #156: Quite a long time.
Jonathan Shepel: And the first question comes from the line of Jonathan Shepel from Evacore ISI. Please go ahead, your line is not open. Thank you.
Speaker Change #156: And there is also an election over there so which might affect.
Speaker Change #156: Their willingness to invest in production.
Speaker Change #158: On on exports as I think the numerous kind of interesting spots to recap, but nothing kind of material that I think will happen very very soon.
Jonathan Shepel: Good afternoon.
Inger Klemp: Inger, first questions for you. Slide 6 says you've completed the releveraging and the divesting of older vessels. So I just want to be clear, there's no more big refinancing that we should expect.
Speaker Change #158: Okay and.
Speaker Change #158: As youll see being.
Speaker Change #158: <unk> been paying out dividends, but if you're on the bull market.
Inger Klemp: Before 2027. And the divestiture of the older vessels is mainly completed at this point. Your first question was that they were no more refinancing until 2027. Was that correct? Well, not any material ones, we have a few smaller ones, which will come in 2025. So it's part from now.
Speaker Change #159: You will be flushed with so much cash what do you do with the cash.
Speaker Change #160: And we pay it to are there unless this then they can decide what to do.
Speaker Change #160: That is a that was a kind of jokingly said that but that's basically how we we operates.
Inger Klemp: And your next question, or your second question was sorry? Was around the divesting of the older vessels. Is that process completed as well? Yeah, that is also completed. Okay. Good.
Speaker Change #160: Unless we see an investment opportunity that we think will yield our investors a better return on equity.
Speaker Change #160: We will pay it all out.
Speaker Change #161: Okay. So you don't see any see you done pretty.
Inger Klemp: And then just a follow-up question on this latest refinancing with the sale and leaseback. You know, it's interesting sale and leasebacks were kind of a thing of the prior tanker markets where race were re-week and maybe financing wasn't as available or attractive. And you've done most of your refinancing through, you know, traditional credit facilities.
Speaker Change #162: We were the first one to let you know.
Speaker Change #162: All the ships from the yard.
Speaker Change #164: <unk> completed VLCC and now you'll leverage your balance sheet. So you our financial leverage operating leverage do you still see any good asset quality opportunity.
Inger Klemp: What was the fall process of doing another sale and leaseback at this point in a cycle to refinance that prior one? Well, actually, it's. And this new lease sale is back arrangement is it's refinancing a current sale is back arrangement. So we are not actually doing it more agree that same type 10 vessels that we have today, which we just are replacing. And it's not like not a standard sale is back arrangement in a way you can look upon it more like a kind of bank facility, because it's.
Speaker Change #165: Are we done with it.
Speaker Change #166: I think and I hope that we are in line with the rest of the markets that we need to see a confirmation in the rates.
Speaker Change #166: In our markets before we have.
Speaker Change #166: The conviction to do anything on the asset side. So basically right now we're content with the fleet fleet composition rehab.
Speaker Change #166: If the market is going to continue to only pay us 40 to $45000 per day.
Speaker Change #167: This makes no sense to other Barton or.
Inger Klemp: It's a leverage is only 60% the loan to value and the end and the terms are like a bank facility in a way. So so that's why yeah, okay, that's very helpful. Thank you for that anger.
Speaker Change #167: Order a ship at these price levels.
Speaker Change #167: Okay.
Speaker Change #168: Hey, good luck and I'll debase.
Speaker Change #169: Thank you very much.
Speaker Change #170: Thank you.
Omar Nokta: And then large just one for you. I mean, I think the seasonality slide is pretty clear and many of us who get around understand this very well. I guess there is some concern about China you noted in your prepared remarks.
Speaker Change #171: 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 to withdraw your question. Please press star one again.
Lars Barstad: Let's not extrapolate July. But is there any way to take that inventory slide that you did for slide 11 and isolate China and is there a reason that China may be a lot more aggressive in the back after the year or is it more of an OCD OECD depleted inventory and maybe China doesn't have that type of panic going into their winter season where they need to be more aggressive on the influence.
loss Boston: As there are no further questions I would like to hand back to loss Boston for any closing remarks.
Thank you.
Thank you for listening in.
Speaker Change #173: Thank you for both were very good questions.
Speaker Change #174: We'll just keep our fingers crossed for a normal season pattern to start to contemplate.
Speaker Change #173: Okay.
Speaker Change #175: This concludes today's conference call. Thank you for participating you may now disconnect.
Lars Barstad: It's a very good point and if we did that short with China isolated, although it's implied inventory builds because the strategic part of their inventory is not public, it would look a bit different whereas China has been more or less stable running a fairly high level of inventory ever since we came up with COVID and as you might remember they used that period with extremely weak oil prices to replenish their inventory, but with regards to China it's not a mystery but it is apparent that China is not going up to speed that we would like to see. However, if you just look at our neighbors in this building being in the drive-off market there is somewhat a different story.
Speaker Change #175: Okay.
Speaker Change #175: [music].
Speaker Change #175: Okay.
Speaker Change #175: Okay.
Speaker Change #175: [music].
Speaker Change #175: Yes.
Speaker Change #175: [music].
Lars Barstad: So I think it's just very important or it's very difficult to kind of read China right now. We also need to keep in mind that of the imports China do, you know, they take close to 20% of their supply is coming from either Iran, Venezuela or Russia. So it's kind of difficult to monitor these flows accurately but also we know that they're taking more crude coming from Russia in the north. So I would say China is the dark horse and right now it doesn't look too good to be fair, but there are other countries in the region that are historically higher consumers during the winter and you know the most notable one is in fact India.
Lars Barstad: So I actually think that I don't believe we'll have a muted China into Q4 or towards Q1 that I doubt whether if we're going to have a year-on-year growth that's more questionable, but I still think that, you know, with the rest of the situation, the rest of the countries that normally grow their demands during winter, I think we should still be okay.
Omar Nokta: Okay, great. Thank you very much, Lars, thank you. Thank you.
Operator: We will now take our next question. Please stand by.
Omar Nokta: And the next question comes from the line of Omar Noctur from Jeffries, please go ahead, the line is now open. Thank you. Hi Lars and Inger.
Omar Nokta: Good afternoon.
Omar Nokta: Just a I've got a couple questions on the market but I also wanted to touch on the BLTC performance. You booked thus far into the third quarter. You've got 79% of 3Q booked at just over 47,000 which obviously a little bit down from the first half but still I would say quite impressive when we look at what the market has averaged since the start of say June, whether you take an account eco and scrubber premium.
Lars Barstad: So just wanted to ask you, what's what's driven that perhaps out performance in your view? Well, the first of all Omar, you need to keep in mind the fact that we report on a load to this charge basis. So that has to be highlighted. It's not all our peers and it's not always clear how our peers report. So you should not expect us to be able to book too much towards the end of the quarter year because we can't account for income until the vessels actually know the cargo.
Lars Barstad: But what's Q1 is that we received a fairly big new fleet from Euronab almost all delivered in the Middle East. What we've done over the quarter has been able to put this fleet into the trade, reflecting the rest of the Frontline fleet, whereas we try to keep a limited exposure to trying to avoid having too much exposure to one particular base, and most more recently it's been the Middle East, that is the soft spot, it's kind of ironic that the VLCC Benchmark or SAP 500 or Dow Jones index is based on the X.
Lars Barstad: Into the trade in Atlantic Basin, the South Africa, US Gulf, Brazil, regretfully a lot of short hauling, because oil hasn't really gone far during the last part of Q2 and into Q3, this has also explained some of the weakness in this segment in particular, and also how it's been cannibalizing on Sue Smaxes and to some extent, I'd say that there is no magic portion, portion there is probably the word, but also keep in mind that this performance is, we're quite okay or proud of it considering also the fact that we reduced our scorer penetration in the fleet. Having said that, you probably also noticed that the spread between the high and low sulfur has been failing narrow, so you could say that the scorer benefits in the more recent months, not being as pronounced.
Lars Barstad: Okay, thanks, ours appreciate that, and just a quick follow-up just on that point or just generally on the V's, have you played into the whole product cargo listing in your fleet? Not on the VLCCS but on the Sue Smaxes, yes, so basically cannibalizing our own allowed to and then just kind of more on the market here. One, we've seen the recent pullback in Libyan exports or at least production volumes. It seems like they're maybe still able to export from inventory, but if this is prolonged and that volume is away from the market, how do you think that affects the different dynamics within the crude trade at this point? Obviously, after Max, they seem more exposed to that, but how do you think the VLCCS and Sue Smax react from in that type of environment?
Omar Nokta: I do also, maybe before the disruption started in the Sue's canal or Red Sea Gulf of Aden, I would have said that this is kind of material, but basically what's happened kind of since those events started to occur, Libyan used to go east by way of either Sue's or well actually rarely all the way around, but at least the Sue's and with the disruptions in Sue's, we've seen that oil trade local, so you write that it affects the Afro-Maxis, it might have limited impact on Sue's Maxis, but I would say we should know impact on the VLCCS, and it's actually again done that you know if you take one crude out of the equation another one comes up and I guess in that situation the if you lose that crude from Libya and that gets made up potentially from the Middle East is that become a VLCC trade potentially but it could also be you know replenished from from Latin America or or US Gulf or was Africa because Libyan is now predominantly going into Europe and not to these to to basically due to the disruption since you Okay got it and then one more for you just on you you talked about the sanctions and you know the dark fleet the gray fleet wanted to ask in terms of you know what's going on with with with Iran how would you well how do you think the market would move forward in the situation where say there's more scrutiny on Iranian crude exports and those fall back to where they were a few years ago you know the I guess you you that gray dark fleet perhaps maybe makes its way back to the clean quote-unquote or not clean but the market fleet how do you kind of think about that versus needing to make up those barrels no I think you know ask this you know this development has been going on for far longer than at least I anticipated or we anticipated but it's so it's basically you know kind of you know making it less and less likely that the vessel servicing this market is ever going to be able to return to a compliant market so it means that you know any change however unlikely to the sanction regime again around you know will will be even a more positive effect on the compliant market you know how this you know and this is an ongoing you know or a discussion that comes so quite often you know from our side of the of the equation you know we we struggled to understand why why this trade can even go on but always if you come from a crude short nation who needs to refine petrol for your inhabitants then then you know you will obviously take an opportunity for for any barrels that you can get hold of. So you know regretfully I don't think we can necessarily do much of this trade what I am saying though is that as the compliant fleet is aging it's surprised into this fleet and this aging is accelerating as we move forward here so actually unless you see Iran able to produce a significant more oil or same goes for us of course I'm an seller all three which is unlikely we'll actually start to have an overcrowded kind of oversupplied sanctioned markets so I think that's you know because I lost all faith in enforcing sanctions I lost all faith in in kind of you know to regulate one out of this you know we had a better tanker that blew outside Singapore recently and nobody really you know put too much attention to that we have a sue smart burning in the Red Sea as we speak nobody really it doesn't really make that much of a headline if you're outside of shipping.
Omar Nokta: So I kind of lost that faith but but what I do believe is that we will See that fleet just continue to grow because they're the source of, you know, the alternative for a shift for a shift turning 20 is still, you know, it makes a lot of sense to go into that market. No, no, not very interesting. No, I appreciate that perspective, somewhat sobering. But yeah, thanks, Lars, I'll turn it over.
Omar Nokta: Thank you, Omar. 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 to enjoy your question, please press star one, one again.
Operator: We will now take our next question. Please stand by.
Devon Sangoy: And the next question comes from the line of Devon Sangoy from TEJ Investments. Please go ahead. Your line is now open. Yeah, yeah, Lars, I just want to ask you a question that we, you mentioned about, you know, the oil spillage indirect sheet which happened and there were several other instances. How do you see this dark fleet insurance getting covered because that's again, the amount of food is moving on and you don't have a global insurance company.
Devon Sangoy: You were willing to underwrite. It's an extremely good question. And, you know, when, when we did the, you know, we've done an exercise prior to this. I'm trying to gauge how many ships and how many vessels are operating in the sanction trades or kind of operating elicitly in the Russian trade because there are owners that are able to trade Russian barrels within, you know, either by way of getting at the station on the price cap or other means that they actually managed to trade Russian crude without raising any flags.
Devon Sangoy: But in order to gauge how much of that, you know, that oil is actually on the sanction, one of the studies we did was basically to see how many of these vessels are actually not ensured by any recognizable P&I club. And that that that is basically the foundation for saying that, you know, with too 75% of the Russian volumes are, you know, under sanctions or sanctions exposed. So, so, and that pains the horrendous picture if something happens.
Devon Sangoy: So, you know, the, the, the, the, the suicide vaccine question that is currently burning in, you know, go for the aid and that has ensured and signed from a P&I club that's recognized. But the tank it up blew up outside Singapore. I might be mistaken, but I still think they're trying to figure out who actually own the school India. So I think this begs a very, very bleak picture if we get more events like this.
Lars Barstad: Thank you. And the second question is on if you see the way soft landing has been questioned about there is always a doubt about US economic going into a sort of recession if not soft landing and you have a Chinese economy not recovering. So next year do you see if both these don't recover then there will be a lower oil demand globally. I don't think we'll have a lower global oil demand globally but the expected oil demand growth will be limited.
Lars Barstad: So but if you couple that with the fact that you know the fleet the tanker fleet is is presumably shrinking at least the efficient fleet is shrinking. We're not too worried about that from a tank at the moment perspective. And any other factor which can affect the time mild because we've seen a significant change in time mild over the last 12 months you know. So do you see any other factor which affects time mild positively or negatively.
Lars Barstad: No there's nothing really that comes to mind we are moving into a weather where a weather exposed period of the year which partly explains the volatility we normally see towards winter so that could obviously change things up. But and obviously you know sudden supply changes like you know Libya was mentioned where we're losing six or six hundred and sixty million barrels per day or thereabouts that is actually enough to to trigger certain changes.
Lars Barstad: But but there is nothing kind of apparent I see we see the TMAX pipeline which is the new flow out of Canada on the US West Coast that is kind of developing but it doesn't seem to have altered trading lanes materially. And but it's again you know one thing to watch is of course production growth in Guiana in Brazil and then in use golf there is not so much export growth expected out to use golf next year but with you know everybody has been growing every year in in in quite a long time.
Lars Barstad: And there is also an election over there so which might affect the willingness to invest in in production which will be on on on exports is I think that the numerous kind of interesting spots to look at but nothing kind of material that I think will happen very very soon. Okay and if as you you've seen you've been paying out hand from dividend but if you're all on the bull market goes right you will be flushed with so much cash what do you do with it.
Lars Barstad: Cash. We pay it to our dear investors. Then you can decide what to do. That was kind of jokingly said, but that's basically how we operate. Unless we see an investment opportunity that we think will yield our investors' better return on equity, we will pay it all out. Okay, so you don't see any, see you've done pretty, we were the first one to, you know, take out all the ships from the yard, you know, half completed VLCC and now you'll leverage your balance sheet.
Lars Barstad: So you have a financial leverage, operating leverage. Do you still see any good asset acquiring opportunity or are we done with it? I think and I hope that we are in line with the rest of the market that we need to see a confirmation in the rates, you know, in our market before we have, you know, the conviction to do anything on the asset side. So basically right now we're going to have content with the fleet, the fleet composition we have.
Devon Sangoy: But if the market is going to continue to only pay us 40 to 45,000 dollars per day, there is makes no sense to either buy nor order a ship at these price levels.
Lars Barstad: Thank you, Lars, and all the best. Thank you very much. Thank you.
Operator: As a reminder to ask a question, you will need to press star one, one on your telephone and wait for your name to be announced. To withdraw your question, please press star one, one again.
Lars Barstad: As there are no further questions, I would like to hand back to Lars Bastard for any closing remarks. Thank you. And thank you for listening in. Thank you for Robo for very, very good questions. And we'll just keep our fingers crossed for the normal season pattern to start to come to play. Thank you.
Operator: This concludes today's conference. Cool. Thank you for participating. You may now disconnect. Thank you.