Q1 2025 Frontline PLC Earnings Call
But all the action around us both in respect of equity market volatility changing policies and global trade negotiations.
Operator: Thank you for joining us today. Despite all the action around us, both in respect of equity market volatility, changing policies and global trade negotiations, the tanker market has moved along in an orderly manner. To recap the first quarter of the year, the VLCC were volatile, with three to four exciting rallies and a rising floor. ZeusMax and AfroMax had a strong finish to the first quarter, whilst LR2's struggled. We are in a situation where the inverse earnings relationship between asset classes seem to be gone and the VLCC is taking the lead. This may also be caused by the fact that incremental export growth is finally coming from compliance.
Tanker market has moved along in an orderly manner.
To recap the first quarter of the year the VLCC for were volatile with three to four exciting rallies.
Arising floor.
Suezmax and Aframax had a strong finish to the first quarter, whilst the LR twos struggled.
We are in a situation where the inverse earnings relationship between asset classes seem to be gone and the VLCC is taking the lead.
This may also be caused by the fact that incremental export growth is finally coming from compliance sources.
So before I go.
Given the virtual Inger I'll run through our <unk> numbers on slide three in the deck.
Lars Barstad: So before I go and give the word to Inger, I'll run through our TC numbers on slide 3 in the deck. In the first quarter of 2025, Frontline achieved $37,200 per day on our VLC-C fleet. $31,200 per day on our Suess Max fleet. and $22,300 per day on our LR2 slash app. So far in the third quarter, 68% of our VLC-C dates are booked at $56,400 per day, 69% of our SUSE Max dates are booked at $44,900 per day, and 66% of our LR2 slash Afromax dates are booked at $36,100 per day. Again all numbers in this table are on a load to discharge basis with implications of ballast days at the end of the quarter and I think it is worth mentioning that in particular for our LR2s in Q1 we finished the quarter with quite a few ballast days as we entered Q2.
In the first quarter of 2025 frontline achieved $37200 per day on our VLCC fleet.
$31200 per day on our Suezmax fleet.
$22300 per day on our luxury slash Aframax fleet.
So far in the third quarter, 68% of our VLCC days are booked at $56400 per day 60.
69% of our Suezmax days are booked.
At $44900 per day.
66% of our LR to slash Aframax days are booked at $36100 per day.
Again, all numbers in this table are on the load to discharge basis with implications of ballast days at the end of the quarter.
It is worth mentioning that in particular for our <unk> in Q1, we finished the quarter with quite a few palisades.
As we entered Q2.
Now I'll, let <unk> take you through the financial highlights.
Inger Klemp: Now, I'll let Inger take you through the financial highlights. Thanks, Lars. And good morning and good afternoon, ladies and gentlemen.
Thanks, Josh.
Josh: Good morning, and good afternoon, ladies and gentlemen.
Josh: Turn to slide.
Inger Klemp: Let's then turn to slide four. presentation and look at some highlights. We report profits of $33.3 million or $0.15 per share and adjusted profit of $40.4 million or $0.18 per share in this quarter. Adjusted profit in the first quarter decreased by $4.7 million compared with the previous quarter and that was primarily due to a decrease in our time charter earnings from $2049 million in the previous quarter to $241 million in the first quarter. That, again, is a result of lower TCE rates. that was also partially offset by fluctuations in other income and expenses.
Or.
Perfect.
Josh: And look at some highlights.
We've talked a bit tepid.
Three <unk> million or <unk> 15 per share.
Josh: Adjusted profit of eight.
Josh: $8 4 million or <unk> 18 per share this quarter.
Josh: Adjusted profits in the first quarter decreased $5 7 million compared with the previous quarter and that was primarily due to a decrease in other time charter earnings from towards that $49 million in the previous quarter Q2, and 41 million in the first quarter.
That's again, it's just I'll turn it over to Keith to ebay.
Josh: It was also partially offset by <unk> and other income and expenses.
Keith: Let's then look.
Keith: Yes, the balance sheet.
Inger Klemp: Let's then look at the balance sheet. On slide five. The balance sheet movements this quarter are related to ordinary items. Frontline has a solid balance sheet and strong liquidity of $805 million in cash and cash equivalents, including undrawn amounts of revolver capacity, marketable securities and cash requirements for banks as per March 31st, 2025. We have no meaningful debt maturities until 2030 and no new building commitment.
On slide five.
Keith: The balance sheet movements. This quarter are related to ordinary items frontline has a solid balance sheet and strong liquidity of $805 million in cash and cash equivalents into.
Keith: Including Undrawn amounts of enrollment with capacity marketable securities and our cash requirements for bank as per March 31st 2025.
Keith: Have no meaningful debt maturities.
Until 2030, and no EBIT and commitment.
Keith: Yes.
Keith: Okay.
Inger Klemp: Let's look at part six. Cashbreakey and Dave Hynth Others, please. Consists of 41 WSIS, 22 SUZMAC tankers and 18 LI2 tankers. Has an average age of 6.8 years and consists of 99% eco-vessels, where of 56% are scrubber-fitted. We estimate average cash breakeven rates for the next 12 months of approximately $29,700 per day for the NCCs. $24,300 per day for SUSMAC tankers and $23,300 per day for LR2 tankers with a fleet average estimate of about $26,800 per day. This includes dry dock costs for 10 VFDCs, 2 Suspex tankers and 5 LRQ tankers. The fleet's average estimate excluding drawdown costs is about $25,700 per day, or $1,100 per day less.
To the competition.
Keith: Cash based <unk>.
Keith: Obviously.
Keith: Consists of 41 fifth 22, Suezmax tankers and ATM LNG tankers.
Has an average age of six eight years and consists of 19, 9% equal versus 56% are scrubber fitted.
Keith: Yeah.
Keith: We estimate average cash breakeven rates for the next 12 months of approximately 29 seven.
Keith: $700 per day for the interface.
Keith: 434, $300 per day for Suezmax tankers.
Keith: <unk> $3300 per day, whereas our two tankers.
With a fleet average estimate of about $26800 per day.
Keith: This increase in Drydock cost for time, 10, Vlccs, two suezmax tankers and five in our two tankers.
Keith: The fleet average estimates excluding drydock costs is about $25700 per day.
Keith: $1100 per day.
Keith: No vessels dry docked in the first quarter and we recorded opex expenses of $8400 per day for Vlccs.
Inger Klemp: No vessels were dry docked in the first quarter and we recorded OPEC's expenses of $8,400 per day for VLCC's, $8,000 per day for Suez Bank tankers and $8,200 per day for LR2 tankers. If you want the least average, it's approximately $300 per day.
Keith: Constant dollars per day for Suezmax tankers, and $8200 per day for <unk> tankers, the Q1 average.
Keith: $800 per day.
Keith: Lastly, let's look at slide seven.
Inger Klemp: Lastly, let's look at slide 7. First generation. Frontline has a substantial cash generation potential with about 30,000 earnings days annually. As you can see from the graph on the left-hand side of this slide, the cash generation potential bases our current fleet on May 25 forward rates for TD3C for VCCs, TD20 for Sysmax tankers, and an average of TD25 and TC1 for AFRAMAX and LR2 tankers from the Baltic exchange as of May 23rd is $332 million or $1.49 per share and a 30% increase from current spot market will increase the potential cash generation with about 100%.
Keith: Cash generation.
Keith: Sometimes have a substantial cash generation potential with about 30000 are any states annually.
Keith: Can see from the graph on the left hand side of this slide.
Keith: The cash generation potential basis African fleets.
Keith: May 25 forward rates for TV D. C. For these disease TD 24, Suezmax tankers and an average of <unk> 25, Mtc one for Aframax and then our two tankers.
The Baltic exchange.
Keith: On may 23rd is $332 million or $1 49 per share.
Keith: A 30% increase from current spot market will increase the potential cash generation with about 100%.
Lars: With this I leave the word to Lars again.
Lars Barstad: With this, I leave the world to Lars again. Thank you very much, Inger. Let's look at slide 8. have a discussion on the various market themes. So I mentioned initially that it's it's been a lot of noise around us. We've had paralyzing US policy changes, likely limited impact on the energy complex so far and for tankers in general. But this is in total quite worrying for global growth prospects. And as we proceed, we will learn how kind of big these impacts may be. We've had a very positive development on the sanctions, both by way of scope widening.
Speaker Change: Thank you very much senior.
Let's look at slide eight.
Keith: Hmm.
<unk>.
Keith: Discussion on the various market themes.
So I mentioned initially about it there's been a lot of noise around us with hub I realized <unk> sort of policy changes.
Keith: Likely limited impact from energy complex so far.
Im for tankers in general.
Keith: This is in total quite worrying for global growth prospects are.
Keith: Supersede, where we'll learn how kind of being this impact may be.
We've had a very positive development on the sanctions both by way of scope widening the various agencies are literally adding.
Lars Barstad: The various agencies are literally adding new vessels to the sanction list and new operators on a day-to-day basis. But we've also seen that there is a bit more will in enforcement of the same. But I think most importantly, it's the behavioral changes, specifically by India and China, on the way they operate with or towards OFAC-listed vessels. And so far, both Russia and India, sorry, China and India seem to be shunning vessels that are on the OFAC-listed. There are some excitement around Russia and the Ukraine ceasefire discussions. There is also a parallel discussion ongoing in respect of a nuclear deal with Iran.
The new vessels to the sanction list the amnio operators.
Keith: On the day to day basis, but we also see him about the risk a bit more will in enforcement of the same functions.
Keith: But I think most importantly is the behavioral changes.
Keith: Specifically by India, and China on the way they operate with the ore towards or forklifts and vessels.
Keith: So far both Russia, India sorry.
Keith: Sorry, China, India seem to be shortening full.
Keith: So stop are although protests.
Keith: There are some excitement around Russia, the Ukraine seats for our discussions there is also a parallel discussions ongoing in respect of our nuclear deal with Iran.
Keith: Both our comps come hard pivot to Sanchez for tanker market dynamics that are going to come to that later.
Lars Barstad: Both outcomes can have pivotal changes for tanker market dynamics, and I'm going to come to that later. We're also seeing some positive movements on OPEC stance and OPEC policy. They seem, at least until now, quite eager on returning oil to the market, which is positive for compliant tanker utilization.
Keith: We're also seeing some some.
Keith: Positive movements on Opex down and OPEC policy.
Keith: They seem at least until now.
Keith: I'm eager on returning oil to the market, which is positive for compliant country utilization.
Keith: I'm also gonna come into or pop into old school demand supply and inventory movements.
Lars Barstad: I'm also going to come into or pop into old school demand, supply and inventory movement. It's quite funny, this chart was a recurring theme in our presentations kind of early in 2020 and 2021 and so forth, but it's, you know, been out of the deck for a while. But there are some interesting moves happening. And also again, I said the same after the Q4 report, the active trading fleet has stopped growing and despite the deliveries we're going to see in 2025 and to some extent in 2026 as well, the overall trading fleet looks to continue to reduce.
Keith: Some that this shock with a recurring theme in our presentations kind of early in the 2020 and 2021 and so forth, but it's been.
Keith: <unk> been out of the deck for awhile, but there are some interesting moves happening.
Keith: And also again reset rates as of the same after the Q4 report back at the trading fleet has stopped growing and despite the deliveries we're going to see in 2025, and so it makes them 26 as well.
Keith: Overall trading fleet looks to continue to reduce.
Keith: I would very much like to draw your attention to the short on the top right hand side and this is kind of mind boggling.
Lars Barstad: I would very much like to draw your attention to the chart on the top right hand side, and this is kind of mind boggling. If you look at vessels that are either sanctioned, not sanctioned yet, but have been lifting Iranian, Russian or Venezuelan barrels during the last year, or are older than 20 years, that population of vessels makes up 25% of the wheels. It makes up 46% of the SUSMAG fleet and 52% of the AfriAllergy fleet. Of course, a reversal of sanctions will make a material amount of particularly Zeus Maxis and Afro Maxis return to the market.
Keith: If you look at that floats up or either sanctions sanctioning dx, but have been lifting Iranian restaurant over 1000 barrels a day.
Keith: In the last year.
Keith: Or are older than 20 years.
Keith: That population of vessels.
Keith: It makes up 25% of the VLCC fleet it makes up 46% of the Suezmax fleet.
Keith: 52% of our for our electric fleet.
Keith: Of course, a reversal of sanctions will make a material amount of particular suezmax and Aframax is return.
Keith: Two of them to the markets a lot of these guys that are lifting where some barrels are doing so in accordance with a price cap. So they are of course.
Lars Barstad: A lot of these guys that are lifting Russian barrels are doing so in accordance with the price cap. So they are, of course, perfectly allowed to do that. But any tightening on sanctions could suddenly make them move from the gray side to the more dark side. There is also an increasing demand for non-OFAC listed vessels in particular the Russian market. And, you know, so this fleet or this portion of the fleet is gradually growing. But it also exemplifies how sensitive our market is to sanctions and changes in sanctions, basically due to the amount of tonnage that is at or in play.
Keith: Perfectly.
Keith: To do that.
Keith: Thus any poisoning on sanctions could suddenly make them move.
Keith: From the grain side to the more dark side. There is also an increasing demand for more we'll focus the vessels in particular the rational market.
Keith: This is a this fleet for this portion of the fleet is gradually growing.
Keith: But it's all.
Keith: It also exemplifies how sensitive are market this to sanctions.
Keith: Unchanged since sanctions.
Keith: Basically due to the amount of tonnage, but its up are in play.
Keith: So let's move to slide nine and look at the old school market sell objects.
Lars Barstad: So let's move to slide nine and look at the old school market logic. The chart on the left, you know, it looks a bit extreme, but it's obviously post-COVID development in oil demand and supply. So, you know, quite a steep rising curve there in the beginning, but now it's more normalised. If you look at the grey area, which represents EIA latest forecast, we're actually moving into an overall supply and demand around 106 million barrels by the end of 2020. What's more interesting is that supply, and this is obviously motivated by OPEC's increase, but also, or fuelled by OPEC's increase, but also to some extent by expected production growth in especially Guyana and some in Brazil, we're going to end up in an oversupplied position in the oil market.
Keith: The chart on the left it looks a bit extreme but it's obviously post COVID-19 development in oil demand and supply.
Keith: So quite a steep pricing curve there in the beginning but more more and more of them now.
Keith: Now it's more normalized if you look at the Gray area on which represents EIA latest forecast, we're actually moving into <unk>.
Keith: Overall.
Keith: On the mom around 106 million barrels by the end of 2026.
Keith: More interesting is that supply and this is obviously motivated by Opex increase that's also fueled by Opex increase.
Keith: But also to some extent by expected production growth and especially we are now.
Keith: Some in Brazil.
Keith: We're going to end up in an oversupplied position.
Keith: Our position in the oil markets.
Keith: Historically and this is the chart on the right. If you look out to the ebb and flows of inventory builds and grows.
Lars Barstad: Historically, and this is the chart on the right, if you look at the ebb and flows of inventory bills and draws, they correlate quite strongly to the performance of the overall tank market. This is pretty easy to explain and this is not due to utilization by way of floating storage. You don't need a carry strong enough in order to achieve this in the market. It's simply the incremental volume that ends up being transported. That's not going directly for consumption, it's going for storages either in China, Japan, Korea, or even in the U.S. And I don't think I need to remind the audience that we are at years low inventory around the globe.
Keith: Correlate quite strong led to the performance of the overall tanker market. This is pretty easy to explain and this is not due to utilization by way of floating storage you don't need.
Keith: Carriers strong enough in order to achieve this in the market. It is simply the incremental volume that ends up being transported.
Keith: That's not working directly for consumers conservation is calling for storage.
Keith: Either in China, Japan, Korea, or even in the U S.
Keith: I don't think I need to remind the audience that we are up year slow inventory.
Keith: Around the globe.
Keith: Let's move to slide 10.
Lars Barstad: Let's move to slide 10. and just go through some of the headlines affecting tankers these days. So on tariffs, there was a 90-day delay on the enforcement of the Liberation Day tariff. and the tariffs themselves are being eased. Also on the tariff side, energy is to a large extent exempt, so we don't really need to, or we don't really fear this will affect global trading patterns that much. On the USTR, the recent proposal from USTR shows a softening stand or softening wording with the key exceptions for oil and energy. The final proposal is expected by the end of May after the more recent hearing, but so far it looks like exports from the U.S.
Keith: And just go through some of the headlines affecting tankers these days.
Keith: So on tariffs.
Keith: That will certainly today delay on and for them for Smith of deliberation that RF.
Keith: And the tariffs themselves are being east also on the tariff side energy is to a large extent exempt.
Keith: So we don't really need to we don't really sphere. This will affect global trading patents that much.
Keith: On the U S TR.
Keith: Recent proposal from USTR shows a softening stand or softening wording.
Keith: With the key exceptions for oil and energy.
Keith: Final proposal is expected by the end of May after the more recent hearing.
Keith: But so far it looks like exports from the U S is six times.
Keith: Oil discharged into the U S is not that material exposure to frontline and.
Lars Barstad: to this extent, and oil discharge into the U.S. is not a material exposure to Frontline, and also half of our fleet is non-Chinese, so we may still be able to serve that market. Overall, the U.S. accounts for around 17% of the global oil market, so it's not an absolute disaster if the latest communication from the U.S.C.R. remains as we saw it last. We have maximum pressure on Iran 2.0 or a nuclear deal. This is back in the headlines and in the middle of this trade war. Negotiations are ongoing, but. In the case of making a nuclear deal with Iran, for them, lifting of sanctions is a red line.
Keith: And all so half of our fleet is non Chinese so we may still be able to serve that market.
Keith: Overall in the U S accounts for around 17% of the global oil market.
Keith: So it's not.
Keith: In absolutes this Ulster if this as.
Keith: As it relates sister relationship or.
Keith: Communication from the USTR.
Keith: Remains as we saw it last.
Keith: We have a maximum pressure on Iran to all or a nuclear deal.
Keith: This is back in the headlines.
Keith: In the middle of this trade war negotiations are ongoing.
Keith: Yes.
Keith: In the case of making a nuclear deal with Iran.
Keith: For them lifting of sanctions is a red line.
Keith: And if the audience can imagine what will happen then.
Lars Barstad: And if the audience can imagine, what will happen then? So 1.4 to 1.6 million barrels per day of export capacity that can grow quite rapidly, will then all of a sudden become a compliant barrel. And as I've said repetitively, compliant barrels need compliant ships. Yes, you might see some vessels being able to return to the compliant market. But in general terms, most of the vessels that are engaged in Iranian trade right now have absolutely no chance to come back into the compliant market. The actors in the compliant market have extremely strict rules and regulations around the ships they want to engage.
Keith: So one four to $1 6 million barrels per day of export capacity that can grow quite rapidly. We will then all of a sudden become compliant barrel.
Keith: As I've said repetitively compliant barrels need compliance ships.
Keith: Yes, you might see some.
Keith: So being able to return to the compliant market.
Keith: But in general terms most of the folks that are engaged in everybody and trade right now have absolutely no chance to come back into the component market.
Keith: Actors in the component market have extremely strict rules and regulations around the ships they want to engage.
Keith: These ships also carrying.
Lars Barstad: And these ships are also carrying an environmental risk cargo worth for a VLCC around $120 million. So it's not something a charter is going to kind of take a light on. Then we have Russian sanctions expansion. There is a peace or a ceasefire discussion going on between Russia and Ukraine. On the table, there will for sure be sanctions either lifting or tightening. By the looks of it right now, it's more likely that we're going to see tightening rather than easing. EU lastly added 168 or I think it was thereabouts vessels to their sanction list. UK added 100 about a week and a half ago, and it seems like OFAC is going to continue their pursuit to find sanctions breakers around the Russian trade.
Keith: Yeah.
Keith: And environmental risk cargo.
Keith: For a VLCC around $120 million. So it is not something that charter is going to kind of take a light on.
Keith: Then we have Russian sanctions expansion there is a piece or a cease fire discussion going on between Russia and Ukraine.
Keith: On the table there will for sure be sanctions are either listing or type thing.
Keith: Whether we look solid right now it's more likely that we're going to see tightening rather than you think.
Keith: The EU law play.
Keith: <unk> hundred 68 or thereabouts the source.
Keith: Two the sanction list.
Keith: UK added hundred about a week and a half ago and it seems like a fox is going to continue that pursuit to find functions breakers around the restaurant trade.
Keith: There is also discussion coming up whether if the oil price cap is going to be reduced from 16 to $50.
Lars Barstad: There is also a discussion coming up whether if the oil price cap is going to be reduced from $60 to $50. So a lot of excitement on that. Vensella exemptions removal, there was formally a situation where you could export equity barrels out of Vensella. So typically, Chevron were allowed to take the oil that they actually own in Vensella. This has to a large degree now been removed, and it's only on a case-by-case basis we see Chevron being able to take oil out of Vensella. This means that their export, which actually grew to 800,000 barrels per day in the last cycle, is now going dark.
Keith: So a lot of excitement on that.
Keith: <unk> removal that was formally.
Keith:
Keith: A situation, where you could exports equity barrels out of Venezuela, So typically chevron.
Keith: We are allowed to take the oil up there.
Keith: Actually one inland seller. This has two large degree now been removed and it's only on a case by case basis, we see chevron being able to take oil off of them seller. This means up their exports, which actually grew to 800000 barrels per day in the last cycle.
Keith: It's now going dark.
Keith: And then we have this as I also touched upon earlier, there's some long quarter for down in the outlook for compliance. This is extremely welcoming because it's actually the only ways.
Lars Barstad: And then we have this, as I also touched upon earlier, the Shandong Port Authority and India OFA compliance. This is extremely welcoming because it's actually the only way sanctions can work, is that the receivers or the actors self-sanctioning using these vessels.
Keith: <unk> can work is that their receivers for the actors self functioning using these vessels.
Keith: We have the Red Sea is for a month and I should other than the U S. To this there is now ceasefire between U S on the <unk>.
Lars Barstad: We have the Red Sea, Israel and Hamas, and I should add the U.S. to this. There is now a ceasefire between the U.S. and the Houthis. This has not materially changed our position on trading the Red Sea area, and it has not materially altered the traffic lanes yet. It's also so that it's quite a fluid situation, and any kind of action that happens around this conflict could suddenly trigger an attack. So, so far, we do not want to risk the lives of our seafarers by trading through the Red Sea.
Keith: It has not materially changed our position on trading in the Red Sea area.
Keith: And it has not materially alter the traffic plans yet.
Keith: Thats.
Keith: It's also so that it's a.
Keith: Quite a bit.
Keith: A fluid situation and any kind of action that happens around this conflict could suddenly trigger an attack. So so far we do not want to risk the lives of our seafarers by trading through.
Keith: The Red Sea.
Keith: But then finally, we have OPEC, plus which is almost disappearing in all these other narratives.
Lars Barstad: But then finally, we have All Texas, which is almost disappearing in all these other narratives. that have said that they might potentially kind of return their voluntary cuts back to the market by October. It's going to be exciting to see what comes out of the next meeting and there is already signals that they might add 411,000 barrels per day in July as well. What we've seen, the initial production rises, have not really given us that many more molecules into the market. I think this is primarily due to the fact that it's more a paper exercise to catch up to the overproduction that's already present in OPEC.
Keith: Having said that they might potentially.
Keith: The kind of return there are voluntary cuts back to the markets by October is going to be exciting to see what comes out of the next meeting others already signals that I might add.
Keith: 4.0, sorry, 411000 barrels per day in July as well.
Keith: What we have seen kind of in the.
Keith: Initial production rises.
Keith: Have not really given us that many more molecules into the market. I think this is primarily due to the fact that it's more of a paper exercise to catch up to the over production that's already presence in opex, but from June onwards.
Lars Barstad: But from June onwards, the volumes that might come will be real molecules coming into the market.
Keith: The volumes that might come will be real molecules coming into the market.
Keith: I'd like to draw your attention to the right hand side on this slide.
Lars Barstad: I'd like to draw your attention to the right hand side on this slide, and you've all seen the fleet development with the orange line being vessels just plainly below 20 years of age. And again, it's still so that very few shoppers, if any, accept a ship that's above 20 years in our industry. But if you look at the chart below here, we've looked at basically all tankers that take part in the market that are not OFAC listed, and not on long term storage, and not kind of coastal trading tankers. And there you can see that the overall tanker fleet actually shrunk by half a percent in 2024, and including all the deliveries coming into 2025, it's not really that many, but there are some.
Keith: Also in the fleet development with the Orange line being vessels just plain led below 20 years of age and again, it's still so that's very few shockers, if any except the shipped up above 20 years in our industry.
Keith: But if you look at the chart below the hair, we've looked up basically all tankers that take part in the markets that are not of a clustered.
Keith: Not on long term storage.
Keith: What kind of coal.
Keith: Trading tankers and there you can see that the overall tanker fleet actually shrunk by half a percent in 2024 and including all the deliveries coming into transatlantic.
Keith: It's not really last name, but there are some.
Keith: It looks to continue to shrink.
Lars Barstad: looks to continue to shrink.
Keith: Let's move to slide 11.
Lars Barstad: Let's move to slide 11. And I'm quite happy to say that sanctions actually do work, not by way of volume, it's more or less, it's quite sticky, the volume that is coming into the market, but by way of the fleet that is actually carrying this oil. The January expansion of particular OFAC sanctions and also the self-sanctioning by China and India has made the market conditions for an OFAC-listed tanker extremely poor. As particularly the Russian crew that's been below the price cap, it's attracted a lot of compliant tonnage to come in and service this market. But this kind of fall in utilization on OFAC-listed tankers is extremely promising.
Keith: And I'm quite happy to say that sanctions actually do work not by way of volume.
Keith: More or less it's quite sticky the volume that is coming into the market.
Keith: By way of the fleet that is actually carrying the soil.
Keith: The January expansion of particular of sanctions.
Keith: And also the self functioning bye bye bye China.
Keith: Yeah.
Keith: <unk> made the market conditions for our core focus the tankers extremely poor.
Keith: As particularly the Russian crude has been below the price cap, it's attracted a lot of.
Keith: Compliance so much to come in in service this market.
Keith: This kind of fall in utilization or forecasted tankers is extremely promising.
Keith: On the right hand side on the top when planes with the scenario that sanctions are either are removed.
Lars Barstad: On the right-hand side, on the top, we've played with a scenario that sanctions are removed. And this is important because tightening sanctions and removal of sanctions will actually both yield a positive effect on our market. And there is about 7 million barrels per day of global transported oil that is exposed to one sanction or another around the world. and just imagine if all this comes back. It's not likely, but it just gives you a picture. These 7 million barrels would equate to more than 200 VLCs worth of transport needs. And looking at the feed composition, it's not very likely that we have that kind of capacity.
Keith: And this is important because tightening sanctions and the removal of sanctions will actually both yield a positive effect.
Keith: Omar markets.
Keith: And there was about 7 million barrels per day of global transported oil that is.
Keith: Two one sanction or another around the world.
Keith: Just imagine if all this comes back its not like Glenn but it just gives you a picture this 7 million barrels would equate to more than 200, the vlccs worth of transport needs.
Keith: And looking out to the fleet composition is not very likely that we have that kind of capacity easily.
Keith: I think it is however, likely that one or maybe two of this will actually come in and become nonfunctional barrels over the next few years.
Lars Barstad: I think it is, however, likely that one or maybe two of these will actually come in and become non-sanctioned barrels over the next year. Back to sanctions, does it do work? If you look at Iranian crude inventories, the floating storage seems to be on the rise. And this is basically due to crude struggling to find a home.
Keith: Back to the sanctions and do work if you look at the Iranian crude inventories the floating storage seems to be on the rise and this is basically due to crude struggling to find a home.
Keith: Let's move to slide 12, and look at the good old order book.
Lars Barstad: Let's move to slide 12 and look at the good old order book. There's nothing material that's changed since our Q4 report, but I'd like to draw the attention to the fact that for the veal species, there are now far more OFAC-listed veal species than there are vessels in the order. Suezmax, more of the same. If you're just for what's on OFAC, and mind you, OFAC-listed vessels are extremely unlikely to return to the compliant market, the order book is almost ignorable. And the same goes for AFROMAXIS and LR2s, even though the LR2 has a very high nominal order book.
Keith: There's nothing material that's changed since our Q4 report.
Keith: Like to draw your attention to the fact that for the Vlccs are no now far more of forklifts. The vlccs than there are vessels in the order book.
Keith: Suezmax some more of the same if you adjust for.
Keith: <unk> and mind you all forecasted vessels are extremely unlikely to return to the compliance market.
Keith: The order book is almost ignorable.
Keith: And the same goes for Aframax. This analog choose even though their luxury has very high nominal order book.
Keith: If we look at or kind of have a look back at the sharp I showed up on the first.
Lars Barstad: If we look or kind of have a look back at the chart I showed on the first – on slide eight, you know, with 52 percent of that fleet exposed to one sanction or another, we're actually not that worried about that fleet going forward. Also, on the age situation for LR2s in particular, they seem to lose efficiency and become less attractive as a product trading vessel at the age of 15. And this is still the case in the normal tank.
Keith: On slide eight.
Keith: With 52% of that fleet.
Keith: Exposed to.
Keith: One function or another.
Keith: We're actually not worried about that fleet going forward also in the Asia situation for a lot of juice in particular.
Keith: They seem to lose efficiency and become less attractive.
Keith: Products trading vessel at the age of 15, and this is still the case and then more and more.
Keith: Tanker markets.
Keith: So let's move to slide 13, and then look at the summer submarine.
Lars Barstad: So let's move to slide 13 and look at the summary of... basically put the positive heading of pressure building, question mark. That's at least what it feels like on the floor here. So oil supply and demand suggests we approach a period with the old-school inventory buildings with the utilization implications that has for the tanker market in general. Demand for compliant tonnage is growing as the sanction scope and enforcement widens, and again the fact that certain key players in this market are actually self-sanctioning, particularly against OFA. The effective tanker fleet growth will remain muted for 2025.
Keith: So basically the positive heading of pressure building question Mark.
Keith: At least what it feels like.
Keith: On the floor here so.
Keith: So oil supply and demand suggest we approach a period when the old school inventory buildings with the utilization of implications that has for the tanker market in general.
Keith: Demand for compliant how much is growing as the sanction scope and enforcement widens and again, the fact that certain key players in this market are actually self functioning, particularly against <unk>.
Keith: The second is tanker fleet growth will remain muted for 2025, we actually continue to see oil demand looking to increase.
Lars Barstad: We actually continue to see oil demand looking to increase. Considering the aging of the fleet, this gives us the tailwind we need further into 2025 and into Policy changes do create more questions than answers. We will get, hopefully, some answers by the end of this month, but the overall wording has softened. And again, I'm going to repeat this until it changes. World oil trade continues to be serviced by the oldest fleet in more than two decades. And obviously, if we look at the regulatory landscape we are in, with decarbonisation being a key goal for the industry, this is very contradicting.
Keith: And considering the ageing of the fleet this gives us the <unk>.
Keith: Aylwin.
Keith: We need into 'twenty further and further into 'twenty five 'twenty six.
Keith: Policy changes do create more questions than answers, we'll get hopefully some answers by the end of this month, but the overall wording has softened.
Keith: And again I'm going to repeat this until it changes robo trade continues to be serviced by the oldest fleet in more than two decades.
Keith: And obviously, if we look at the regulatory landscape, we are in with the carbonization being a key goal for the industry. This is very contradicting.
Speaker Change: And lastly, frontline continue to retain our material upside as inger pointed to we have a modern sparks spot exposed fleet.
Lars Barstad: And lastly, Frontline continue to retain our material upside as Inger pointed to. We have a modern spot exposed fleet ready to service the compliant oil market.
Keith: Ready to service the compliant oil market.
Keith: Thank you for that and we can open up for questions.
Operator: Thank you for that and we can open up for questions. Thank you.
Keith: Thank you.
Keith: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.
Operator: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To register your question, please press star 1 and 1 again. We will now take the first question.
Keith: To withdraw your question. Please press star one on one again.
Keith: We will now take the first question.
Speaker Change: From the line of Sherri and Mike Ob from BTG. Please go ahead.
Sherif Elmaghrabi: From the line of Sherif Elmaghrabi from BGIG, please go ahead. Hi, thanks for taking my questions. First, at a high level, when I look at BLCC pictures over the last... activity in the Atlantic has been a bit on the quiet side. Do you think that's a reaction to OPEC's accelerated ramp? And do you have a sense of what might drive more long-haul cargoes out of the Atlantic? Yeah, no, it's a very good question. The art and basically the economics of U.S. exports, it's very much an ebb and flow business. We actually find it difficult to explain the quietness in the U.S.
Speaker Change: Hi, Thanks for taking my question.
Keith: First at a high level when I look at VLCC fixtures over the last few weeks.
Keith: Activity in the Atlantic has been a bit on the client side do you think that the reaction to opex accelerated ramp.
Keith: Do you have do you have a sense of what might drive more long haul or long haul cargo Valley Atlantic Basin.
Keith: Yes, no it's a.
Keith: It's a very good question.
Keith: The <unk>.
Keith: <unk>.
Keith: Basically the economics of U S exports is very much an ebb and flow business.
Keith: We actually find it difficult to explain the quietness in the U S Gulf area as we speak basically.
Lars Barstad: Gulf area as we speak, basically. In general terms, there's quite a bit of tonnage sitting on kind of oil majors and traders' hands. And these are fixtures you will not really see in the market. They will basically be concluded in-house and the material will sell. So it could be a degree of that. But it could also be a degree of refinery runs in the U.S. ahead of summer. That basically kind of lessens the demand for exports or the push for exports. And lastly, there is also an element around Canada who have increased their exports away from U.S., not materially, because it's limited mostly to the TMX pipeline expansion, but it also adds to the picture.
Keith: In general terms, there is quite a bit of tonnage sitting on.
Keith: Kind of oil majors and traders hands and these are fixtures you all months really see in the markets. They will basically be concluded in house.
Keith: On the material, we will say so it couldnt be a degree of that.
Keith: But it could also be a degree of refinery runs in the U S. I have the summer.
Keith: That basically kind of lessen the demand for four for exports or the <unk>.
Keith: Christopher exports and lastly, there is also an element around Canada, who have increased their exports away from.
Keith: From you is not materially because it's limited more split to the <unk> pipeline expansion, but it also adds to the picture, but I have to say on the same note. We haven't seen extremely active flows coming out of Brazil and also.
Lars Barstad: But I have to say on the same note, we've seen extremely active flows coming out of Brazil and also a good kind of volume coming out of Guyana. And we've also seen an increased interest, particularly from India, on lifting West African barrels.
Keith: Kind of volume coming out of Ghana.
Keith: And we've also seen an increased interest, particularly from the Indian.
Keith: From India.
Keith: <unk> lifting west African barrels.
Keith: That's great color. Thanks.
Inger Klemp: That's great call Lars. And just one on, I guess on the operating side, operating costs were a bit higher sequentially and also year over year on a per vessel basis. So could you shed some light on what's driving that? Yeah. If you refer to this ship operating expenses this quarter, it was more like a going rate in a way. The number you had last quarter was affected by rebates on insurance and on the supply rebates about 4.9 million. So I think 60.3 million is more like a going rate in a way. Also if you refer to the administrative expenses You can't really compare these two numbers against each other.
Keith: Just one on I.
Keith: I guess on the operating side operating costs were a bit higher sequentially and also year over year on a per vessel basis. So could you shed some light on whats driving that.
Keith: Yeah.
Keith: Yes.
Keith: If you refer to as cash operating expenses this quarter it was.
Keith: And it was more like a <unk> number you had last quarter.
Keith: Thank you goodbye.
Keith: And the banks on insurance and.
Keith: <unk>.
Keith: About $4 9 million, so I think $60 3 million and that's more like a bank in a way.
Keith: Also if you refer to the administrative expenses.
Keith: You can't really compare.
Keith: These two numbers against each other you have to adjust for this then.
Inger Klemp: You have to adjust for this re-evaluation of the synthetic option liability that we are In the Q4 you had a gain of $7.9 million and in Q1 you have a loss of $1.6 million. So if you do those adjustments you will see that the cost increase in Q1 on administrative expenses is only $2 million. and so and then you have the interest expense which is down from previous quarter with about six million so all in all actually we are quite good on cost development.
Keith: The integration of the synthetic optionality that they are.
Keith: And getting information out in the press release in the Q4 you had a.
Keith: Gain of $7 9 million and Q1, you have a loss of $1 6 million. So if you do those adjustments you will see that the cost in.
Keith: Grief in Q1 on the administrative expenses only $2 million.
Keith: So and then you have the.
Keith: Interest expense, which is down from previous quarter with about $60 million. So all in all actually we are quite good on cost.
Keith: Right.
Keith: Yeah.
Keith: Thanks, Ankur I'll turn it over.
Inger Klemp: Thanks Inger, I'll turn it over. Thank you.
Keith: Thank you.
Keith: Thank you.
Keith: We will now take the next question.
Jon Chappell: We will now take the next question. From the line of Jon Chappell from Evercore ISI, please go ahead. Thank you. Good afternoon. Lars, Frontline's had a tried and true strategy. You're sticking with it. You know, a lot of spot market exposure, 100% dividend payout ratio. You've just refinanced the balance sheet. It's probably, you know, arguably the strongest the capital structure has been, you know, this millennium. You've laid out a very positive, you know, industry dynamic with OPEC production increases and the older fleet and all the headlines, etc. And it feels for the first time that business model isn't being appreciated.
Speaker Change: From the line of Jon Chappell from Evercore ISI. Please go ahead.
Keith: Thank you good.
Keith: Good afternoon.
Keith: Lars for months at a tried and true strategy you are sticking with it and a lot of spot market exposure of 100% dividend payout ratio.
Keith: Just refinanced the balance sheet, probably arguably the strongest the capital structure has been brisk.
Keith: Millennium, you've laid out a very positive industry dynamic with OPEC production increases in the older fleet.
Keith: All the headlines et cetera, and it feels for the first time that business model isn't being appreciated it feels like it's the first time with this much of a positive outlook in the industry your balance sheet as strong as it is still well above cash breakeven that you're trading at a discount to NAV. So.
Lars Barstad: It feels like it's the first time with this much of a positive outlook in the industry, your balance sheet as strong as it is, still well above cash break even, that you're trading at a discount to NAV. So do you feel like there needs to be a strategic change, whether it's the way that you think about your leverage, whether it's the way you think about your fleet, the dividend versus buyback, anything that you at a time when the industry outlook is so favorable? It's an extremely good question, John. You've been very long in, you know, Frontline very well.
Keith: Do you feel like there needs to be a strategic change whether it's the way that you think about your leverage whether it's the way you think about your fleet the dividend versus buyback anything that you think needs to be altered to get frontline back to that premium valuation at a time when the industry outlook is still favorable.
Keith: It's an extremely good question John.
Keith: <unk> been very long in kind of a you know frontline very well.
Keith: The.
Keith: The fact that we were given this kind of discount the surprises us as well.
Lars Barstad: The fact that we're given this kind of discount surprises us as well. Relative to peers, Q4 was, or not relative to peers, but together with peers, Q4 was an absolute disaster for tanker stocks. I think kind of if we compare it to last year, this time, it was a lot more funny to be a tanker CEO and the incoming calls from large generalists globally was literally on a weekly basis. I think they did not appreciate the fact that the second half last year failed and have lots of alternatives in their investment universe. So it means that we basically had an outflow of shareholders in our stock, which has put it under some pressure.
Keith: Relative to peers Q4 was oh, not relative to peers, but together with parents Q4 was an absolute the soft straightforward tanker stocks.
Keith: I think kind of if you compared to last year. This time.
Keith: It was a lot more from that to be a bankruptcy.
Keith: The incoming calls from a large surge analysts globally.
Keith: Literally on a weekly basis I think they did not appreciate the fact that the second half last year failed.
Keith: Have lots of alternatives in their investments universe. So it means that we basically have the conifer.
Keith: And our flow of offer shareholders in our stock which has been under some pressure.
Keith: We also note that the short interest in frontline is <unk> Shanghai.
Lars Barstad: We also note that the short interest in Frontline is an unusual high, which probably could be in connection with kind of big investment banks having global strategies going and where a short in Frontline suits that purpose. So, you know, my impression is that previously, investors were willing to price expectations or a 12-month forward NAV into the share, but they have, you know, a much lower inclination of doing that now and basically want to see the investment decision. So I think that's kind of where I hope that's the key kind of reason and not necessarily that Frontline is running the wrong strategy.
Keith: Which should probably couldn't be.
Keith: In connection with.
Keith: Kind of a big investment banks having.
Keith: Global strategies going on where a short them from crime suits that purpose. So so.
Keith: My impression is that <unk>.
Keith: Previously in.
Keith: The sisters, who are willing to to price expectations or a 12 month forward maybe into the into the share.
Keith: But they have.
Keith: Much lower inclination of doing that now and basically we want to see the proof in the pudding before they make the investment decision. So that's I think that's kind of where I hope that's the key.
Keith: Kind of a reason I'm not necessarily that frontline is.
Keith: Running the wrong strategy, we're actually trying to interact quite disciplined in this market. It's tempting to engage in the same time charter contract.
Lars Barstad: We're actually trying to act quite disciplined in this market. It's tempting to engage in, say, time-shortened contracting and take away the upside. Some of our peers have done that quite extensively. We want to retain the upside because we still have a very firm belief that this market is going to kind of give us some money back over the coming years.
Keith: Take away the upside some of our peers have done that to quite extensively we want to retain the upside because we still have a very firm belief that this market is.
Keith: Kind of give us some money back over the coming years.
Keith: Mhm.
Keith: Just as a quick follow up to that and it's along the same lines of thinking Theres also been some asset sales in the industry at values that are still somewhat elevated.
Lars Barstad: Just as a quick follow-up to that and along the same lines of thinking, there's also been, you know, some asset sales in the industry at values that are still somewhat elevated, you know, especially for older tonnage. And I understand that the, you know, sanction fleet or shadow fleet, whatever you want to call it, is under a bit more pressure, but are there opportunities for you? You still have 81 vessels, a ton of operating leverage. Are there some older vessels that, you know, you may be able to monetize now without giving up much of your operating leverage, but, you know, maybe providing a bit of an arb on asset values versus equity value?
Keith: Especially for older tonnage and I understand that the <unk>.
Keith: <unk> <unk> Shadow fleet, where we want to call. It is under a bit more pressure, but are there opportunities for you you still have 81 vessel the ton of operating leverage are there. Some older vessels that you may be able to monetize now.
Keith: Without giving up much of your operating leverage, but maybe providing a bit of an arb on an asset values versus equity value.
Keith: Of course.
Keith: As you probably appreciate and I don't think its a big secrets some of the demand for the kind of more of a vintage tonnage is coming from counterparties that quite obviously they want to engage in trades, we don't like so and so.
Lars Barstad: Of course, but as you probably appreciate, and I don't think it's a big secret, some of the demand for the kind of more vintage tonnage is coming from counterparties that quite obviously want to engage in trades we don't like. So we're very cautious on addressing that market. However, there are also players out there that not necessarily are big owners now, but have a growth strategy for the compliant market and actually see the same opportunity in buying vessels that have five to seven years life in them, or for storage projects or conversion projects. So you're right, there are opportunities out there.
Keith: So we were very cautious on addressing those markets. However, there are also players out there on that.
Keith: Not necessarily a big owners now but to have a growth strategy for the compliance market and actually see the same opportunity.
Keith: Volume of fluids that have five to seven years life in them.
Keith: Or for storage projects or commercial projects. So.
Keith: So you're right there are opportunities out there.
Keith: But do we have we want to retain this kind of magic 30000 earnings days per year.
Lars Barstad: But we have, we want to retain this kind of magic 30,000 earnings days per year. We have maybe one candidate out there, but it's not going to be material in our strategy to reduce the fleet here.
Keith: We have maybe one come to that.
Keith: Out there but.
Keith: But it's not going to be material in.
Keith: And our strategy at two two to reduce the fleet here.
Lars: Yeah understood. Thank you Lars.
Lars Barstad: Yep, understood. Thank you, Lars. Thank you.
Lars: Thank you Ron.
Keith: Thank you.
Keith: We'll now take the next question.
Omar Nokta: We will now take the next question. From the line of Omar Nokta from Jefferies, please go ahead. Thank you. Hi, Lars. Hi, Inger. Good afternoon. Just a couple of questions from my end, and maybe just first on the market. We've seen, obviously, DLCCs improve here into the second quarter. Definitely better than what we saw second half of last year. As you said, it was a real disappointment back then. But things have improved, although they don't necessarily jump off the page when we look at where rates are. I guess from your perspective, how would you say things have been progressing?
Speaker Change: From the line of Omar <unk> from Jefferies. Please go ahead.
Speaker Change: Thank you.
Inger: Hi, Inger good afternoon.
Speaker Change: A couple of questions from my end, maybe just first on the market.
Speaker Change: <unk> seen obviously vlccs improve here into the second quarter definitely better than what we saw second half of last year. As you said it was a real disappointment back then.
Speaker Change: But things have improved although they don't necessarily jump off the page when we look at where rates are I.
Speaker Change: I guess from your perspective, how would you say things have been progressing we've seen the sanctions take out a big portion of the fleet. We've got the OPEC volumes now coming.
Lars Barstad: You know, we've seen the sanctions take out a big portion of the fleet. We've got the OPEC volumes now coming. How do you explain kind of the rate structure today? Is it still too early to expect a real gapping up? Have we seen the benefit yet of these sanctions fully or is there still more to come? I don't think we've seen it fully. Well, first of all, just on the OPEC side, as I mentioned in the presentation, we haven't really seen the impact on cargoes that they have kind of month over month grown materially from the Middle East OPEC producers.
Speaker Change: Okay.
Speaker Change: How do you explain kind of the rate structure today is it still too early to expect a real gapping up have we seen the benefit yet of these sanctions fully.
Speaker Change: Or is there still more to come.
Speaker Change: I don't think we've seen it full label first of all just on the Opex side as I mentioned in the presentation. We.
Speaker Change: No we havent really seen the impact on cargoes that they have on a month over month growth.
Speaker Change: We released from the Middle East OPEC producers.
Speaker Change:
Lars Barstad: And the only kind of area where we've seen a significant growth is out of Kazakhstan, which might actually be the reason why OPEC decided to do this. But on the general note, what we're observing and hopefully is a trend is that, you know, ever since it started off, of course, Venezuela being sanctioned, Iran going back being fully sanctioned. And, you know, we saw that volume getting kind of moving over to the dark side. Then came Russia, which is a big chunk coming into the dark side. Basically, the incremental barrel that comes to market now, and mind you, demand is still growing, is actually coming from compliance sources.
Speaker Change: The only kind of area, where we've seen a significant growth is out of Kazakhstan, which might actually be the reason why we decided to do this but but.
Speaker Change: The.
Speaker Change: General notes what.
Speaker Change:
Speaker Change: Observing whole play is a trend.
Speaker Change: If that ever since.
Speaker Change: Of course, we don't sell are being sanctioned around going back being fully sanction.
Speaker Change: We sold up in volume getting kind of moving over to the dark side than the camera show, which is a big chunk coming into the dark side basically the incremental barrel that comes to market now in mind. Your demand is still growing is actually coming from compliance sources. So the market is.
Lars Barstad: So, you know, the market that we operate in has actually seen a gradually declining volume. Iran has been able to ramp up their exports quite materially second half last year. But now that's finished too. And I've said before that, you know, kind of this will be solved eventually anyway, because it's not very likely that Iran, Venezuela or Russia can manage to increase their production and exports materially going forward. Then you need compliant oil to grow to satisfy demand. And that seems to be going on now and further kind of amplified by the fact that the OPEC is returning barrels to the market.
Speaker Change: We operate them has actually seen a gradually declining volume.
Speaker Change: Iran has been able to ramp up their exports quite materially second half last year.
Speaker Change: But now that finished two or.
Speaker Change: You know kind of this will be sold eventually anyway because.
Speaker Change: It's not very likely that around one seller or Russia can manage to increase their production and exports materially going forward than you need compliant oil exports to grow to satisfy demand.
Speaker Change: That seems to be going on now.
Speaker Change: <unk> kind of amplified by the fact that the OPEC is returning barrels to the market.
Speaker Change: So this is kind of a good news for the compliant fleet.
Lars Barstad: So this is kind of good news for the compliant fleet. A lot of these barrels are VLCC barrels. And that's why we have, you know, we made a huge investment in VLCC. Half of our fleet are VLCCs. We believe that maybe it can be the one of, you know, a proper VLCC market over the next six months.
Speaker Change: A lot of these barrels are VLCC barrels and Thats why we have.
Speaker Change: We made a huge investment in <unk> half of our fleet our vlccs.
Speaker Change: We are we believe that maybe it can be the dawn of Av.
Speaker Change: Appropriate VLCC market.
Speaker Change: Over the next six months.
Speaker Change: Thanks, Lauren Yeah, and I guess, maybe just a quick follow up to that point over the next six months.
Lars Barstad: Thanks, Lars. Yeah, and I guess maybe just a quick follow up to that point, the over the next six months and your last your last comment there. How do you think the summer seasonality shakes out this year? Does that take a backseat? You think to kind of these current dynamics that you're talking about? I think the most exciting part around, you know, what's going to happen in the near term and over the summer, I think on, which was it now, the slide 11, where I mentioned that sanctions actually do work. You know, any action coming out of EU or US in respect of the sanctions, and it's very likely to come quickly because either you have a breakdown or a success in the nuclear talks in Iran, or people get tired of no ceasefire being able to be negotiated between Russia and Iran.
Speaker Change: Your last comment there how do you think the summer seasonality shakes out this year does that take a back seat you think to kind of these current dynamics that you're talking about.
Speaker Change: I think the most exciting part around.
Speaker Change: Going to happen in the near term and over the summer.
Speaker Change: Thanks.
Speaker Change: Hum.
Speaker Change: Which will sit now this slide.
Speaker Change: 11.
Speaker Change: Where I mentioned that sanctions actually do work.
Speaker Change: <unk>.
Speaker Change: Any action coming out of EU or U S. In respect of the sanctions and is very likely to come quick claim because either you have a breakdown or our success in the nuclear talks and around or people get tired of the.
Speaker Change: <unk> being able to be negotiated between Russia, and Iran. So so I think kind of we're talking weeks rather than months before you're going to see increased action either way in this respect and since this volume is pulling now so much kind of tonnage out of the compliant market and also.
Lars Barstad: So I think we're talking weeks rather than months before you're going to see increased action either way in this respect. And since this volume is pulling now so much kind of tonnage out of the compliant market, and also, you know, the sanctions mean so much to the utilization on the compliant fleet. I think we can have a very interesting summer if you just look at the political narrative around these two situations in particular.
Speaker Change: These sanctions means so much to the utilization on the compliant fleet.
Speaker Change: Yes.
Speaker Change: I think we can have a very interesting summary, if you just look at the political narrative around these two situations.
Speaker Change: Situations in particular.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Thanks, and just a final one maybe perhaps to your anger.
Lars Barstad: Yeah, thank you. And thanks, Lars.
Inger Klemp: And just a final one, maybe perhaps to you, Inger, the refinancing of the 24 BLTCs. Obviously, nice to have that termed out now until 2030. You did refinance, as you mentioned, the release three and a half years before maturity of the existing or prior facility. What would you say was the main driver of the refinance, doing it so early? Was the margin benefit that important? Or was it really about extending the duration? It was the margin reduction which was the most important, and obviously the extension was kind of a benefit on top of it in a way.
Speaker Change: The refinancing of the 'twenty four vlccs, obviously nice to have that termed out now till 2030.
Speaker Change: You did refinance as you mentioned in the release three and a half years before maturity of the existing or prior facility. What would you say was the main driver of the refinance and doing it so early with the margin benefit that important.
Speaker Change: Or was it really about extending the duration.
Speaker Change: It's almost a margin reduction in risk cost the most important.
Speaker Change: And obviously the yen.
Speaker Change: Essentially nine months are kind of the benefits on top of that daily.
Speaker Change: Can you can you give a sense of what the savings were on display.
Inger Klemp: Can you give a sense of what the savings were on the spread? Well, we came from a level which was not, let's say, our norm, we can call it that. So, I wouldn't be precise on it, but we were about 200 basis points and now we are at more than 170.
Speaker Change: Thats correct.
Speaker Change: Well it came from a level they tell us they are not.
Speaker Change: Our norm.
Speaker Change: Can call it that so.
Speaker Change: I wouldn't be precise on that.
Speaker Change: We were about 200 basis points and now they have one in San Jose.
Speaker Change: Okay. Okay. Thank you.
Operator: Okay, thank you. Thank you.
Speaker Change: Thank you.
Speaker Change: We will now take the next question.
Inger Klemp: We will now take the next question. From the line of Geoffrey Scott from Scott Asset Management, please go ahead. Good morning. Thank you for taking my question. On page six of the presentation, In the presentation for 4Q24, it said that the dry dock for the next 12 months, or for calendar 25, was going to be two Vs and one Suex, Suezmex tanker. And then on today's presentation, we've upped it to 10 Vs, two Suez, and five LRs. And all we've done is slide into the first quarter of 2026. Is that just a normal, very heavy dry dock for that first quarter of 2026, or is there something else happening to the maintenance of the fleet?
Operator: From the line of Geoffrey Scott from Scott Asset management. Please go ahead.
Geoffrey Scott: Good morning, Thank you for taking my question.
Speaker Change: On page.
Speaker Change: Page six of the presentation.
Speaker Change:
Speaker Change: In the presentation for <unk> 24.
Speaker Change: Said that the dry dock.
Speaker Change: <unk> for the next 12 months for calendar 'twenty five was going to be <unk>.
Speaker Change: And one Suezmax tanker and then on today's presentation. We've we dropped it to turn these two Suez and five hours and all we've done is slide.
Speaker Change: Into the first quarter of <unk>.
Speaker Change: 2026 is that just normal.
Speaker Change: Very heavy.
Speaker Change: Dry dock for that that first quarter of 2006 or is there something else happening to the maintenance of the fleet.
Speaker Change: No.
Inger Klemp: No, no, you're completely correct about what we mentioned, that it was two Vs and one Suezmex last time. and that was for the calendar year of 2025. Then what happened now is that two VFDCs were moved from 26 into Q4 in 2025 and then in addition to that we have added on the first quarter of 2026 since this is a 12-month forward-looking cash break-even rate and that takes the total number to these 10 VFDCs, 2 SUS-vectors and 5 LRQs because it's the kind of very many of these vessels which are going to be dry docked in 2026 are dry docked in the first quarter.
Speaker Change: Competitive context about what three months and that could plus a kidney disease and one suezmax last time, we spoke.
Speaker Change: And that was for the calendar year 'twenty five.
Speaker Change: And then what's happened now is that the agency were moved from <unk> into <unk>.
Speaker Change: Q4 and quantify it.
Speaker Change: And then in addition to that we have added on the first quarter of 2006.
Speaker Change: This is a 12 months forward looking cash breakeven rate.
Speaker Change: And that takes the total number to be 10 need to seize twosies boxes and file that I can see both at the time.
Speaker Change: Many of these.
Speaker Change: In essence, we thought going into the Drydock in 2026 odd tied up in the first quarter.
Speaker Change: Okay. So it's just.
Speaker Change: Thats a heavy heavy maintenance for the first quarter of 2020, So yes, yes, yes.
Lars Barstad: okay so it's just a it's a heavy heavy maintenance for the first quarter of 2026 yeah yeah yeah just to add you know this obviously follows the age and delivery of the vessel it's not untypical that you have deliveries lumped into the first quarter of of any year and and this time we have quite a few ships due in 2026 Okay, thank you. Quick question for you, Lars. You're suggesting it's going to be a lot harder to trade OFAC ships in the future, trade restrictions plus the age, they're never coming back into the compliant market.
Speaker Change: Just to add this obviously follows the aged and delivery of services. So its not untypical that you have deliveries lumped into the first quarter of any year.
Speaker Change: And this time, we have quite a few ships are due in 2006.
Speaker Change: Okay. Thank you a quick question for you Lars.
Speaker Change: With the.
Speaker Change: You are suggesting is going be a lot harder to trade <unk> ships in the future.
Speaker Change: I'd restriction plus the age they are never coming back into the compliant market one would think that that would drive.
Lars Barstad: One would think that that would drive the older ships and the OFAC ships to scrapping. And so far, that has not happened. What do you think will be necessary to drive that scrapping decision? And when do you think it's likely to happen? Thank you. Yeah, no, it's a it's a very, very good question. And thank you for bringing it up, because this is something that needs to come into the discussion with IMO and all the regulatory kind of offices or whatever you call it, because we actually have a big issue ahead of us. You know, if you look at, I think, the last number I saw, you know, if you combine all the various sanctioned entities and ships, ships actually are the relevant ones, we're talking about six, seven hundred ships being on OFAC list or EU sanctioned list or similar.
Speaker Change: The older ships and the <unk> shifts to the.
Speaker Change: To scrapping and so far that has not happened.
Speaker Change: What do you think will be necessary to.
Speaker Change: Drive that that scrapping decision and when do you think it's likely to happen. Thank you.
Speaker Change: Yes.
Speaker Change: It's a very very good question and thank you for bringing it up because this is something that needs to come into the discussion with the EMA.
Speaker Change: The regulatory kind of.
Speaker Change: Oh offices or whatever you call. It because we actually have a big issue ahead of us.
Speaker Change: If you look at I think the last number I saw.
Speaker Change: Combined all of our list of sanctioned entities.
Speaker Change: And ships ship.
Speaker Change: ZIP sucks, all the relevant answer, but when we're talking about six 700 ships being focused or EU sanction list or similar.
Speaker Change: Well some of you might not know is that the recycling industry is the industry and they are also you know.
Lars Barstad: What some of you might not know is that, you know, the recycling industry is the dollar industry and they are also, you know, they need to do their KYC and they obviously can't buy a vessel for recycling from an actor that has broken sanctions. So this is kind of a clog in the recycling world. So there I think actually there needs to be set up some sort of rules for exemptions for recycling. And this is typically where IMO as a UN organization can take a strong initiative in order to find a method how we can facilitate that.
Speaker Change: They need to do their cable I see them. They obviously can't buy a suit for recycling from an actor that has broken sanctions. So so this is kind of a clogging in the recycling.
Speaker Change: World.
Speaker Change: So there I think actually the needs to be set up some sort of rules for exemptions for recycling.
Speaker Change: And this is typically where our M. O M organization can take a strong initiative in order to find them have said, how we can facilitate that because the scary picture is that these vessels will sit somewhere in southeast Asia with Keith.
Lars Barstad: Because the scary picture is that these vessels will sit somewhere in Southeast Asia with in and just be kind of a floating environmental bombs. So this is a very kind of good point to make and hopefully this is going to come up higher on the agenda from the regulators, hopefully higher than further decarbonization. So have that conversation first and then we can talk on decarbonization later. On timing it's regretfully so that you know these processes take very very long until they sit kind of in front of you. There was this VLCC that was sitting outside Libya, no sorry Syria and it sat there for 15 years until people were able to actually do something about it.
Speaker Change: And just to be kind of a floating environmental bumps. So so so this is a it's a very kind of a good point to make on the hopefully.
Speaker Change: This is going to come up all year on the agenda from the regulators hopefully all year them further.
Speaker Change: The compensation so have that comfort.
Speaker Change: Recession first and then we can talk on the call later.
Speaker Change: <unk>.
Speaker Change: On timing, it's regretfully, so that these processes take very long until that kind of inform fulfill the workspace.
Speaker Change: We also see that was sitting outside Libya no sorry.
Speaker Change: Syria.
Speaker Change: There were 15 years until people are able to actually do something about it.
Speaker Change: Okay. Thank you very much I appreciate it.
Lars Barstad: Okay, thank you very much. Appreciate it. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: There are no further questions at this time I would now like to turn the conference back to large Dr. Scott for closing remarks.
Operator: There are no further questions at this time. I would now like to turn the conference back to Lars Barstad for closing remarks. Well thank you very much for dialing in. Spring is ahead of us, so hopefully it will be a spring in the tanker markets as well as we proceed. And obviously every headline that comes up can be important for our markets. So with that, thank you all.
Speaker Change: Well, thank you very much for dialing in.
Speaker Change: Spring is ahead of us so hopefully it will be a spring in the tanker market as well as they proceed and obviously every headline of the concept can be important for our markets. So so with that thank you all.