Q2 2026 Frontline PLC Earnings Call
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Speaker #1: I would now like to hand the conference over to your speaker today, Mr. Lars Barstad, CEO. Please go ahead.
Speaker #2: Thank you very much. Dear all, thank you for dialing into Frontline's quarterly earnings call. Frontline is reporting its best quarter ever. Our long-term strategy of growing Voyage Days and VLCC exposure during this slim year's post-COVID has come to fruition.
Lars H. Barstad: Thank you very much. Dear all, thank you for dialing into Frontline's quarterly earnings call. Frontline is reporting its best quarter ever. Our long-term strategy of growing voyage days and VLCC exposure during the slim years post-COVID has come to fruition, and our shareholders are now reaping the benefits. There are lots of moving parts in this market and no playbook. The key takeaway, though, is that the prevailing situation will have long-term implications. The current environment puts our lean organization to the test, and we are extremely thankful for the hard work the Frontline global team is putting in keeping the propellers turning in this ocean of profits. Before I give the word to Inger, I will run through our TCE numbers on slide 3 in the deck. In the second quarter of 2026, Frontline achieved $152,700 per day on our VLCC fleet.
Speaker #2: And our shareholders are now reaping the benefits. There are lots of moving parts in this market, and no playbook. The key takeaway, though, is that the prevailing situation will have long-term implications.
Speaker #2: The current environment puts our lean organization to the test, and we are extremely thankful for the hard work the Frontline global team is putting in to keep the propellers turning in this ocean of profits.
Speaker #2: Before I give the word to Inger, I'll run through our TCE numbers on slide 3 in the deck. In the second quarter of 2026, Frontline achieved $152,700 per day on our VLCC fleet, $111,400 per day on our Suezmax fleet, and $92,400 per day on our LR2/Aframax fleet.
Lars H. Barstad: $111,400 per day on our Suezmax fleet, and $92,400 per day on our LR2/Aframax fleet. So far in the second quarter of 2026, 86% of our VLCC days are booked at $156,900 per day. 79% of our Suezmax days are booked at $117,400 per day. The LR2s are catching up, having booked 70% of the days at $81,000 per day. Again, all numbers in this table are on a load to discharge basis with the implications of ballast days at the end of the quarter this has. I will now let Inger take you through the financial highlights.
Speaker #2: So far, in the second quarter of 2026, 86% of our VLCC days are booked at $156,900 per day, 79% of our Suezmax days are booked at $117,400 per day, and the LR2s are catching up, having booked 70% of the days at $81,000 per day.
Speaker #2: Again, all numbers in this table are on a low-to-discharge basis, with the implications of ballast days at the end of the quarter this has.
Speaker #2: I'll now let Inger take you through the financial highlights.
Inger M. Klemp: Thanks, Lars, and good morning and good afternoon, ladies and gentlemen. Let's turn to slide 4 and look at the profit statement. We report profit of $659.2 million, or $2.96 per share, and adjusted profit of $580.2 million or $2.61 per share in the second quarter of 2026. As Lars mentioned, this is the best quarterly profit and adjusted profit ever recorded by the company. The adjusted profit in the second quarter increased by $235.3 million compared with the previous quarter, primarily due to an increase in our TCE earnings. Ship operating expenses decreased by $4.3 million from previous quarter, and that was mainly due to sales of eight VLCCs in the first quarter and two Suezmax tankers in the second quarter. An increase in supplier rebates, which is partially offset by an increase in general running costs. Administrative expenses decreased by $2.4 million from previous quarter.
Speaker #3: Thanks, Lars. And good morning and good afternoon, ladies and gentlemen. Then let's turn to slide 4 and look at the profit statement. We report a profit of $659.2 million, or $2.96 per share, and an adjusted profit of $580.2 million, or $2.61 per share, in the second quarter of 2026.
Speaker #3: As Lars mentioned, this is the best quarterly profit and adjusted profit ever recorded by the company. The adjusted profit in the second quarter increased by $235.3 million compared with the previous quarter, primarily due to an increase in our TCE earnings.
Speaker #3: Ship operating expenses decreased by $4.3 million from the previous quarter, mainly due to the sale of eight VLCCs in the first quarter and two Suezmax tankers in the second quarter.
Speaker #3: And an increase in supplier rebates, which is partially offset by an increase in general running costs. Administrative expenses decreased by $2.4 million from the previous quarter. This excludes the synthetic option revaluation gain of $5.3 million in the second quarter, and the synthetic option revaluation loss of $5.8 million in the first quarter.
Inger M. Klemp: This excludes the synthetic option revaluation gain of $5.3 million in Q2 and the synthetic option revaluation loss of $5.8 million in Q1. Adjusted interest expense decreased by $4.8 million from previous quarter due to lower debt and decrease in interest rates. Lastly, depreciation decreased by $4.7 million from previous quarter due to sales of vessels. Let's look at the balance sheet on slide 5. Frontline has a solid balance sheet and a very strong liquidity of $1.2 billion in cash and cash equivalents, including undrawn amounts of revolving capacity of $901 million, marketable securities and minimum cash requirements bank as per 30 June. We have no meaningful debt maturities until 2030. Remaining newbuilding commitments as per end June was $601.1 million and relates to the acquisition of the nine newbuildings from affiliates of CMM.
Speaker #3: Adjusted interest expense decreased by $4.8 million from the previous quarter due to lower debt and a decrease in interest rates. Lastly, depreciation decreased by $4.7 million from the previous quarter due to sales of vessels.
Speaker #3: Let's then look at the balance sheet on slide 5. Frontline has a solid balance sheet and a very strong liquidity of $1.2 billion in cash and cash equivalents.
Speaker #3: Including drawn amounts of revolving capacity of $901 million, marketable securities, and minimum cash requirements at the bank as of June 30th, we have no meaningful debt maturities until 2030.
Speaker #3: Remaining new building commitments as of the end of June were $601.1 million, and relate to the acquisition of the 9 new buildings from affiliates of TMN.
Inger M. Klemp: The company has secured newbuilding financing of up to $737 million, as set out in the press release. Let's turn to slide 6. In Q2 and Q3 2026, we reduced our financing costs through a combination of margin reductions on existing facilities for the remaining tenures and a full refinancing of selected facilities. Reducing the weighted average interest rate margin by approximately 52 basis points from 178 basis points at the end of Q1 2026 to 126 basis points upon completion of the process in Q3 2026. The reduction was driven by amendments with 24 basis points, refinancings with 21 basis points, and new building financing and asset sales with 7 basis points. We have no debt maturities until 2028 and no meaningful maturities until 2030, supported by increased tenure across the portfolio as shown in the maturity chart.
Speaker #3: The company has secured new building financing of up to $737 million, as set out in the press release. Then let's turn to slide 6. We also, in the second and third quarters of 2026, reduced our financing costs through a combination of margin reductions on existing facilities for the remaining tenures and a full refinancing of selected facilities.
Speaker #3: Reducing the weighted average interest rate margin by approximately 52 basis points, from 178 basis points at the end of the first quarter of 2026 to 126 basis points upon completion of the process in the third quarter of 2026.
Speaker #3: The reduction was driven by amendments with 24 basis points, refinancings with 21 basis points, and new building financing and asset sales with 7 basis points.
Speaker #3: We have no debt maturities until 2028, and no meaningful maturities until 2030, supported by increased tenures across the portfolio as shown in the maturity chart.
Speaker #3: Then we can look at slide 7: Fleet composition and cash break-even rates and OPEX. Upon delivery of the remaining VLCC newbuildings and sale of two VLCCs, our fleet consists of 40 VLCCs, 19 Suezmax tankers, and 18 Aframax/LR2 tankers.
Inger M. Klemp: We can look at slide 7. Fleet composition, cash break-even rates and OpEx. Upon delivery of the remaining VLCC new buildings and sale of two VLCCs, our fleet consists of 40 VLCCs, 19 Suezmax tankers and 18 Aframax/LR2 tankers. Has an average age of 6.6 years and consists of 100% eco vessels, whereof 69% are scrubber fitted. We estimate that average cash break-even rates for the next 12 months of approximately $23,800 per day for the VLCCs, $25,700 per day for the Suezmax tankers, and $22,200 per day for LR2 tankers, with a fleet average estimate of about $23,900 per day. This includes drydock costs for seven VLCCs, seven Suezmax tankers and eight LR2 tankers. The fleet average estimate excluding drydock cost is about $22,300 per day or $1,600 per day less.
Speaker #3: The fleet has an average age of 6.6 years and consists of 100% ECO vessels, of which 69% are scrubber-fitted. We estimate average cash break-even rates for the next 12 months to be approximately $23,800 per day for the VLCCs, $25,700 per day for the Suezmax tankers, and $22,200 per day for the LR2 tankers, with a fleet average estimate of about $23,900 per day.
Speaker #3: This includes dry-dock costs for 7 VLCCs, 7 Suezmax tankers, and 8 LR2 tankers. The fleet average estimate, excluding dry-dock costs, is about $22,300 per day, or $1,600 per day less.
Speaker #3: We recorded OPEX, including dry-dock, in the second quarter of $9,200 per day for VLCCs, $9,000 per day for Suezmax tankers, and $13,300 per day for LR2 tankers.
Inger M. Klemp: We recorded OpEx including drydock in Q2 of $9,200 per day for VLCCs, $9,000 per day for Suezmax tankers, and $13,300 per day for LR2 tankers. This includes drydock of one VLCC and three LR2 tankers. The Q2 2026 fleet average OpEx excluding drydock was $8,700 per day. Lastly, let us look at slide 8 and the cash generation. Frontline has a substantial cash generation potential with about 27,800 earning days annually. As you can see from this slide, the cash generation potential basis current fleet, TC rates and average spot market rates as of 28 August, is $2.3 billion or approximately $10.35 a share, providing a cash flow yield of 24% basis current share price.
Speaker #3: This includes the dry-docking of one VLCC and three LR2 tankers. The Q2 2026 fleet average OPEX, excluding dry-dock, was $8,700 per day. Lastly, let us look at slide 8 and the cash generation.
Speaker #3: Frontline has substantial cash generation potential, with about 27,800 earning days annually. As you can see from this slide, the cash generation potential, based on the current fleet TC rates and average spot market rates as of August 28, is $2.3 billion.
Speaker #3: Over approximately $10.35 per share, providing a cash flow yield of 24% based on the current share price. A 30% increase in these rates will increase the cash generation potential to $3.1 billion, or $30.91 per share, and a 30% decrease in these rates will decrease the cash generation potential to $1.5 billion, or $6.80 per share.
Inger M. Klemp: A 30% increase of these rates will increase the cash generation potential to $3.1 billion or $30.91 per share, and a 30% decrease of these rates will decrease the cash generation potential to $1.5 billion or $6.80 per share. With this, I leave the word to Lars again.
Speaker #3: With this, I hand the word back to Lars.
Lars H. Barstad: Center stage. We see increasing risk in and around the Gulf area, both in the Gulf of Oman, in the Red Sea. We also see increased risk in the Black Sea, and the Houthis have become active again. Tanker rates remain high, and inefficiencies carry the weight of the shipping market. We also see high-risk premiums on certain trades, in particular inner AG, which is somewhat illiquid, but at least showing on the bottom left-hand chart, you can see how the now somewhat theoretical TD3C index is printing levels nearing $600,000 per day. We tend to look at the TD15, and it is being dwarfed in this connection. But if you look closely on the left-hand scale, it is actually showing very close to $200,000 per day. Oil balances are kept in check by aggressive inventory draws.
Speaker #1: Done to the stage. We see increasing risk in and around the Gulf area, both in the Gulf of Oman and in the Red Sea. We also see increased risk in the Black Sea, and the Houthis have become active again.
Speaker #1: Tanker rates remain high, and inefficiencies carry the weight of the shipping market. We also see high-risk premiums on certain trades, in particular, inner AG, which is somewhat illiquid. At least, as shown on the bottom left-hand chart, you can see how the now somewhat theoretical TD3C index is printing levels nearing $600,000 per day.
Speaker #1: We tend to look at the TD15, and it's being dwarfed in this connection, but if you look closely on the left-hand scale, it's actually showing very close to $200,000 per day.
Speaker #1: Oil balances are kept in check by aggressive inventory draws. We are extremely surprised that the oil price manages to keep in this band between, say, $78 and somewhat north of $90.
Lars H. Barstad: We are extremely surprised that the oil price manages to keep in this band between, say, $178 and somewhat north of 90. US, China, and the rest of the OECD are kind of the key sources of these inventory draws. The question is, of course, for how long can we draw? The tanker order book paused over the summer. Lead times from ordering to delivery is now moving into three and a half years. So we are talking about 2030 deliveries. We see this has kind of created a bit of a vacuum in the ordering market after a quite frantic activity in the first half of the year. The long-term implications as fleets continue to age, will be around the inventory refill story, energy security policies.
Speaker #1: The US, China, and the rest of the OECD are currently key sources of these inventory draws. The question is, of course, for how long can we draw?
Speaker #1: The tanker order book post over the summer—lead times from ordering to delivery is now moving into three and a half years. So we're talking about 2030 deliveries, and we see this has kind of created a bit of a vacuum in the ordering market after quite frantic activity in the first half of the year.
Speaker #1: The long-term implications as fleets continue to age will be around the inventory refill story, energy security policies, and, in the case of some sort of relief or some sort of solution between the US and Iran, sanctions relief could also play a part.
Lars H. Barstad: In the case of some sort of relief or some sort of solution between the US and Iran, sanctions relief could also play a part. We are in the midst of a storm, I would say, but the long-term implications are at least easier to read. If we move to slide 10 and try and kind of analyze a little bit what is behind this, it is actually easier to analyze the market after the fact. We have had an 82% reduction in crude oil exports from inside the Strait of Hormuz. I know this is kind of a big question mark as certain Agencies report higher exports than what is recorded out of the Middle East. Others are lower, in respect of transits by ocean through the Straits of Hormuz.
Speaker #1: We are in the midst of a storm, I would say, but the long-term implications are at least easier to read. If we move to slide 10 and try to kind of analyze a little bit what's behind us, it's actually easier to analyze the market after the fact.
Speaker #1: We've seen an 82% reduction in crude oil exports from inside the Strait of Hormuz. I know this is kind of a big question mark, as certain agencies report higher exports than what's recorded out of the Middle East, while others are lower.
Speaker #1: In respect of kind of transits by ocean through the Strait of Hormuz, frontline are amongst the school of thought that believe we're somewhere between 4 and a half to 5 and a half million barrels per day.
Lars H. Barstad: Frontline are amongst the school of thought that believe we're somewhere between 4.5 to 5.5 million barrels per day. China crude imports have created a cushion to the oil price, we believe, and it's actually reduced by 35% in the same period. What's happened is that we've seen huge growth in inefficiencies in the market to the tune of 23% increase in idling days per VLCC, but I do note that this is not waiting time or time where owners like ourselves are fiddling around trying to figure out what to do. This is basically due to the trade itself, where inefficiencies are creeping into every aspect of the voyage, and under contract and being paid, you're actually waiting. We've also seen a great increase in the trade between particularly Latin America to the East of Suez.
Speaker #1: China crude imports have created a cushion to the oil price, we believe, and it's actually reduced by 35% in the same period. What's happened is that we've seen huge growth in inefficiencies in the market, to the tune of a 23% increase in idling days per VLCC. But I do note that this is not waiting time, or time where owners like ourselves are fiddling around trying to figure out what to do.
Speaker #1: This is basically due to the trade itself, where inefficiencies are creeping into every aspect of the voyage, and on the contract and being paid, you're actually waiting.
Speaker #1: We've also seen a significant increase in trade, particularly from Latin America to the east of Suez. This essentially results in the effective fleet supply tightening, despite a decline in volumes.
Lars H. Barstad: This basically results in the effective fleet supply tightening despite a decline in volumes. The increased STS transfers off Fujairah and around Singapore and Malaysia also add to this. If you can imagine, the cargo flow that formerly used to be from inner Middle East Gulf to, say, Japan, it is now like a three times trip. You go firstly from inner range E to Fujairah in some sort of shuttling traffic. Then you, by way of STS, put the oil into another ship that takes it to Malaysia, where you again do an STS operation before a Japanese-controlled ships take it into Japan. So basically moving the same barrels in an increasingly inefficient manner. We do see, though, that there is large gaps in the tracking data, and this also confuses us and most market analysts, as a lot of vessels are sailing dark, leaving a big blind spot.
Speaker #1: The increased SDS transfers offer, JIRA, and Iran-Singapore and Malaysia also add to this. If you can imagine, the cargo flow that formerly used to be from inner Middle East Gulf to, say, Japan, is now like a three-times trip. You go firstly from inner AG to Fujairah in some sort of shuttling traffic, then you, by way of SDS, put the oil into another ship that takes it to Malaysia, where you again do an SDS separation operation before a Japanese-controlled ship takes it in to Japan.
Speaker #1: So, basically moving the same barrels in an increasingly inefficient manner. We do see, though, that there are large gaps in the tracking data, and this also confuses us and most market analysts, as a lot of vessels are sailing dark.
Speaker #1: Leaving a big blind spot. The headline figures may no longer be representative of the market, but what is representative of the market are the rates that we are actually collecting.
Lars H. Barstad: The headline figures may no longer be representative of the market, but what is representative of the market is the rates that we are actually collecting. If we move to the next slide. The flows from Atlantic Basin has grown both outright by way of volume, but more importantly, by the way of distances it's actually sailing. In a normal market, you will have almost equal volume going from, say, US Gulf into Europe, as into Asia. Now, a larger part of the volume being exported out of the Atlantic basin is actually taking the long route. With the Houthi action, we're also seeing some very specific inefficiencies for the Yamal export that formerly used to sail through the Red Sea, where it's now, to a greater degree, going northbound.
Speaker #1: If we move to the next slide, the flows from the Atlantic Basin have grown both outright by way of volume, but more importantly, by the way of distances it's actually sailing.
Speaker #1: In a normal market, you will have almost equal volume going from, say, the US Gulf into Europe as into Asia. Now, a larger part of the volume being exported out of the Atlantic Basin is actually taking the long route.
Speaker #1: With the Houthi action, we are also seeing some very specific inefficiencies for the Yanbu export that formerly used to sail through the Red Sea, where it's now to a greater degree going northbound. Basically, you fill up a VLCC three-quarters full, take it through the Suez Canal, and then load up the remaining barrels in CDK, which is the end of the Sumed pipeline.
Lars H. Barstad: Basically, by way of you fill up a VLCC three quarters full, take it through the Suez Canal, and then load up the remaining barrels in Sidi Kerir, which is the end of the SUMED pipeline. The supply shortage from the Middle East is further compensated by inventory draws in virtually any or every corner of the world, with US and China being the largest contributors. Asia ex China has increased the sourcing, again, adding or creating the same ton miles. Despite the volume shortfall, as previously mentioned, the inefficiency and the growing distances yields the high tank demand we're currently experiencing. The big question, though, and this is the question as we near winter, is how long can and will we draw on inventories as we approach the colder season in the Northern Hemisphere? If you look at the top right chart, this is OECD onshore crude inventories.
Speaker #1: The supply shortage in the Middle East is further compensated by inventory draws, in virtually any or every corner of the world, with the US and China being the largest contributors.
Speaker #1: Asia ex-China has increased the sourcing, again adding or creating the same ton-mass. Despite the volume shortfall, as previously mentioned, the inefficiency and the growing distances yield the high tanker demand we're currently experiencing.
Speaker #1: The big question, though—and this is the question as we near winter—is: how long can and will we draw on inventories as we approach the colder season in the Northern Hemisphere?
Speaker #1: If you look at the top-right chart, this is always the onshore crude inventories. We have drawn materially—the total, including kind of other inventories as well, is actually nearing half a billion barrels.
Lars H. Barstad: We have drawn materially. The total, including other inventories as well, is actually nearing a half a billion barrels. There is still a lot of barrels to draw, but there is certainly a limit to how far down the various nations are willing to go in this very insecure situation we are in. If we move to slide 12 and look at the order books. These order books continue to grow or continued, I would like to say, going into Q3. Currently, looking at the headline number of VLCCs, the order book is around 33.5% of the existing fleet. I do, however, think that one should look at the efficient fleet. As we note here, around 166 or 167 vessels are not a part of the commercially traded fleet, meaning that the VLCC order book currently is, in fact, very close to 40%.
Speaker #1: There are still a lot of barrels to draw, but there's certainly a limit to how far down the various nations are willing to go in this very insecure situation we're in.
Speaker #1: If we move to slide 12 and look at the order books, these order books continue to grow, or continued, I would like to say, going into Q3.
Speaker #1: Currently looking at kind of the headline number of VLCCs, the order book is around 33 and a half percent of the existing fleet. I do however think that one should look at the efficient fleet, and as we note here around 166 or 167 vessels are not a part of kind of the commercially traded fleet, meaning that the VLCC order book currently is in fact very close to 40%.
Speaker #1: If you do the same kind of analysis across the asset classes that Frontline is exposed to, you'll see that the current order book to fleet ratio is in the mid-30s percent.
Lars H. Barstad: If you do the same kind of analysis across the asset classes that Frontline is exposed to, you will get to that the current order book to fleet ratio is in the mid 30s percent. We are actually closing in on what we saw in 2009, and this is of 2008, 2009, and this is, of course, a concern, looking forward. However, if you look at the aging of the fleet, which we actually did not have to this extent back in the late 2010, the situation looks far more balanced. If you move to slide 13, you can see that the total order book of the asset classes we are involved in currently stands around 707 ships. As they deliver over the next five years, we will see 578 vessels moving towards the 20-year threshold, which means that we will have a total population of 1,293 vessels coming to age, assuming no scrapping.
Speaker #1: We're actually closing in on what we saw in 2009, and this is of 2008, 2009, and this is of course a concern looking forward.
Speaker #1: However, if you look at the aging of the fleet, which we actually didn't have to this extent back in the late 2010s, the situation looks far more balanced.
Speaker #1: So, if you move to slide 13, you can see that the total order book of the asset classes we're involved in currently stands at around 707 ships. As they deliver over the next five years, we'll see 578 vessels moving towards the 20-year threshold.
Speaker #1: Which means that we'll have a total population of 1,293 vessels coming to age, assuming no scrapping. This, of course, dwarfs the current order book.
Lars H. Barstad: This is, of course, dwarfing the current order book. If we have a look at the summary then from this presentation, the current market dwarfs the previous cycles. I would like to draw your attention to the orange column on the right-hand side. Looking at what we thought was the strongest market we have ever seen in 2004, we are now twice that almost. The index is lying a little bit because a certain part of it is, of course, being weighed by both TC1 and TD3, which are inter-AG loadings. But still, including that, we are way beyond what we have seen in previous years. As I mentioned earlier in the presentation, constricted global oil supply yields inefficiencies, and we see new trades and much longer trade lanes. Growing concern is starting to come forward for the supply cushion provided by primarily US and China.
Speaker #1: If we have a look at the summary, then from this presentation, the current market dwarfs the previous cycles. I'd like to draw your attention to the orange column on the right-hand side. Looking at what we thought was the strongest market we'd ever seen in 2004, we're now almost twice that.
Speaker #1: The index is lying a little bit because a certain part of it is, of course, being weighed by both TC1 and TD3, which are inner AG loadings, but still, including that, we're way beyond what we've seen in previous years.
Speaker #1: And as I mentioned earlier in the presentation, constricted global oil supply yields inefficiencies, and we see new trades and much longer trade lanes. Growing concern is starting to come forward for the supply cushion provided primarily by the US and China. We have the Russia-Ukraine situation adding fuel to the fire, with increased risk in the Black Sea.
Lars H. Barstad: We have the Russia-Ukraine situation adding fuel to the fire with increased risk in the Black Sea. We also see reduced Russian product exports going forward. Although this is, in many cases, sanctioned barrels, it still adds to the product pool and in particular, affects the diesel supply, going forward. The growth in the tanker order book is slowing as the lead times are extending. We also see that the yard expansions are stretched. There has been a little bit of a period now since we have heard of new births being launched, particularly in China. Energy security and inventory situation is likely to dominate the narrative if the current situation persists into the winter. Again, Frontline is center stage with our VLCC heavy efficient business model. We do see that the long-term period market is actually starting to price in these disruptions to last for much longer.
Speaker #1: We also see reduced Russian product exports going forward. Although these are in many cases sanctioned barrels, they still add to the products pool and, in particular, affect the diesel supply going forward.
Speaker #1: The growth in the tanker order book is slowing, as the lead times are extending. We also see that yard expansions are stretched. There has been a little bit of a period now since we've heard of a new berth being launched, particularly in China.
Speaker #1: Energy security and inventory situation are likely to dominate the narrative if the current situation persists into the winter. Again, Frontline is at the stage with our VLCC-heavy, efficient business model, and we do see that the long-term period market is actually starting to price in these disruptions to last for much longer.
Speaker #1: With that, I would like to open it up for questions and answers.
Lars H. Barstad: With that, I would like to open for question and answers.
Speaker #2: Thank you. To ask a question, you will need to press star one one on your telephone, and wait for your name to be announced.
Operator: Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We are going to take our first question. One moment. This question comes from Jonathan Chappell from Evercore ISI. Please go ahead.
Speaker #2: To withdraw your question, please press star one and one again. We are going to take our first question. One moment. And this question comes from John Chappelle from Evercore ISI.
Speaker #2: Please go ahead.
Speaker #3: Thank you. Good afternoon. Lars, last quarter you spoke to—I think it was 5% of the fleet—you estimated was sitting outside of the Strait, and that was part of the inefficiencies.
Jonathan Chappell: Thank you. Good afternoon.
Lars H. Barstad: Good afternoon.
Jonathan Chappell: Lars, last quarter you spoke to, I think it was 5% of the fleet, that you were estimated was sitting outside of the Strait, and that was part of the inefficiencies. Didn't mention that today. Obviously, you had a lot of other data, but do you have an update on that? As it relates to that, is that just right outside of the Strait, or is there a much greater geographical area that we're talking to where a lot of ships are idling and basically adding to the inefficiencies?
Speaker #3: You didn't mention that today—obviously you had a lot of other data—but do you have an update on that? And as it relates to that, is it just right outside of the Strait, or are we talking about a much greater geographical area where a lot of ships are idling and basically adding to the inefficiencies?
Lars H. Barstad: Surprisingly, we're actually observing that that kind of number of ships that are idling outside of Oman, you could say, or the Gulf of Oman, stretching basically all down the Indian coast, has actually increased. This has increased with the growing kind of volume coming out of the Middle East by way of STS. Firstly, you have the pipeline coming into Fujairah and the Omani coast outside. Secondly, now you have kind of an increased, or have had at least an increased traffic in vessels coming out for STS business. The timing of this is somewhat difficult to nail down. It means that if you are a charterer and you book the ship, you're not exactly going to know the dates that STS ship is going to be ready for you. This is creating a lot of delays.
Speaker #1: Surprisingly, we've actually observed that that's the kind of number of ships that are idling outside of Oman, you could say, or the Gulf of Oman.
Speaker #1: Stretching basically all down the Indian coast has actually increased, but this has increased with the growing kind of volume coming out of the Middle East by way of STS.
Speaker #1: So firstly, you have the pipeline coming into Fujairah and the kind of the Omani coast outside, but secondly, now you have a kind of an increased or have had at least an increased traffic in vessels coming out for STS business.
Speaker #1: The timing of this is somewhat difficult to nail down, so it means that if you are a charterer and you booked a ship, you're not exactly going to know the dates that the STS ship is going to be ready for you.
Speaker #1: So this is creating a lot of delays. So this is why we see, actually, the population sitting in that region in particular is actually growing.
Lars H. Barstad: This is why we see actually the population sitting in that region, in particular, is actually growing. Completely illogical, to be quite honest, in the current market situation.
Speaker #1: Completely illogical, to be quite honest, in the current market situation.
Speaker #3: Okay. Second, one more strategic—obviously, a generational market right now, as you laid out in the last slide, and I think Frontline's track record and business model have been clear for the last 30 years.
Jonathan Chappell: Okay. Second one, more strategic. Obviously a generational market right now, as you laid out in the last slide, and I think Frontline's track record and business model has been clear for the last 30 years. You're doing some things that you haven't really done before with the time charters and the two and the three-year time charters, special dividend. Could this be an opportunity to really change the capital structure? I know Inger's done a lot with taking the cost of debt down and pushing all the maturities out. Could you use some of this generational upside to take the leverage down, or is that just something that's not part of the DNA?
Speaker #3: But you're doing some things you haven't really done before with the time charters, and the two- or three-year time charter, special dividend. Could this be an opportunity to really change the capital structure?
Speaker #3: I know Inger's done a lot with taking the cost of debt down and pushing all the maturities out, but could you use some of this generational upside to take the leverage down, or is that just something that's not part of the DNA?
Lars H. Barstad: No, I would say it's not really a part of our DNA. As I think I've said many times, we have kind of an informal strategy of trying to cover one third of our revenues as well as covering one third of our key costs, being fuel or interest rates. Currently, the market conditions have prompted us to secure some of the revenues on VLCCs. We're actually a little bit above 30% right now as we wait for the last new buildings to deliver. I don't think it's really changed the way we look at capital allocation. Kind of our proposition to investors continues to be that we pay everything out, then we leave to the investor to decide whether he wants to reinvest.
Speaker #1: No, I would say it's not really a part of our DNA. As I think I've said many times, we have kind of an informal strategy of trying to cover about one third of our revenues, as well as covering one third of our key costs, being fuel or interest rates.
Speaker #1: Currently, the market conditions have kind of prompted us to secure some of the revenues on VLCCs, and we're actually a little bit above 30% right now, as we wait for the last newbuildings to deliver.
Speaker #1: But I don't think it's really changed kind of the way we look at capital allocation. Kind of our proposition to investors is continues to be that we pay everything out and then we leave to the investor to decide whether he wants to reinvest.
Speaker #1: That will only kind of—and it's never really going to disturb our dividends—but I think the special dividends, which you pointed to, which came from selling two ships, why we decided to just pay it out was basically due to the fact that we didn't really see much of kind of upside in reinvesting it in the market in the current kind of price environment we're in.
Lars H. Barstad: That will only and it's never really going to disturb our dividends, but I think the special dividends which you pointed to, which came from selling two ships. Why we decided to just pay it out was basically due to the fact that we didn't really see much of upside in reinvesting it in the market in the current price environment we're in. I think Frontline will just continue as we've always done. We pay the money to our shareholders. The leverage that we have now is comfortable considering the current market and where we are on asset values and so forth. I think one should keep that in mind going forward.
Speaker #1: So I think, kind of, Frontline will just continue as we've always done. We pay the money to our shareholders. The leverage that we have now is comfortable, considering the current market and where we are on asset values and so forth.
Speaker #1: So, I think one should kind of keep that in mind going forward.
Jonathan Chappell: All right. Very helpful. Thank you, Lars.
Speaker #3: All right. Very helpful. Thank you, Lars.
Speaker #1: Thank you.
Lars H. Barstad: Thank you.
Speaker #2: Thank you. We are now going to take our next question, and this one comes from Greg Lewis from BTIG. Please go ahead.
Operator: Thank you. We are now going to take our next question. This one comes from Greg Lewis from BTIG. Please go ahead.
Speaker #4: Yeah, hi, thank you, and good afternoon, everybody. Thanks for taking my questions. I did want to just, if you could, follow up, Lars, more on thoughts around—on John's question about the decision to do the longer-term time charters.
Greg Lewis: Yeah. Thank you, and good afternoon, everybody, and thanks for taking my questions. I did want to just, if you could follow up, Lars, more on thoughts around John's question around the decision to do the longer-term time charters. But really, I am kind of curious. These were obviously opportunistic. Historically, we have seen a lot of one-year. It seems like, hey, the price is the price at the time, but one-year time charters in the B market are available. I am kind of curious, and you alluded to it, how is the actual depth of the 2, 3, and potentially longer time charter market for VLCCs as we kind of sit here looking at the back half of the year?
Speaker #4: Really, I'm kind of curious. These were obviously opportunistic. Historically, we've seen a lot of one year—it seems like, hey, the price is the price at the time, but one year the time charters in the B market are available.
Speaker #4: I'm kind of curious how and you alluded to it, how is the actual depth of the Q3 and potentially longer time charter market in for VLCCs as we kind of sit here looking at the back half of the year?
Greg Lewis: Is there really customer demand for these that we could actually see, maybe not Frontline, but a real increase of these types of these term deals going forward, or was this kind of more of like a one-off?
Speaker #4: Is there really customer demand for these, that we could actually see—maybe not Frontline, but a real increase—of these types of term deals going forward? Or was this kind of more of a one-off?
Lars H. Barstad: No, that is a very good question. At the time when these two time charters, the 2-year and the 3-year were concluded, I would say the depth was somewhat limited. But as we got over the summer, currently it is quite deep. This is what we alluded to in our presentation a little bit as well. It seems like what is deemed intelligent money is now increasingly interested in getting longer-term contracts on. So we are talking about oil majors and the big operators. We could easily today do 3, 4, 3-year time charters now, kind of if we were willing to accept the current levels, which is, well, it is still south of $80,000 per day, but closing in. It could actually be north of $80,000, depending on the position you can deliver the ship in.
Speaker #1: No, it's a very good question. At the time when kind of these two time charters, the two year and the three year were concluded, I would say the depth was somewhat limited.
Speaker #1: But as we moved into the summer and to where we are currently, it's quite deep. This is something we alluded to in our presentation as well.
Speaker #1: It seems like kind of what is deemed intelligent money is now increasingly interested in getting kind of longer term contracts on. So we're talking about oil majors and big kind of operators.
Speaker #1: So we could easily today do three or four three-year time charters now, if we were willing to accept the current levels, which are still south of $80,000 per day but closing in.
Speaker #1: And it could actually be north of $80,000 depending on the position you can deliver the ship in. So I would say I would say this is we don't have a crystal ball in this market, right?
Lars H. Barstad: So as I was saying, I would say this is. We don't have a crystal ball in this market, right? This is why, of course, you tend to end up fixing a little bit too early in retrospect. But I must say that the liquidity wasn't really there either, so you basically just had to make a decision. But now I think the game has changed a little bit and we see. I think a good indicator is looking at the FFA market. Right now, exclusive of the Middle East, so exclusive of TD3C, the TD22 which is US Gulf to Asia, kind of marker. That paper is trading close to $100,000 per day for 2028 when there is 115 VLCCs being delivered.
Speaker #1: So this is why, of course, you tend to end up fixing a little bit too early, in retrospect. But I must say that the liquidity wasn't really there either.
Speaker #1: So you basically just had to make a decision. But now I think the game has changed a little bit, and we see—I think a good indicator is looking at the FFA market.
Speaker #1: Right now, exclusive of the Middle East—so, exclusive of TV3C—the TD22, which is the US Gulf to Asia kind of marker, that paper is trading kind of close to $100,000 per day for 2028, when there are 115 VLCCs being delivered.
Speaker #1: So, I think the market is starting to potentially price in some of the tailwinds that we've been discussing. First of all, the expectation is for this situation to prevail for a while.
Lars H. Barstad: Well, I think the market is starting to potentially price in some of the tailwinds that we've been discussing that in the event. First of all, the expectation is this situation to prevail for a while, which is just going to add further draws to the inventory, which is further going to strengthen the tailwinds coming out of this ordeal at some point. So, I'm actually happy to say that right now that market is pretty deep. I'd like to add one comment, though, which I probably should have mentioned. We did the two time charters, but we also sold two ships. This is actually our way of being able to capture the inner AG profits because the actor that was willing to pay that kind of money for an almost 10-year-old ship, he had a reason for that.
Speaker #1: Which is just going to add further draws to the inventory, which is further going to strengthen the tailwinds coming out of this ordeal at some point.
Speaker #1: So I'm actually happy to say that right now, that market is pretty deep. I'd like to add one comment, though, which I probably should have mentioned.
Speaker #1: We did the two time charters, but we also sold two ships. This is actually our way of being able to capture the inner AG profits.
Speaker #1: Because the actor that was willing to pay that kind of money for an almost 10-year-old ship, he had a reason for that.
Speaker #1: Basically, because it would enable him to get full control of the logistical chain of transporting oil through the Strait of Hormuz. Because owners are actually starting—even the more kind of adventurous owners are starting—to be a little bit reluctant to sail through the Strait of Hormuz.
Lars H. Barstad: Basically, because it would enable him to get full control of the logistical chain of transporting oil through the Strait of Hormuz, because owners are actually starting, even the more adventurous owners are starting to be a little bit reluctant to sell through the Strait of Hormuz. Meaning that if you are an inner Middle East or inner AG exporter, you're much better off basically just paying $135 million for a 10-year-old ship and controlling the entire logistical chain yourself. But for us, since we don't trade into the AG, at least not currently, that was a way for us to capture that premium, and hence why we also just paid the proceeds out to shareholders.
Speaker #1: Meaning that if you're an inner Middle East or inner AG exporter, you're much better off basically just paying $135 million for a 10-year-old ship and controlling the entire logistical chain yourself.
Speaker #1: And for us, since we don't trade into the AG—at least not currently—that was a way for us to capture that premium, and hence why we also just paid the proceeds out to shareholders.
Speaker #4: Okay. Okay. Super helpful. And then I did have a question—I just was looking for some clarity on slide 12, where you kind of laid out your view of the VLCC fleet, the 900 ships.
Greg Lewis: Okay. Super helpful. I did have a question on, I just was looking for some clarity on slide 12, where you laid out your view of the VLCC fleet, the 900 ships. Just as we think about those, and I think you mentioned that there's maybe 170 ships that aren't really part of the active fleet. Maybe they're doing infrastructure or other types of issues. Is that the sanction fleet or is that other vessels because the sanction fleet, and then I would think is trading. How do we think about where the. I'm also curious as we think about that sanction fleet, is a good way to think about it of those 170-ish sanction ships, those are all 15-plus-year-old vessels, or is it more broad across the fleet age profile?
Speaker #4: Just as we think about those, and I think you mentioned that there are maybe 170 ships that aren't really part of the active fleet—maybe they're doing infrastructure or other types of activities.
Speaker #4: Is that the sanctioned fleet, or is that outside? Is that other vessels? Because the sanctioned fleet, I would think, is trading. How do we think about where the—and then I'm also curious, as we think about that sanctioned fleet—is a good way to think about it as those 170-ish sanctioned ships?
Speaker #4: Those are all 15 plus year old vessels or is it kind of more broad across the I guess the fleet age profile?
Speaker #1: No, I think no, it's more so that every investor—over 20 years, almost all of them are sanctioned. Because in the commercial kind of market where we operate, very few actors accept vessels that are north of, or older than, 20 years.
Lars H. Barstad: No, I think it is more so that every vessel over 20 years, almost all of them are sanctioned.
Greg Lewis: Okay.
Lars H. Barstad: Because in the commercial kind of markets where we operate, very few actors accept vessels that are north of or older than 20 years. There are some trading, but they are trading them internally for big oil majors or refiners where they control the technical management and the vetting of the ship themselves. So I would almost put an equal sign between 20 plus and sanction. But speaking of the sanction fleet, we are not really seeing utilization increase on that fleet. But what we are seeing is that although extremely slowly, more and more are getting sold for recycling. So it is a very slow trend because you do face the sanctions as you. The recyclers face it when they need to or want to purchase the steel. But there are kind of starting to. We are starting to see movements there where actually some of these ships are getting removed.
Speaker #1: There is some trading, but they're trading kind of internally for big oil majors or refiners, where they control the technical management and the vetting of the ship themselves.
Speaker #1: So, I would almost put an equal sign between 20-plus and sanctioned. But speaking of the sanctioned fleet, we're not really seeing any kind of utilization increase on that fleet.
Speaker #1: But what we are seeing is that although extremely slowly, more and more are getting kind of sold for recycling. So it's a very, very kind of slow trend because you do face kind of the sanctions as you the recyclers face it when they need to or want to purchase the steel.
Speaker #1: But there are kind of starting to we're starting to see movements there where actually some of these ships are getting removed.
Greg Lewis: Okay. Super helpful. Thank you very much, and have a great weekend.
Speaker #4: Okay, super helpful. Thank you very much, and have a great weekend.
Lars H. Barstad: Thank you. Same to you.
Speaker #1: Thank you. Same to you.
Speaker #2: Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. We are now going to take our next question.
Operator: Thank you. As a reminder to ask a question, you will need to press star one and one on your telephone. We are now going to take our next question. This one is from Devin Sangoi from Teja Ventures. Please go ahead.
Speaker #2: And this one is from Devin Sangoy from Tejin Investments. Please go ahead.
Devin Sangoi: Paal, Lars, on a good set of numbers. I had two questions. One on when do you see China, as the winters will approach, China will come back in the market, and in that situation, how do you see the market? Second one is on the Suez. You have a drought and, obviously, the limited amount of ships are going to go through Suez now. How does it impact the flows for the smaller ships?
Speaker #5: Apologies, Lars, on a good set of numbers. I had a few questions. One is, when do you see the winter will approach? And when will China come back into the market?
Speaker #5: And in that situation, how do you see the market? And the second one is on the Suez. You have a drought, and obviously the limited amount of ships are going to go through Suez now.
Speaker #5: How does it impact the flows for the smaller ships?
Speaker #1: Yeah. No, first of all, on China, I think the question you're raising there is basically the big question—the biggest question of them all in shipping.
Lars H. Barstad: Yeah. No, first of all, on China, I think the question you are raising there is basically the biggest question of them all in shipping. Because China has effectively reduced their imports. At certain periods, they basically halved it. From what we understand from industry sources is that Chinese domestic demand is not materially reduced. Since imports are down to the tune of 3.5 to 5 million barrels per day, for sure they need to be drawing on inventories. They have a huge pile of oil. They have actually been building inventories in the last years leading up to this situation in 2026. So they have a huge cushion. But at a certain point, somebody in Beijing will start to think that maybe we should be a bit careful on continuing here. I do not know whether it is there yet.
Speaker #1: Because China has effectively reduced their imports at certain periods. They basically halved it. And from what we understand from industry, sources is that Chinese kind of domestic demand is not materially reduced so and since imports are down to the tune of three and a half to five million barrels per day, for sure they need to be drawing on inventories.
Speaker #1: They have a huge pile of oil. They've actually been building inventories in the last years leading up to this situation in 2026, so they have a huge cushion.
Speaker #1: But at a certain point, somebody in Beijing might start to think that maybe we should be a bit careful about continuing here.
Speaker #1: I don't know whether we're there yet. I don't know if we'll be there in a year's time. It's very difficult to say. But this is one of the big, important questions.
Lars H. Barstad: I do not know if we will be there in a year's time. It is very difficult to say. But this is one of the big important questions, but I think it is more important in respect of oil price rather than shipping at this point. Of course, it could propel shipping even further if they start to aggressively chase barrels. But I think this is more an oil price kind of thing than a shipping thing. When it comes to Suez, I think, respectfully, you might be confusing Suez for the Panama Canal. The Panama Canal is where the drought is being experienced, and that is where we are seeing reduced volumes. But not really we, because the Panama Canal, it is prioritized for containers and natural gas and LPG vessels. The rates and the way that transits are organized, very few tankers are using the canal as it is.
Speaker #1: But I think it's more important with respect to oil prices rather than shipping at this point. Of course, it could propel shipping even further if they start to aggressively chase barrels.
Speaker #1: But I think, kind of, this is more an oil price kind of thing than a shipping thing. When it comes to Suez, I think, respectfully, you might be confusing Suez with the Panama Canal.
Speaker #1: The Panama Canal is where the drought is being experienced. And that's where kind of we're seeing reduced volumes, but not really we because the Panama Canal it's a prioritized for containers The , you know , natural gas and LPG vessels And , you know , kind of the rates and the way that kind of transits are organized , very few tankers are using kind of the canal as it is for the Suez .
Lars H. Barstad: For the Suez, this has not yet been an issue that has been addressed.
Speaker #1: This has not yet been an issue that's been addressed.
Speaker #2: And one more question on the scrapping. What are your views? We have seen no scrapping because the market's been very good.
Devin Sangoi: One more question. On the scrapping, what are your views? We have seen no scrapping because the market has been very good. What is your view going forward on next, say, 12 to 24 months?
Speaker #2: But what's your view going forward on the next 12 to 24 months?
Speaker #1: No . As I as I mentioned , a little bit previously , you know , we are seeing some some some small positive developments , developments on , on , on recycling or scrapping as you , you say the challenge has been that the recycling industry is a dollar denominated industry .
Lars H. Barstad: Well, as I mentioned a little bit previously, we are seeing some small positive developments on recycling or scrapping, as you say. The challenge has been that the recycling industry is a dollar-nominated industry too. So it means that they have difficulty in actually paying cash for a vessel that is sanctioned. What we have seen is that the US authorities have been willing to give exemptions for vessels that are not owned by owners that are sanctioned themselves. So it means that certain quite well-renowned recyclers have been able to go to US authorities. "This is the vessel. This is the history of the vessel. These are the owners. Can we buy this and get an exemption or a license to buy this vessel for recycling?" And they have gotten yes.
Speaker #1: Two so it means that they have difficulty in actually paying cash for a vessel that is sanctioned . What we have seen is that the , you know , us authorities have been willing to give exemptions for vessels that are not owned by owners that are sanctioned themselves So , so it means that , you know , certain kind of quite well renowned recyclers have been able to , to , to , to go to us authorities .
Speaker #1: This is the vessel . This is the history of the vessel . These are the owners . Can we kind of buy this and get a get an exemption or a license to buy this vessel for recycling .
Speaker #1: And they've gotten . Yes . So , so but but you know , the number of vessels here , we're talking kind of in the teens .
Lars H. Barstad: But the number of vessels there, we are talking in the teens, so it is not material looking at the vast fleet of sanctioned vessels currently. But at least it is a start. So how that will evolve going forward, it is very difficult to say, but it is a positive movement, at least.
Speaker #1: So it's , it's not material looking at , you know , the , the vast fleet of , of sanctioned vessels currently , but at least it's , it's , it's a start .
Speaker #1: So how that will evolve going forward , you know , it's very difficult to , to , to say , but it's , it's a positive movement , at least
Speaker #2: Thank you. Have a great weekend.
Devin Sangoi: Thank you, Lars. Have a great weekend.
Speaker #1: Thank you . You too
Lars H. Barstad: Thank you. You too.
Speaker #3: Thank you. We are now going to take our next question, and this one comes from Audrey Zong from China Securities. Please go ahead.
Operator: Thank you. We are now going to take our next question, and this one comes from Audrey Zhong from China Securities. Please go ahead.
Speaker #4: Hi . Good afternoon , ladies and Inger , this is Audrey Zhong from China Securities last . Thank you again for joining our webinar with Chinese Institutional investors in March .
Audrey Zhong: Hi, good afternoon, Lars and Inger. This is Audrey Zhong from China Securities. Lars, thank you again for joining our webinar with Chinese institutional investors in March. My first question is on the recent VLCC sale. We know that you sold two VLCCs, about $270 million. I think this is a very your decision to sell the VLCC because given the current strong rate environment, how did you compare the sale price with the present value of the future cash flows from continuing to operate the two tankers? Thank you. This is my first question.
Speaker #4: And my first question is on the recent Vlcc sell . We know that you sell sold two Vlccs or about $270 million . I think this is a very Your decision to sell the VOC because given the current strong rate environment , how did you compare the sale price with the present value of the future cash flows from continuing to operate the two tankers .
Speaker #4: Thank you. This is my first question.
Speaker #1: Yeah . Hi , Audrey No , it's you know , it's again excellent question . The two were two kind of key analysis that we applied to to the considerations .
Lars H. Barstad: Yeah. Hi, Audrey. No, it's, again, an excellent question. There were two key analysis that we applied to the considerations. One was what is the implied value of the assets that Frontline own? As we're priced by the market at the multiple of almost, well, at the time it was north of 1.3 times NAV. The implied value of the vessel was actually higher than what we achieved. The second one is, and this is where it gets a little bit not mathematical, to put it that way. It goes a little bit on experience in this market. We are operating in one of the most volatile markets in the world, if not the most. That volatility tells you that nobody actually knows what's going to happen around the next turn.
Speaker #1: One was kind of , you know , what is implied value of the assets that frontline own . And as we're priced by the market at , you know , a multiple of almost well , at the time , it was north of 1.3 times , times , times nad , you know , the implied value of the vessel was actually higher than what we achieved .
Speaker #1: But the second one is , and this is where it gets a kind of not mathematical , to put it that way . It's , it's , you know , it goes a little bit on experience in this market .
Speaker #1: You know, we are operating in one of the most volatile markets in the world, if not the most. That volatility tells you that nobody actually knows what's going to happen around the next turn.
Speaker #1: We looked at the assets and , you know , for us to decline selling at that level , we had to believe that we were going to make almost $70,000 per day every day until that vessel was 20 years old , or those vessels were 20 years old .
Lars H. Barstad: We looked at the assets and, for us to decline selling at that level, we had to believe that we were going to make almost $70,000 per day every day until that vessel was 20 years old, or those vessels were 20 years old. If you look at how our market has been moving historically, we thought that that was a bold ask. So, of course, it was the highest price achieved for that generation of ships at the time. That was basically the analysis. So basically, what we do is we look at what do we need to get the 15% return on equity, which is where Frontline wants it to be in order to make an investment case, and that resulted in this rate requirement. How likely was it that that rate requirement was going to be real?
Speaker #1: If you look at kind of how our market is , has been , been , been moving historically , we thought that that was a bold ask .
Speaker #1: So , so , you know , of course , it was the highest price achieved for that generation of ships at the time .
Speaker #1: And , and that was basically the analysis . So basically what we do is we look at , you know , what do we need to get the 15 return on equity , which which is , you know , where , where frontline wants it to be kind of in order to make an investment case .
Speaker #1: And , and , and that resulted in this kind of rate requirement . And how likely was it that that rate requirement was , was , was going to be , you know , going to be real ?
Speaker #1: And we thought potentially not maybe for the next couple of years , but not for , for nine and a half years or sorry , 11.5 years or 11 years , whatever it was at the time .
Lars H. Barstad: We thought potentially not, maybe for the next couple of years, but not for 9 and a half years or 11 years, whatever it was at the time. So that was basically the analysis. But you have a very good point. It was not an easy decision to make when you're standing in the middle of a market, which at the time was earning for VLCC around $100,000 per day. It's of course something that needs deep consideration.
Speaker #1: So , so , so that was basically the analysis . But but you have a very good point . It was not an easy decision to make when you're standing in the middle of a market , which at the time was earning for a around $100,000 a day .
Speaker #1: You know , it's , it's of course , something you , you , you that needs deep consideration
Speaker #4: Great , great . Thank you . That's very clear and very helpful . And my second question is on cash breakeven rates . I noticed that despite the reduction in financing margins , I think you did a very great job in decreasing your financing cost .
Audrey Zhong: Great. Thank you, Lars. That's very clear and very helpful. My second question is on cash break even rates. I noticed that despite the reduction in financing margins, I think you did a very great job in decreasing your financing cost. But actually the Suezmax cash break even point increased to 25 exceeding the VLCC break even for the first time since 2021, based on our quarterly tracking. So does the 25,700 already reflect the benefit of the lower financing margin? If so, what other factors drove the increase, and how should we expect the Suezmax cash break even to trend in the H2 2026? Thank you.
Speaker #4: But actually , the Swiss marks cash break even point increased to 25 . The VLC break even for the first time since 2021 , based on our quarterly tracking .
Speaker #4: So does the 25,700 already reflect the benefit of the lower financing margins ? If so , what other factors does drove the increase and how should we expect the Swiss Max cash break even to trend in the second half of 2026 ?
Speaker #4: Thank you .
Speaker #5: Sorry, I wasn't hearing everything you asked about, but I think you were referring to the Swiss banks' break-even rate. Is that correct?
Inger M. Klemp: Sorry, I wasn't hearing everything you asked about, but I think you were referring to the Suezmax break even rate. Is that correct?
Speaker #4: Yes . Please allow me to repeat my question . Actually , is why the Swiss Max cash break even higher than even VLC cash break even rates in Q2 ?
Audrey Zhong: Yes.
Inger M. Klemp: Yeah.
Audrey Zhong: Inger, please allow me to repeat my question. Actually it's why the Suezmax cash break even higher than even VLCC cash break even rates in Q2?
Speaker #5: Yeah , the reason for that is that the dry dock component in the cash break even rate for Q2 cash back , even rates are much higher than it was for the Q1 cash back .
Inger M. Klemp: Yeah. The reason for that is that the dry dock component in the cash break even rate for the Q2 cash break even rates are much higher than it was for the Q1 cash break even rates. In addition to that, in Q1, we had the undrawn debt or an RCF, which was undrawn on one of the vessels, which is assumed to be drawn in the Q2 break even rate.
Speaker #5: Even rates . And then in addition to that , in Q1 , we had an undrawn debt or an RCF , which was undrawn on one of the vessels , which is assumed to be drawn in in the Q2 break even rate
Speaker #4: Okay , great . So can we expect that the Swiss Max cash break , even in Q3 and Q4 also have the train like in Q2 ?
Audrey Zhong: Okay, great. Can we expect that the Suezmax cash break even in Q3 and Q4 also have the trend like in Q2? Because I think it's increasing, the Suezmax cash break even.
Speaker #4: Because I think it's increasing the Suezmax cash breakeven.
Speaker #5: I'm not so sure I understood what you said. Now, what was the question again?
Inger M. Klemp: I am not so sure I understood what you said now. What was the question again?
Audrey Zhong: Yeah. Actually in Q3 and Q4, what the Suezmax cash break even would be like, since I think the Suezmax cash break even is increasing.
Speaker #4: Yeah , actually , it's three and Q4 . What's the Swiss Max cash break even would be like , since I think the Swiss Max cash break even is increasing .
Speaker #5: Oh , sorry . This cash back rates are for 12 months forward . So it is for 12 months forward from the second from the end of June 2026 .
Inger M. Klemp: Sorry. These cash break even rates are for 12 months forward. So it is for 12 months forward from the end of June 2026. You add on four quarters to the end of June 2027. So these cash break even rate of 27 and also 25,700 for Suezmax vessels are for the 12 months period going forward, including then the Q3, Q4, Q1, and Q2 of 2027. It is an average. And it is explained by what I just said, that you have dry dock of seven vessels in that period, which we did not have in the previous cash break even rate, which we showed you for the end of the first quarter.
Speaker #5: You add on four quarters to the end of June 2027 . So these cash back rate of 27 and 25,700 for Swiss Max vessels are for the 12 month period going forward , including then the Q3 , Q4 , Q1 and Q2 of 2027 .
Speaker #5: It's an average . So yeah , and it is explained by what I just said that you have dry dock of seven vessels in that period , which she did not have in the previous cash break even rate , which we showed you for the end of the first quarter
Speaker #4: Okay , okay , great . I understand that . Thank you , thank .
Audrey Zhong: Okay. Great. I understand that. Thank you, Inger. Thank you.
Speaker #6: You
Speaker #3: Thank you. That was the last question for today. I will now hand the call back to Lars for closing remarks.
Operator: Thank you. That was the last question for today. I will now hand the call back to Lars for closing remarks.
Speaker #1: Thank you very much . And all of you , thank you for listening in . It's truly an exceptional market . We are experiencing and also , well into Q3 .
Lars H. Barstad: Thank you very much. All of you, thank you for listening in. It is truly an exceptional market we are experiencing, and also well into Q3. Looking forward to our call next quarter. Thank you very much.
Speaker #1: So, looking forward to our call next quarter. Thank you very much.
Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
