Frontline plc.

Good morning and good afternoon. Welcome to Frontline's third quarter earnings call. This is my first call in the hot seat. I'm both excited and honored to serve our companies in this capacity. Frontline's long-term strategies are well cemented by the board, and we run a very professional organization that has easily adapted to this management transition. This has been a volatile quarter and an extraordinary year to date. I'm tempted to bring in black swans, but they seem to have become common to the shipping industry. The global COVID-19 pandemic has affected us all. And even though we still need to endure the situation a bit longer, there is no glimmer of hope in the horizon. Let's have a look at the highlights on slide three. Frontline came into Q3 2020 on a high note. But as the quarter progressed, freight rates started to correct. We still landed the quarter at good returns on a low-to-discharge basis, earning $49,200 per day on our VLCCs, $25,100 per day on our SUSE maxes, and $12,800 per day on our LR2-AFR maxes. This yielded a net income of $57.1 million, or $0.29 per diluted share. Our adjusted net income came in at $56.4 million, rounded to $0.29 per diluted share. We are very happy to report that Frontline has entered into three term loan facilities of up to $485.2 million. Inger is with me here today. We'll elaborate more on our financing activities later in this presentation. So far, in the fourth quarter, we have booked 74% of our available VLTC days at $22,600 per day, 61% of our available SUSEMAX days at $12,600 per day, and 65% of our LR2 slash AFRAMAX days at $13,800 per day. The booked earnings are a reflection of the challenges this market faces. And although we want to be upbeat on the future, there are uncertainties going forward. Frontline has therefore decided to refrain from paying dividends this quarter to preserve the company's cash position. I'll now let Inge take you through Frontline financial highlights.

Thanks Lars. Good morning and good afternoon ladies and gentlemen. Let's then turn to slide four. and look at the income statement. Frontenac achieved total operating revenues net of wage expenses of $178 million in the third quarter, and also an adjusted EBITDA of 108 million in the third quarter. Frontenac holds a net income of 57 million, or 29 cents per share, and adjusted net income of $56.4 million, or also 29% per share in the third quarter. The adjusted net income this quarter decreased about $160 million compared to the previous quarter, and that was primarily given by a decrease in our time charter equivalent earnings due to the lower reported TCE rates that last went through in the third quarter, but also more off-hire days in this quarter due to dry dock of four vessels. We also recorded a 13.9 million increase in ship operating expenses. That was mainly due to increase in dry docking costs of 4.3 million, also increase in repairs and maintenance of 2.1 million, And we also had 4.8 million additional crew costs due to COVID-19. In addition, we also had a reduction of 12.4 million as a result of that three in the second quarter. So we'll see. Let's then take a look at slide five. We have completed loan facilities in a total amount of approximately $920 million during 2020, where $725 million after that was done to refinance four existing loan facilities, which were due in December 2020 and the first half of 2021. But also we have completed to financing of $196 million to finance new vessels. All these loan facilities were done at very attractive terms, with LIBOR plus 190 basis points, or even better, maintaining our competitive cost structure. In November 2020, the company entered into three new term loan facilities, in a total amount of $485 million, where two of these facilities were to refinance to existing terminal facilities, maturing in the second quarter of 2021. And then the third facility was in an amount of $133 million to partially finance the four air-to-tankers and the constructions. The details on the refinancing of the two facilities were first that we had one senior secured terminal facility done with a strong banking group consisting of the largest global shipping banks in an amount of up to 250.7 million to refinance the 466.5 million facility which was maturing in April 2021. The new facility matured in May 2025 and has an amortization profile of 18 years. The facility was fully drawn down in November 2020, and $236.8 million of the refinanced facility has been recorded as long-term debt as of September 30, 2020. Further, we entered into one senior secure terminal facility with IMG and Curtis-Quist in an amount of up to $108 million, to refinance the 109.2 million facility, which matured in June 2021. This new facility matures now in November 2025 and has an amortization profile of 17 years. The facility was also fully drawn down in November 2020, and 78.6 million of the refinanced facility has been recorded as long-term debt. as of September 30, 2020. The slide shows debt maturities prior to refinancing in the gray column and following the refinancing in the blue column. You will notice that following the refinancing, we had no material debt maturities until 2023, and the debt maturities from 2025 onwards have increased substantially. Lastly, we also entered into a senior secure terminal facility with Sexim and Sinmosaur in an amount of $133.7 million to partially finance remaining costs of $142.3 million for the four Li-2 tankers under construction. The facility will have a tenure of 12 years. an amortization profile of 17 years. And following that, the new building program is fully funded. Let's then take a look at the balance sheet on slide six. The main happenings in the third quarter affecting the balance sheet were that we entered into the two new loan facilities, which I went through, to refinance the two loan facilities with total balloon payments of $324.4 million, which were due in April 2021 and June 2021. This has led to that short-term debt and current portion of long-term debt decreased with $311 million, and long-term debt increased with $283 million. Further, we paid $97 million in dividends, and we earned a just net income of $6.4 billion. At the end of September 30, 2020, Frontline has $432 million in cash and cash equivalents, including the annual amounts under our senior secured loan facility, marketable securities, and minimum cash requirements. Let's then take a closer look at the cash break-even rate and the OPEX on slide 7. We estimate that the average cash cost break-even rate for the fourth quarter of 2020 will be approximately $21,900 per day for the VTCs, $20,400 per day for the SUSEPAC tankers, and $15,700 per day for the LIQ tankers. Estimate is about $19,500 per day. These rates are the all-in daily rates that our vessels must earn to cover the budgeted operating costs on dry dock, the estimated interest expenses, TC and Babel tire, installments on loads, and G&H buses. The Suez Wax Tanker cash cost per given rate in the fourth quarter of 2020 is impacted by that we would dry dock four Suez Wax Tankers in the fourth quarter. We'll also dry dock one energy tanker in the fourth quarter. As already discussed, the Q3 OPEX was affected by increase in dry docking costs, increase in repairs and maintenance, and additional crew costs due to COVID-19. As usual, we would like to draw your attention to Frontline's cash flow generation potentials. In the graph on the right-hand side of the slide, we have shown incremental cash flow after debt service per year and per share, assuming $10,000, $20,000, $30,000, or $40,000 per day in achieved rates in excess of our cash spread even rates. These numbers include vessels on time sharper out, and we are looking at the period of 365 days from October the 1st, 2020. As an example, with a fleet average cash cost per given rate of $19,500 per day, and assuming $30,000 on top of the average fleet TCE, then the fleet TCE would be $49,500 per day, and sometimes we generate a cash flow per share at the service of $3.42. With this, I leave the word to Lars again.

Thank you, Inge. So let's move over to slide eight and recap the third quarter in the tanking market. So global oil demand bottomed in May, and in June we were already in recovery, and demand surpassed supply amid deep cuts by OPEC and other key producers. The oil market switched from inventory build to inventory draws. This can be seen on the slide at the bottom left with the yellow bars. Subsequently, OPEC Plus increased production slightly, but kept the cap significantly below Jan 20 levels, and the draw cycle continues. When in draw mode, it's normally the expensive barrel that draws first, and this is typically floating storage. The majority of OPEC cuts have been geographically centered around the Middle East Gulf. This has led to recovering economies, in particular in Asia, sourcing their oil from further afar. This incurs longer term miles. In the end, this has favoured the VOC market, as these vessels offer the best economies of scale. We also saw continued demand for product storage during the quarter, and specifically jet fuel storage, keeping LR2 markets relatively sound. This development is well reflected in our results for the quarter. Let's move to the next slide, slide nine, and look at the fleet and order books. Tankers have continued to enter the market during the quarter, but many have been engaged directly from yard in product storage. This has limited the impact on crude spot markets. The WAS reports or there has been reports of significant delivery backlog due to the COVID-19 related disruption. But this backlog seems to have been cleared. There are recent speculations of mammoth orders in clips of five and ten vessels being placed in Asia. These are yet to be confirmed and not a part of this data set. As the chart indicates, there is room for fleet growth in both 2022 and more so in 2023, assuming 20-year-old ships leave the competitive spot markets and oil demand develops on trend in that time horizon. One of the big X factors for shipping going forward is obviously propulsion technology. Frontline follows these developments closely, leveraging on our extensive business platform But there is still a way to go to reach any conclusions. Let's move to slide 10, where we try to explain one of these market mysteries. We have a record number of vessels, literally in all acid classes, reaching or passing the 20-year mark. The average recycling age for tankers is very close to this age, sometimes depending on the underlying freight rates. We are now in the market with relatively high volumes of inventory still, in addition to a high amount of sanctioned oil volume. This seems to have supported the demand for tankers in the tail end of their effective lifespan. In the chart below, we illustrate this by comparing the average price achieved on tonnage transacted aged close to 20 years and the reported price achieved for recycling. The disconnect is pronounced and likely explains the muted recycling activity. Selling for alternative use is currently the preferred option for the owners. I think it's important to note that for the competitive spot market where we operate, we are under strict scrutiny from wetting policies, and these vessels play an insignificant part of those balances. Let's move on to frontline and our approach to ESG. Efficient, safe, and transparent operations have been frontline's core values for years. Efficient in order to save costs, but also fuel costs. Safe in order to safeguard our seafarers, the environment, and our physical assets. Transparent in order for the investing community, like yourselves, to easily understand our business model. What we have found, as we have familiarized ourselves with the relevant ESG framework for our industry the last couple of years, is that for us, it's more about how we structure our communication on policies and routines we already have in place, rather than enforcing completely new routines or altering the way we conduct ourselves. A central part of our business model is for technical management to be clustered or shared, if you wish. with other listed companies we are familiar with. In this, we gain economies of scale as we share knowledge and practices for more than 230 vessels. This collaboration gives us an impressive leverage to shape and influence standards we expect to be met, both on social aspects and on governance. But we also share synergies when it comes to applying technology to optimize performance, both in traditional manners, as in speed and consumption, but also with respect to our environmental footprint. Frontline is, although potentially a bit under-communicated, very well positioned to comply with the stricter environmental, social, and governance framework the shipping industry has to get comfortable with going forward. So let's move to slide 12 and the tank market outlook. Increased oil supply is now key in order for the tanking market to balance. We were shielded for a period as tankers were employed by storage. Now we're dependent on volumes to come to the market and normal trading patterns resuming. The demand for tankers is still capped by the OPEC caps, but we find it extremely encouraging to see oil prices perform strongly as the volumes offered increase significantly. particularly by the Libyan exports that resumed in October. This in isolation suggests oil demand might actually be firmer than the market in general respects. Looking at the benchmark Brent oil curve, we see the same tightness expressed in a dramatic move from contango, or carry if you like, to a near flattening of the curve. This signals inventory draws to accelerate, and oil markets potentially finding a balance at an earlier stage. It's obviously a bit early to call, but just to explain how these mechanisms work. If we are drawing in a territory of 3 to 4 million barrels per day from inventories now, that's the volume needed from producers once inventory levels normalize, which in turn can be translated into increased tanking demand. Finally, let me sum up on slide 13. So Frontline is financially strong. We have no material death maturities until 2023. The company is very well positioned towards E3 related expectations. Despite extended regional lockdowns, oil demand continues to recover. Crude oil price action indicates a change in oil market sentiment. and we expect freight market volatility to increase going forward. Thank you. Then we can move on to the Q&A.

Thank you. Ladies and gentlemen, we now begin the question and answer session. As a reminder, if you wish to ask a question, please press star 1 on your telephone And if you wish to cancel your request, please press the hash key. Once again, please press star 1 if you wish to ask a question. And your first question comes from the line of Randy Givens from Jefferies. Please ask your question.

Howdy, Team Frontline, and congrats again on your promotion, Lars.

Thank you very much, Randy.

So first question around the dividend. You brought it back last year, paid a $0.10 dividend despite a loss following 3Q19 results. You increased this to 70% of net income following the first quarter, fell in the second quarter, and now you cut it to zero despite a $0.29 gain. So I guess why has the dividend payment bounced around so much over the last year, and what will cause you to... reintroduce the dividend. Clearly it's not just positive net income.

You're absolutely right. It's not only positive net income. We work in an extremely volatile market and we also normally have quite a good visibility on our earnings going forward. For Q3, the earnings were good, but our visibility, or when we look into Q4, it doesn't look too great. And we are in the middle of a global pandemic, and the uncertainties are quite great going forward. So we decided to keep the cash, but we'll obviously return paying dividends the minute we see that the market has stabilized. and potentially is ready to return to levels where we see that suited.

Got it. Okay. So more of just a subjective outlook for the market, regardless of the action.

You know, our dividend policy is stated in such a manner that we like to use our discretion when we deem it needed. And in this particular case, we found that to be prudent.

Got it. All right. And then I guess one more question for your quarter-to-date rates. You know, the VOCC, Suez Max is down from the third quarter for the fourth quarter, which makes sense. However, your LR2 rates are ticking up, you know, they're higher. So maybe what caused this and how many of your LR2 product tankers are operating in the crude trade?

Well, we have eight of our LR2s are operating in the crude trade. We have 10 operating in the clean, of which one is on time charger. The estimated... kind of top chart return for Q4 is probably in this instance more colored by the returns we've seen on the clean side.

Okay. And then do you have an outlook for crude versus products here in the next 6 to 12 months? Which kind of sector do you see most or more attractive? I know I think you mentioned neither are very attractive.

Well, it's a very good question. The thing is that we've come through seven quarters where kind of the crude part of the equation has outperformed the clean trade. It's only the last quarter and a half where the clean product bankers have actually outperformed significantly. So it's really difficult to call. The dirty afromatics are obviously now being penalized by the fact that Russia has cut quite severely together with OPEC. And that's the North Sea barrel or the Baltic barrels coming out of Russia. I think I would wait to make that call until the trade flows have normalized.

Got it. All right. Well, I'll let you go. Thanks so much. Thank you.

Thank you. And the next question comes from the line of Chris Tsang from Weber Research. Please go ahead, ask a question.

Hi, Lars. Hi, Inger. How are you?

Hi, we're good. Thank you.

Great. Good to hear. I wanted to ask about the decision to sell Sea Team. Could you expand on that a little bit more? And would you guys also work to divest other JVs, like your position in Clean Marine?

Well, first of all, to take the C-team to look at that, C-team has been a really good company for us to have more or less in-house for a period of time. It's obviously not core business. Our business model is outsourcing services like C-team we're offering. But it's obviously given us great knowledge, and it's also made us understand how the market or the technical management market quite well. Us deciding to divest from that was more related to an opportunity that came rather than something that we strategically wanted to do quickly. So an opportunity arrived and we found a solution where OSM will actually continue to run the sea team almost in its original form and take care of our vessels that are under management with them with the same mindset that they were already inside the sea team. So it's more like keeping to our strategies or keeping to our original strategy. With regards to Clean Marine, Clean Marine is... an investment we're still holding. We're not kind of an active owner in that. We were more like having a listening post. So I think I will leave that. The scrubber market or EGFC market is a little bit dormant, as you probably understand. But the company is still working. And we're just basically looking at it more as a passive investment.

Okay, thanks. Yeah, that makes sense. And just looking at the, not so much guidance, but fixtures to date from Q4, the LR2s are a little bit hard, and Suez Maxis hasn't typically happened this way. And I guess how much of it is driven by the number of clean tankers versus dirty, or I guess what factors are allowing the Suez Maxis to Trade below LR2 or LR2s to trade above the Suez Maxis for Q4?

Well, as I indicated when I summed up Q3, Q3 was a bit of an atypical quarter when it comes to how freight trades develop. Because in a normal market, Suez Maxis will perform a little bit below VLCCs and then LRTU-Afris will follow suit a little bit below that. But this year, or this quarter, SUSE Maxis have actually underperformed VLCCs by more than 50%. And this is a market kind of look. It's not, you know, for us in particular. With the OPEC cut, we've seen that the longer-term mouse have been prioritized or grown. And this has... put the VLCCs in a much greater position due to their economies of scale. And this has penalized SUSEMAX in particular. So I think that the rate is a reflection of how severe the situation has been in the SUSEMAX market, where there's kind of little opportunity to trade during the quarter and quite kind of harshly hit markets. The LR2s have, throughout the quarter, outperformed literally all the other segments apart from the VLCCs. And this is obviously due to their ability to store clean products and in particular chips.

Okay, so storage for clean trade. Okay, and just one last quick question on dry docking. I know you talked about the dry dock schedule for SUAS and one for LR2 and Q4. Can you tell me the number of SUAS maxes in Q4 that are going to dry dock?

The number in Q4. Yes, four.

Okay, great. Great, okay. Four SOS, one LR2 in Q4. Thank you, guys. Have a great day.

Thank you. Thank you. And your next question comes from the line of John Chappell from Evercore IFI. Please ask a question.

Thank you. Good afternoon, Lars and Inger.

Good afternoon, John.

Inger, first question for you just quickly on the dividend. So completely prudent given your fourth quarter rates to date, but you guys are also able to refinance a lot of debt at very good terms at a very difficult time in the market. Were there any restrictions on dividend payouts or payout ratios as part of those new facilities that may have played a role in the decision to suspend this quarter?

No, we don't have any dividend restrictions in our loan facility.

So that's not what's made any difference. Great. Okay. And then, Lars, you're joining at an interesting time, and Frontline has a legacy of being aggressive when others can't be. So you're retaining cash through no dividend. Inger's done a great job shoring up the balance sheet. But you've mentioned the uncertainty and obviously the pandemic. asset values dropping pretty aggressively. How do you kind of view 2021 in your role and in Frontline's role in the industry as far as acquiring assets, chartering in assets, just adding more leverage when others are just worried about survival?

As you said, it's in our kind of DNA to be aggressive when others can't. We also have a very strong shareholder in our backs. So it's obviously something we're very excited about looking forward to. Right now, I think the uncertainties are a little bit too great, to be quite honest. Although we are upbeat, there are some risks looking into the next couple of quarters. We think opportunities will probably arise as we turn at these levels, particularly on the freight side. I think people will find that the frontline DNA hasn't really changed, even if I'm I'm in the hot seat to put it that way.

Okay. I appreciate it. Thanks, Lars. Thanks, Inger. Thank you.

Thank you. And your next question comes from the line of John Riordan from his independent investor. Please ask a question.

Hi. Thanks for taking my call. Two things. One, you mentioned the unwind from the Contango storage situation. Could you tell us what you think the percentage of that has occurred? And then secondly, Libya has gone from basically not exporting much of anything to, I read the other day, it's over a million barrels a day. Is that providing some support for rate-wise for the Suez Max market in the Eastern Mediterranean?

Thank you. Two really great questions. Firstly, the floating storage. In our presentation on slide 8, we have some data there from Clipper data. The way I look at or we look at storage is we look at vessel storing for an extended period of time. So we've put the bar at 21 days. And those levels peaked north of 100 million barrels. Now we're down to 60 million barrels. So there is a 40% decrease. You know, how much oil... When that is finished, it's difficult to tell, because there's also something about the structure of not only the crude curve, but also of the market itself. As I also think I mentioned, we have a record amount of sanctioned barrels or sanctioned production in the world, which probably calls for a bit more floating inventory or inventory than we normally would observe. But it's on its way down, and I think we've at least taken off 40 to maybe even 50 percent of the floating storage. With regards to Libya, Libya has been really exciting and quite surprising, actually. So they've managed to ramp up, and I think the last numbers I saw was up to they've been able to add 1.2 million barrels per day. This has indeed increased. made it far more interesting to be a Sous-Max charter than there has been for the last couple of months. So we do see a lot more cargoes appearing in the market. We also see opportunities arising. A lot of these barrels are, or have been for a while now, actually, been going east. And that is, you know, like... perfect fit for the SUSEMAC size of vessels. So, yes, it has supported the market in the Mediterranean significantly.

Okay. Thank you very much.

Thank you.

Thank you. And your next question comes from the line of Craig Lewis from BTIG. Please ask a question.

Yeah, thank you, and good afternoon, and Lars, congrats on the position. I guess I just had kind of a broad question. It was kind of talked about, people focused on the dividend, rightfully so. I guess I'll ask it a different way. As I look at Frontline, the company looks like it trades you know, depending on what valuation metric, you know, I know you don't like to talk about NAV, but we could look at like something like more Wall Street-y like EV to EBITDA and the company's at a premium and the company's been able to leverage that premium to grow and be opportunistic over time. So just kind of curious, what do you think drives that premium?

Two, you know, What drives our relative pricing to our pairs is that... Correct.

So, yeah, like if you wanted to go out and buy a company, I mean, it's good to be at a premium if you want to do it. And so I'm just kind of curious how you think about that because it definitely gives you opportunities. So just kind of curious how you think about that.

Well, I think it's, you know, there are many, many factors that decide on our pricing. Some are... kind of maybe not in our making. You know, we're a preferred stock. Our liquidity is high and so forth. We also have extremely low cash break-even levels. We have a relatively high leverage, which gives you relatively quickly a bang for the buck whenever the market moves. And historically, we have proven to be quite rewarding towards our shareholders. I know we've probably said this every quarter, at least ever since I joined Frontline in 2015, but when you invest in Frontline, you invest together with our main shareholder. You're not kind of a sole investor in a big corporation. And his history for being interested in returns on his dollars is quite well known. So I think that's, you know, part of it, I would assume. But it's a difficult number to break down.

Okay, great. And then just as I think about that, as the company's out there and clearly you kind of laid out the way to move forward and that, you know, hey, you know, the market's not good now, but, you know, there's reasons to be constructive in the out years. Is the company, I mean, in realizing you have a pretty attractive fleet right now and you know, good age, big, should we be thinking, are there going to be opportunities to come? Is there any MNA opportunities? Do you think that could develop over the next six to 12 months or, you know, it's kind of been all the same players for the last five plus years and you don't really see any potential for consolidation?

Um, There is always potential for consolidation, but there is always then again the question of price and opportunity, of course. You know, the markets have actually consolidated, but maybe not in the way that investors would want to do. And that's more like in, you know, bigger pools are being built and kind of trading entities are growing and so forth. So the amount of kind of sole owners trading three or four ships has maybe not reduced, but at least their tonnage has been consolidated in a way. With regards to M&A, as you know and I know, there's always kind of the usual opportunities or suspects or whatever you like to call them. We are constantly monitoring them, and we are, you know, we're We're always kind of in the market to look at opportunities, but maybe not actually in this instant looking at how the market is performing right now.

Okay. Hey, thank you very much. Have a nice day.

Thank you. And the next question comes from Randy Givens from Jefferies. Please ask your question.

Hey, back for more with two quick modeling questions. First, for the loan facilities, we're done at LIBOR plus 190 basis points, so certainly pretty impressive there, Inger. But following those recent refis, is now the plan to maybe repay the remaining $60 million on the HEMN facility? And then also, with the new recent refis in place, what is your weighted average interest expense and debt AMORT schedule through 2021 in terms of quarterly payments?

Yeah. Respect to the, did you talk about the ordinary installments? Was that the question? Yeah. Okay. In 2021, the ordinary installments based on the current loan facilities we have is approximately $160 million a year. Okay. Between the quarters. And it will be some slightly increase in these ordinary installments in 2021 as we then take delivery of the four LR2 tankers and draw down on the new 6-SIM synodal facility, which we talked through earlier in the presentation. And your other question was with respect to the Sterna facility. Was that the other question?

Yeah, the 60 million remaining on the HEMEN facility.

We do have an agreement there in place saying that it matures in May 2021. So we plan to follow that agreement and then repay in May.

Got it. All right. And then for the... total weighted average interest expense. I see your interest expense came down pretty meaningfully from the second quarter. Just trying to see where that runs up to in the fourth quarter.

Okay, in the third quarter, I think the average cost was around 2.3%. And I think now in the fourth quarter, it's slightly lower, but around the same level.

Got it. All right, and then one more last modeling question before we can all get to Thanksgiving, I guess here in the States. For the operating expenses, you know, they had a huge tick up in the third quarter. I know you said most of that was due to some dry docking, some one-time crewing costs, just trying to get a sense for a good run rate there in the fourth quarter in 2021.

Yeah, as you said, it was a lot of work there in the third quarter. However, we have pointed to in the press release that we will also have a kind of wall-off in the fourth quarter with respect to this crew cost in relation to COVID-19 of $1.5 million. However, that is, of course, down from this quarter, which was $4.8 million. We also have stated that we will have five vessels dry docked in the fourth quarter. So I don't... think you can expect that the cost will come any down from the third quarter with respect to dry docking in the fourth quarter. It will probably be a bit higher. But otherwise, I don't think we will have any extraordinary items in Q4. With respect to 2021, I don't foresee that to be any extraordinary in a way. The only exception for the subject I have to make is, of course, the development of the COVID-19 pandemic in a way. We can't really foresee that, but it seems like the vaccine is coming in place and everything should be pretty normal after a while there as well. So it shouldn't be any cost-related changes and that sort of thing going into 2021.

Sure. Let's hope so. That sounds good. Well, thanks so much. Have a good day.

Thank you. Thank you. And your next question comes from the line of George Berman from CL Securities. Please ask a question.

Good morning, gentlemen. Good afternoon. Thanks for taking my call. I've got a few questions. Number one, you used to be predominantly in the VLCC and Suezmax space. Recently, in the last few years, you moved into the LR2 Afromax area. Can you comment on the reasoning behind that, number one?

Yeah, over the years, the frontline fleet has diversified into three key or core segments. The LR2 AfraMax market, or rather the LR2 market, is like the VLCC of the clean trade. That has been for a long period of time. been a development globally where refining capacity has been growing rapidly in the Middle East and also in Asia at the cost of refining capacity in North America and in Northwest Europe. Obviously, that case stumbled a bit on the fracking revolution, meaning that U.S. refineries ended up having a relatively cheap feedstock and were able to maintain kind of run rates and margins for a prolonged period of time. But the investment initially was out of the displacement between supply and demand on the product side. This is becoming kind of increasingly current again, with India claiming to double their refining capacity within a relatively short time. And we see the tremendous growth of refining capacity in China, meaning that China could become a significant exporter of petroleum products. At the same time, we see now refineries in Europe have struggled and are kind of to a larger extent shutting down. So that was, that kind of is and was the key strategy behind refining. What we experienced, obviously, was that the clean markets didn't perform as expected, and the LR2s got engaged in a dirty trade, so drawing a little bit below half the fleet into the dirty trade. But these ships can be cleaned up and can move back to the LR2 market again.

Okay, great. Next question. You did a pretty big deal last year with Trafigura. I believe it was for 10 Suezmax tankers, pretty new ones, 2019 built. Are there still several under time charter, the time charter back to Trafigura, and at what rates are those?

There's still five of them on time charter back to Trafigura with a profit-sharing agreement, and that's at the level of $28,400 per day.

So they are good earners for you at the moment, even though you don't profit here with them, right? Absolutely. Okay. Then concerning scrapping, you mentioned in your initial remarks that it looks like with the current rate environment, there are many, many companies, if they still transport, they would do so at huge losses. Do you see any openings in the scrapyards recently? that have enabled companies to scrap. And then you made a remark, other than scrapping, what would some company do in buying a 20-25 year old VRCC or Suezmax tanker?

Well, firstly on the scrapping, as far as I understand, I believe, well, we like to call it recycling. As far as I understand, the recycling plants were also heavily affected by the global pandemic, meaning that they had to shut down. There is an increasing activity in the recycling market right now, and we see more and more vessels being sold for recycling, but not necessarily in our asset classes, to put it that way. There are a couple of aftermaths that have gone. but very few VOCs and source masses reported. And as I mentioned in my presentation, there is a disconnect between the price these vintage vessels are able to achieve for not necessarily trading, but for storage and other activities, than what the recycling company is willing to pay you for the steel. So with regards to what these tankers are used for, I think I would be a little bit kind of cautious to speculate. But obviously there is oil that is transported kind of outside of the normal spot market. And there is, as I mentioned, there are quite a large amount of sanctioned barrels in the world right now. And these need somewhere to be stored.

Okay. And then lastly, maybe you can comment again. I read that you're divesting your ship management division, and you look to book about a $7 million gain here in the fourth quarter on the sale. What are the reasoning behind divesting this division, essentially taking your in-house ship management to an outsourced version? Is that cost-efficient for you, more cost-efficient?

Well, let me explain a little bit on our model. So we do have in-house technical managers, but we do outsource the crewing and effectively the day-to-day handling of the vessels. So it means that we have an organization in-house, a technical management department, a relatively large one actually, that oversee third-party technical managers. And C-Team could be looked upon as a third-party technical manager. So indirectly, we were owning a company that we normally just outsource to, to put it that way. And this maybe explains my comment about it not being kind of a core business. And divesting it was basically due to the fact that OSM came in and offered us an opportunity to continue to run the company. The company will continue to be run in very much the same manner and to the same expectations that we had when it was directly owned by us. And we obviously buy the services of that company. going forward, just like any of the other third-party technical managers that we employ.

Okay, great. One last one, if I may. What is your average interest rate on the debt you're absorbing at this point in time? You mentioned that you had a very, very good debt facility there with a very good interest rate and with rates basically worldwide close to zero. I'm wondering what kind of an advantage is that for your company at the moment and how long are those rates locked in for?

I'll let Inger answer that question.

The new facilities which we have put in place now, we went through with respect to 10 of those facilities earlier in the call. So that was locked in for, the margin was locked in for five years on those facilities and obviously we have also shown our let's say the maturity profile in the presentation so you can see how this is going to be mature going forward at different facilities but so the average rate that we are let's say having on our loans today is the 190 basis points in margin and library on top of that, which is a very low level now. The three-month library is around 30 basis points or 25 basis points in that area. That is what we are looking at. And in addition to that, of course, we have this... which we talked about a bit earlier in the presentation, where we have a rate of 6.25%, which we pay on that $60 million. But that is a very small part of our total portfolio, so it doesn't really mean so much for the average in a way.

So if LIBOR rates rise, your interest rate costs would also go up a little?

Yeah, it will. We do have interest rate swaps in place as well for $550 million on a certain bit higher level than the 25 or 30 basis points, but even though they're competitive. So we are not, let's say, totally exposed to a raise in liver rates, but to a certain extent, yes.

Yeah. And then maybe one quick last one. Concerning scrubbers, is your entire fleet now outfitted with scrubbers where necessary?

No. We have about two-thirds of our fleet is fitted with scrubbers as it is right now. We kind of slow down the pace of scrubber installing with the demissioning kind of scrubber margin, to put it that way, the spread between high and low sulfur fuel. Not to say that we could easily reinitiate that program in the future.

Do you expect, I've recently heard reports about slow steaming. Would that be a positive effect on day weights and tanker demand?

It could be. You know, it's I'm not sure what context you're thinking about here. But first of all, during the laden leg, when we are in ballast, we can many times decide our own speeds. And in this earning environment, we will slow down as much as we can, to be quite honest. But there is also a general discussion around... when we measure our carbon footprint, how slow speeding could play a role in order for the tanker fleets to comply with the goals of IMO going forward. But this is still kind of a bit up in the air. I must admit we haven't really looked deep into that as of yet.

Okay, great. Thanks very much for your time here.

Thank you. Thank you. And as I remember, once again, if you wish to ask a question, please press star 1 on your telephone. And if you wish to cancel, the hash key. Star 1 to ask a question. And there are no further questions at this time. Please continue.

Okay, then I just wish to say thank you very much for this call and thank you for listening. Happy Thanksgiving to the ones joining us from the States and stay safe. Thank you.