Frontline plc.

Thank you very much. Good morning and good afternoon to you all. Welcome to Frontline's third quarter earnings call. It's quite gratifying to be able to report from a corner of the market that sees spectacular earnings these days. I have jokingly referred to tankers as a safe heaven during market turmoil. Well, it's proven true the last six months. In the third quarter, we saw all the asset classes Frontline Trade is starting to perform. I say starting as there has been some water under the bridge since end September. There are three key headlines I'll talk more about later in this presentation. Crude and product displacement due to the sanctions on Russia, Chinese imports starting to recoup lost terrain from COVID-19 lockdowns, and the US export situation. Before we get to the third quarter financials and what lays ahead, let's have a look at the highlights on slide three in the deck. In the third quarter, Frontline achieved $25,000 per day on our VLCC fleet, $41,100 per day on our SUSEMAX fleet, and $40,200 per day on our LR2 slash Afromax fleet. So far in the third quarter of 2022, we have booked 75% of our VLCC days at a solid $77,200 per day, 76% of our SUSEMAX days at $65,400 per day, and 70% of our LR2 slash APROMAX days at a cool $58,000 per day. And again, all numbers in this table are on a low to discharge basis and will be affected by the amount of ballast days we end up having at the end of the quarter. But it does hint to an okay Q4 regardless. If we quickly jump to slide four in the deck, I'll repeat a few key points on the frontline fleet composition. I just want to remind all the listeners that we continue to have one of the youngest and most energy efficient industry. We have received a few new buildings during the year and there are two more to come in January on the VLCC side. post delivery and post installment of scrubbers in Q4 and Q1, we'll have 21 of our 23 VLCCs will be fitted with a scrubber. On the SUSEMAX side, 21 of our 29 SUSEMAXs are fitted with scrubbers, and on the LR2s, 4 out of 18. As you can see on the right hand side there, the spread between the eco scrubber segments and the non-ecos looks to have shrunk, but they haven't really. It's just that the absolute rates have increased, so it looks less prominent now. An eco VLCC fitted with a scrubber will earn $24,200 per day compared to a non-eco non-scrubber. The same relationship is at $13,500 per day for the Suze Maxxis and $12,300 per day on the LR2s. Now I'll let Inger take you through the financial highlights.

Thank you Lars and good morning and good afternoon ladies and gentlemen. Then we can turn to slide five and look at the income statement. Frontline achieved total operating revenues net of voyage expenses of 209 million and adjusted EBITDA of 148 million in the third quarter of 2022. We report net income of 154 million or 69 cents per share and adjusted net income of 82.9 million or 37 cents per share in this quarter. On the right hand side of this slide, we have shown the adjustments made this quarter, which consists of 15.8 million gain on derivatives, a 5.7 million share of results from associated companies, a 0.3 million amortization of the acquired time charters, a 2.8 million gain on insurance and other claims and a 47.1 million gain on marketable securities. The adjusted net income in the third quarter increased by 40.7 million compared with the second quarter. The increase in adjusted net income was driven by an increase in our time starts equivalent earnings due to higher TCE rates in the quarter, partly offset by an increase in interest expense as a result of higher interest rates and an increase in administrative expense as a result of costs in relation to the proposed business combination with Euronal. The Board of Directors announces its intention to declare and pay cash dividend in respect of the third quarter of 2022, only after the tender offer has been completed. This dividend is expected to be in the amount of 80% of adjusted net income for the third quarter of 2022. payable to record holders after completion of the tender offer in 2023. Then let's move to slide six and take a look at the balance sheet. This quarter the total balance sheet numbers have increased by 184 million The balance sheet movements in the third quarter are primarily related to taking delivery of one new building we'll see, the Frontana. The increase in carrying value of the shares held in Euronav, the increase of the current assets due to increasing voyages in progress and trade accounts receivable and also the net income in the quarter. As of September the 30th, Frontline had 406 million in cash and cash equivalents. including undrawn amounts under our senior unsecured loan facility, multiple securities and minimum cash requirements. Let's then take a closer look at slide seven, cost comparison with peers. Keeping costs down has always been in Frontline's DNA and the core values of the Frontline platform is to keep it simple and focused and maintain a lean and efficient management team. This slide shows that we outperformed our peers in terms of lower OPEX and interest expense in the third quarter. On G&A, one peer is lower than frontline this quarter due to increase in administrative expenses as a result of cost in relation to the proposed business combination with Euromao. Then I think we should move to slide A. Cash breakeven and cash generation potential. We estimate average cash cost per given days for the remainder of 2022 of approximately $25,000 per day for VLCCs, $20,200 per day for SUSEMax tankers, and $17,200 per day for LRQ tankers, with a fleet average estimate of about $20,900 per day. The fleet average estimates includes dry dock of two vessels, one VLC and one LR2 tanker in the remainder of 2022, with an impact of about $380 per day. We recorded OPEC expenses including dry dock in the third quarter of $8,800 per day for VLCs, $7,500 per day for SUSEC tankers, and eight thousand eight thousand nine hundred dollars per day for lr2 tankers we dry docked four vessels in the third quarter one will to see one two max tanker and two lrt factors the graph on the right hand side of the slide shows free cash flow per share after debt service and free cash flow yield basis current fleet and share price November 29 at alternative TCE rates. Based on historic Clarkson TCE rates for non-ecovessels in the period 2000 to year-to-date 2022, we adjusted for premiums on scrubbers and ecovessels. Frontland has a free cash flow per share of $2.37 and a free cash flow yield of 18%. Free cash flow yield potential increases with higher assumed TCE rates and also on a fully delivered basis. With this, I leave the word to Lars again.

Thank you, Inger. And let's start to dig into the tanker markets. So if we look at slide nine, and the headline I've chosen this time is, is this the start of a new bull market? So global oil supply is back to 2019 levels. around 100 million barrels per day. EIA in September reported 101 million barrels per day of production and 100 million barrels per day of consumption. Global crude oil exports reach 40 million barrels per day during the third quarter, and this is approximately 40 percent then of global production. that moves kind of to the oceans and this is a normalized situation for tankers. Oil in transit though moves significantly up reaching the high of 20 and you can see this on the chart at the bottom left here where global crude oil exports is around or about 40 million barrels per day. But the yellow line, global oil in transit, is actually flirting with the levels we saw in Q1 2020 when Saudi and Russia were engaged in a crude oil price war. The explanation for this is to a large extent around the situation with sanctions on Russia. And I'm going to come back to that, but I would like to note that laden days are only up 10% year-on-year, whilst the load-to-load distances, meaning that the distance between a ship loads a cargo until it gets to its next cargo or engagement, is up 20%. If you look at the chart on the right, and this is important right now in particular, as we, you know, we were all overwhelmed with news of OPEC, news of Russian sanctions, news of absolutely everything. And the people tend to forget that China is actually starting to move. So Chinese oil imports are on the rise. They're actually up to a million barrels per day in Q3 alone. And this is a steep trajectory. preliminary numbers for November tells us that Chinese crude oil imports are in fact up 3 million barrels per day from the bottom in July and as I'm going to come to kind of a bit later in the presentation is that time starter markets and as the prices are on the move let's move to slide 10 and look at the new trading patterns and if you look at the somewhat confusing graph at the bottom left hand side. You'll see that European imports of oil and products from Russia are down 1.4 million barrels per day year on year. And this is November last year compared to this November. This shortfall is to a great degree replaced by imports from US, Latin America and Asia. And if you look at the two, kind of under the European import, the two blue columns on the right, they amount to 1.3 million barrels per day. The products and oil that comes from Asia is three times the length of the travel distance than from Russia. And what comes from America or Latin America is at least two times further afar than Russia. And we've seen exports from Russia to the same extent sailed past Europe to Asia. And you'll find the orange column under the Russian headline is 1.3 or 1.4 million barrels per day, equating to what Europe is replacing. And mind you, Europe continues to import 3.2 million barrels per day from Russia, And we're now facing the kind of increased sanctions represented by the price cap. So after 5th of December, the jury is still out on how this will play out. But these flows may change even further. If you look at the chart on the right, US have played an important role kind of in the last six months of the year by adding volumes to the market through their SPR releases. And it is a fair in the market that once this SPR release finishes, you know, how much volume will we lose or capacity will we lose out of the US. In the bottom chart on the right hand side, I've tried to do this a little bit simplistically. And I know a lot of people would be able to arrest me on this. But the gray area is US net export. It's basically US exports, and I basically deduct the SPR release. We all know that the SPR is not connected to the ocean. So the SPR feeds the US refining system, which on the other hand, has the capability of exporting more. But what we've seen is that despite the SPR release, the outright or the net exports from U.S. has actually increased and particularly so lately. So I would also say that the jury is still out of how significant the fall in U.S. exports are going to be once the SPR stops releasing barrels. If we then move to slide 11 and look at the assets and the TC markets. As the spot markets move, so will the time charter rates and the asset prices. And there has been and there still is a hectic activity in the time charter market for tankers. And this is as charters try to seek cover And with the current order book and the fundamentals for oil, there is an increasing interest for tonnage. I didn't write it, but it's almost like there is a fear for not having the capacity to freight oil going into the future. Resales are now pricing higher than contracting. And this is due to the timing of available yard space. If you look at the chart at the bottom left here, this is resale values as quoted. The dark blue one is for VLCC resales. It's actually a little bit under where the actual market is. The last kind of whisper number on the VLCC resale is $130 million for a SCOBR fitted prompt delivery. A new order will be delivered in three years at the earliest. So this basically puts a hole in the whole delivery chain of freight capacity, and this is a worry to people that are short freight. And as the conviction in the current rate environment grows, rates will follow. I had an interesting discussion with an investor the other day, and we discussed the current fundamentals, and he suddenly realized that this could actually last. And what then? Kind of a funny one is if you look at the long-term historicals, and I was even surprised by this myself, the weighted tanker sector earnings are now at levels last seen in 2005. The reason for this is obviously that the Afromax and the LR2 segments are making far more money than they have ever previously. So this is not a typically unusual market for VLCC. It's a high market for SUSEMAXs, but it's an astronomical market for Afromax and LR2. And the current resale prices, we haven't actually seen these levels for 14 years. Let's move to slide 12 and look at the Tankara order books. And this is at least half the explanation for why we are here. On the top left-hand chart there, I've tried to kind of lump together the asset classes that Frontline are exposed to, namely the VLCC, the Suez Max and the LH2s. And if you just sum up the number of vessels that are currently over 20 years, and where we argue that your trading efficiency is not only limited, it's almost impossible in the compliant tanking market. That kind of pile of ships amounts to 163 vessels. The order book for the same segment stands at 92. And that order book is to be delivered over the next two to three years. This relationship does not make sense. If you want to really make it ridiculous there you can just add some of the 303 vessels of these asset classes that are currently over 15 years and whereas almost half of them will reach the 20-year threshold whilst the existing order book delivers. And I think kind of this recycle pool order book ratio I kind of think I invented it myself but anyway it's an interesting one so let's move from slide 12 to slide 13 and just a few comments on the frontline urinal combination as you know kind of anything and everything around this combination is obviously quite sensitive I just want to go through the steps and the frontline relocation comes first and it's in process and post that we'll launch the tender offer a lot of analysts and market players have asked us about these delays these are regulatory caused delays the pro the process of moving frontline to Bermuda to Cyprus from Bermuda to Cyprus has proven complicated. There are lots of regulatory bodies involved, and they use time. But we continue to be committed to this process. However, the launch of the tender offer has clicked to Q1 next year. The outcome remains the same, depending on how much support we get in the tender offer. If we get above 75%, we will have a merger or move for a merger. If we are between 50.1% and 75%, we will form a group. And Frontline will gain controlling interest in both scenarios. Let's then move to slide 14 and then try to sum up what we discussed. And the Sunmount story continues. And further inefficiencies are expected post the 5th of December. The global crude oil exports are now at pre-COVID levels, and oil in transit continues to be very firm. The order book to recycle pool ratio at unprecedented levels. The order book is around 5% of the existing fleet, and then I'm only speaking about the segments we are exposed to, versus 9% in the so-called recycling pool. The markets are, in fact, pricing in limited fleet supply, both in the spot market, in the TC market, and also on assets. And in all this, Frontline has a modern, efficient spot-exposed fleet, and as the story unfolds, winter is, in fact, upon us now. So with that, I'll say thank you and open up for questions.

Thank you. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. Once again, please press star 1 and 1 if you would like to ask a question. We will now take your first question.

One moment, please. And your first question comes from the line of Omar Nocta from Jefferies.

Please go ahead.

Thank you. Hey, guys. Good afternoon. Hi, Lars. Hi, Inger. Good afternoon.

Good afternoon.

Thanks for the update. Obviously, very exciting times across the tanker space. Wanted to ask, obviously, on the latest topic you had in the presentation about the merger, And then maybe just on the re-domicile from Bermuda to Cyprus, I know obviously there is regulatory issues there, but does that require ultimately a shareholder vote to do, or can that be done in the ordinary course of business?

No, it will require a shareholder vote.

Okay, that will. All right. And then when you think, and I hate to not try to back you into a corner, but when you think about the tender offer timing, in the first quarter, you know, based off of the dialogue you're having with the different authorities. Can you see that happening? Is that more of a January event or do you think that happens more in March? Any way you can handicap that for us?

It's almost impossible to answer. And as we've proven, the timing with the filing of relocation has obviously taken an unexpected long time. But we remain positive and optimistic. And, you know, kind of the documentation has been done in parallel here. So we do hope that that process will be far more efficient. And, in fact, we can file documentation for tender offer before the relocation is effective.

Okay. Thanks. And, yeah, thanks for that. And maybe just more about the market. Obviously, you were talking about the AfroMaxes and the LR2s. being at exceptionally high levels and at rates we haven't seen before historically. How are you thinking about that segment right now? You've got those 18 shifts. Two of them I see are on those attractive longer-term contracts, but the remaining 16 or so, how are you trading those? Are those in the clean trades or are some of those shifted into dirty trades?

Well, the majority of them remain in the clean. I think last quarter I mentioned that we had six out of 18 trading dirty. Now that number is temporarily seven, basically because one ship was offered a cargo it couldn't refuse. but overall you know I think kind of you need to look at this in two dimensions so one is kind of the general macro or macro whatever change here where refining capacity has increased further away from key demand centers and the Covid pandemic was a death blow to quite a lot of refining capacity in Europe and some in the US So that kind of underpins a fundamental change in training patterns and that's here to stay. And then obviously this has been turbocharged with kind of inefficiencies surrounding the sanctions on Russia. Europe is dependent on or has been dependent on quite significant product imports from Russia, in particular diesel, and this now needs to be sourced from elsewhere. And it's causing a kind of refinery margin environment that we haven't really seen before, or at least not in a very long time. So I think kind of short term that will continue. So we can actually expect these super inflated clean rates continue. But in the longer term, we have this kind of fundamental change in the dynamics that will kind of help this market going forward, but maybe not to the same kind of elevated state we're seeing right now.

Okay, got it. Thanks, Lars. I'll pass it over. Thank you.

Thank you.

We will now go to our next question. One moment, please.

And your next question comes from one of Chris Robertson from Deutsche Bank. Please go ahead.

Hi, good morning. Thanks for taking our questions. This is Chris on for a minute. Hi, Chris. Good morning. Hi, good morning. Yeah, I just wanted to talk about the dividend for a moment, not as it stands today, but maybe in the future. And Lars, you talked about maybe a stronger for longer scenario here with rate strength. So I'm just curious on with 80% of adjusted net income for the dividend for 3Q, how should we think about that going forward as we get closer to maybe 2030 or as there's maybe more technological clarity around future fuels, things like that. Would there be a change so that you could have more cash on hand as dry powder for either pursuing additional growth opportunities or pursuing a fleet renewal in the future?

Well, you know, it's a good question. I think if you point to history, Frontline has had the tendency to actually pay out dividends and then use other means of financing in order to finance, for instance, investments in new tunnels and so forth. The only times where we have kind of kept back from paying a handsome dividend has been in a situation where it's been clearly that the markets have changed fundamentally. So I don't know if that kind of answers your question fully. I would like to say, though, that 80% of net income is in line with what the frontline historically pays when we make money. It's our key ambition to give our investors more or less directly the cash we make. So I think that's the normal conduct of businesses.

Yeah, that's fair. I guess just as a follow-up, I think that's the million-dollar question, as you mentioned, is will the market fundamentally be different as we approach 2030 as compared to today? Because it seems like there's quite a few years' runway here with the current order book and everything else going on. But then once we get closer to the end of the decade, that's kind of the question I was trying to get at, is how different is that market? Yeah.

I'm sorry, Chris, but it's a very good question, and you called it the million-dollar question. I wish I could answer it. At Frontline we tend to be late adapters when it comes to kind of new technology, new fuels. We will always try and position ourselves towards kind of regulatory change and so forth and execute best practice as far as we can. The jury is still out. Most of our tonnage is deep ocean kind of long traveling ships. And as it stands right now, there isn't really an alternative energy source for these ships. you know it could be that if gas prices or LNG prices drop significantly the econs of LNG propulsion could come back to compete but it's kind of difficult to envision it but I think you know with the putting the long goggles on you know you have to you know keep in mind that at least the kits are going to be more expensive as we proceed, basically because you need to make investments to reduce your carbon footprint. But I don't even dare trying to put some numbers on that or apart from kind of the general direction. But in all fairness, we have actually reduced uh quite a bit of uh and we are kind of every year now committed to follow uh kind of regulatory um you know demands to to to reducing our our emissions and uh we will do so but obviously at a certain point of time the ships can't really go any further very yeah thanks for indulging the scenario and walking us through that it's a great color i'll turn it over thanks thank you

Thank you. Once again, as a reminder, if you would like to ask a question, please press star 1 and 1 on your telephone keypad. We will now go to your next question.

One moment, please. And your next question comes from the line of Greg Lewis from BTID.

Please go ahead.

Yeah, hey, guys. Thank you, and good afternoon, and thank you for taking my question. You know, Lars, clearly you guys have been doing a lot of work. You know, thank you for the presentation. I did have some questions around, you know, the impact of the Russian crew embargo. And really, I guess a couple questions I have is, you know, as these volumes need to go farther afield because they're getting diverted away from Europe, What types of port restrictions are there, you know, from these export areas? And really what I'm wondering is, could there be the potential for, you know, in a place like the Gulf of Mexico, there's a lot of glidering and ship-to-ship transfers and smaller vessels then move out to move oil on? larger vessels for their final destination. Is that something that logistically we should be thinking about happening, which probably further tightens the market?

Yeah, first of all it's a good question and this is kind of evolving as we go along. I've previously been talking a lot about the dark web of oil and the markets involving Iran and Venezuela. I'd say the Russian trade I tend to refer to as the grey market, because these are all good vessels that are sailing according to class and insured potentially in other markets than shipping normally does and so forth. But what you're referring to here is that this largely inefficient trade which is going on now will kind of grow and that you would use kind of bigger carnage you know to take kind of benefits of volume of scale and so forth at least if Asia is going to continue to take Russian crude and yes we're actually already seeing this not inside kind of EU territory but we are seeing other areas where STS operations are happening. The very very concerning part of that is that not all of these areas are suited to do an STS and you know, so safety and pollution risk increases But we also see there's been a very high activity in the sale and purchase market or the asset market for kind of more vintage tonnage, which we are expecting to see kind of entering this market. I'm talking about the, you know, 17 to 17 and a half or even 15 year olds of Sue's Maxis MVs. that have been purchased recently that may kind of appear, you know, in order to make this trade a bit more efficient and to scale it towards the price cap coming in.

Okay, great. Thank you for that. And then my other question was more around, and you touched on it a little bit around the uninsurance or insurance, you know, realizing that, you know, every trade disrupts This has happened in the past in parts of the Middle East and elsewhere. As I think about a cargo looking for insurance, I guess in the gray or the black market, I guess is that cargo, generally speaking, are those cargoes insurable? And really, is it something that's usually provided by the buyer or the seller for the shipowner?

It's kind of the environmental risk. Once the cargo is on board the ship, it's taken care of by the ship owner. But you're pointing to a very good question here. Russia has a big insurance market, like internal insurance market. Whether that insurance market can underwrite this type of risk is obviously a big question. But then again, kind of with this price cap, and we don't know how this is going to play out, you know, we have received some indications from OFAC on how they kind of look to organize the price cap, but we don't really know the fine details. on how this price gap is going to be imposed. But I'm saying that because there could be a scenario here where actually oil will be sold according to the price cap, and then actually the sanctions wouldn't apply. So the insurance market would actually be able to, or the Western insurance market would actually be able to service it. But just to repeat, there is the question mark. If this oil continues to trade in a manner where insurance is not certain, that's obviously a big concern and a problem.

Yeah, definitely interesting times in the market. Hey, this was super helpful. Thank you very much. Thank you.

Thank you. There are currently no further questions. I will hand the call back to you.

Okay, thank you. And thank you so much for listening in.

Exciting times indeed. And have a very good Christmas when that comes. Thank you.