Frontline plc.

Good day and thank you for standing by. Welcome to the Q3 2024 Frontline PLC Earnings Conference Call and Webcast. All participants will be in listen-only mode during this conference. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Please note that today's conference is being recorded. I would now like to have the conference over to your speaker, Mr. Lars Bostad, CEO. Please go ahead.

Thank you very much, Daryl, and thank you for dialing in to Frontline's quarterly earnings call.

Thank you, Marcus. Stocks don't move in a straight line. I believe the last months have told us that. We have previously argued we are in a period comparable to the 2002 to 2008 bull runs, although supply of tonnage driven rather than fueled by strong oil demand growth. That comparison still holds, I'd argue. And as an example, in November 2004, the market was said to be doomed, and we corrected more than 30%. The bull rally resumed a few weeks thereafter, and we were off for the skies again. For the same reasons, it's difficult to predict the bearish sentiment the bull runs are equally hard to call to. So before I give the word to Inger, I'll run through our TC numbers on slide three in the deck. In the third quarter of 2024, Frontline achieved $39,600 per day on our VOC fees, $39,900 per day on our SUSE maxes, and $36,000 per day on our LR2 slash FMR. So far in the third quarter, we've booked 77% of our VLTC days at $44,300 per day, 70% of our SUSEMAC days at $39,600 per day, and 60% of our LRQ slash AFROMAC days at $34,600 per day. And again, all numbers in this table are on a low-to-discharge basis with the implications of balanced days at the end. The market has not offered us the numbers we hoped for, but we are operating a decent margin still. With that, I'll let Inger take you through the financial highlights.

Thanks Lars, and good morning and good afternoon ladies and gentlemen. Let's then turn to slide four, the profit statement. We report profit of 60.5 million this quarter, or 27 cents per share, and adjusted profit of 75.4 million, or 34 cents per share. The adjusted profit in this quarter decreased by 62.8 million compared to the previous quarter, and that was primarily due to a decrease in our TCE earnings. coming down from 357.7 million in the previous quarter to 292.2 million in this quarter. That results from lower TCE rates in the third quarter compared to the second quarter. Let's then look at the balance sheet at slide five. The balance sheet movements this quarter are related to re-balancing in addition to ordinary items Frontline has a solid balance sheet, a strong liquidity of $526 million in cash and cash equivalents, which includes an undrawn amount of the senior unsecured revolving credit facility, marketable securities, and minimum cash requirements as per the September 30th, 2024. We do not have any remaining new building commitments, and we do not have any meaningful debt statutes until 2027. If we then turn to slide six, our fleet consists of 41 VCCs, 22 ZeusMax tankers, and 18 LRQ tankers. The fleet has an average age of six years and consists of 99% ecovessels, where 56% is scrubber fitted. We estimate average cash break-even rates for the next 12 months of approximately $29,600 per day for these disease and $23,400 per day for Zeusmax tankers and $22,000 per day for NR2 tankers. This gives a fleet average estimate of about $26,300 per day. This fleet averaged Estimate includes dry dock of five real seas and two zoos max anchors in the next 12 months. Where two real seas are dried off in the fourth quarter of 24, one zoos max in the first quarter of 25, one real sea and one zoos max in the second quarter of 25, and two real seas in the third quarter of 25. This quarter we recorded opex expenses including dry dock of $8,700 per day for veal disease, $7,900 per day for service tax tankers, and $7,800 per day for LRQ tankers. This includes then dry dock of two veal disease. The Q3 24 pre-divers OPEX excluding dry dock was $7,900 per day. Then let's move to slide seven. Despite current challenged spot market, Frontline generates decent positive cash flow. And with 30,000 days annually, Frontline has a substantial upside potential. As you can see from the graph on the right-hand side of this slide, the cash generation potential of current feed and spot market earnings from Clarkson Research as of November 26th is $304 million, or $1.36 per share. And with a 30% increase from the current spot market, it will increase the potential cash generation with about 100%. With this, I leave the word to Lars again.

Thank you very much, Inger.

So the current market narrative is somewhat mixed. Global oil supply is increasing, but the money growth The geopolitical risk linked to the Middle East continues and it's very important to see how the new kind of US policy is going to be going forward. 17% of the shipped oil hitting the market is sanctioned and 6% of global consumption includes sanctioned barrels. The very recent tariffs on Canada and Mexico may increase in efficiencies in all flows, but more importantly, the order books have stopped growing for tankers as containers are starting to take up the stage again. If you look at the chart on the right-hand side, this is basically in the balance between supply and demand according to IAA, which is the orange line, versus the tanker market, how over the years. What we see, and this is notable, is that although demand is disappointing somewhat, it's expected to continue to grow. And when we move into 2025, we are looking to be in an oversupplied market again on tankers, with effects you then have on utilization of tankers. At the bottom three charts of this slide, you can see kind of how these markets are actually range bound, although at a very, very low level, apart from with an exemption of the clean market, they are allowed to exposure, which has corrected sharply during the period. Let's move to slide nine and look at the key oil flows. So as I mentioned previously, overall global demand growth is new to the year today. And this is across all regions. We do see oil supply continuing to rise. And this is predominantly happening around the Atlantic Basin. Countries like North America, Brazil, Guyana, and to some extent, West Africa are increasing supply to the market. But the challenge we have is that this increase or increments of barrels tend to stay local. By local, I mean to remain in the Northern Hemisphere, of course going into Europe to replace the lack of Russian barrels, but also trading inter-regionally. Having said that, it's a pretty stable flow of oil leaving the Atlantic Basin, going to Asia, but there's no growth to be seen in those barrels. This basically means that although we've had for years a positive effect on tonn miles as oil has traveled in general further. What we've seen over the last period is that the tonn miles have actually not depreciated more than the volume coming out. And actually to some extent reduced if you incorporate what's the compliance fleet and We see the sanction-exposed oil market as a share of Asian demand has reached a whopping 25 percent in Q3-24. This, we would argue, tells us that the tanking market is increasingly exposed to any changes in sanctions and policies going forward. Let's move on to slide nine and have a look at the order books. The order books have increased materially during the year, and specifically so for SUSE Maxis and for LL2 Afro Maxis, but also to a great degree on the OCC. But at the same time, we are seeing the fleet continue to age, as virtually zero ships have been sold for recycling. If you look at the current VOCC fleet, the order book is equating to 76% of the existing fleet, while 14.8% of the fleet is above 20 years and not trading the market that we recognize ourselves with. On the same metrics, the Suez masses, the order book is now equal to the population of ships that are above 20 years. On the LR2s though, we see that there is a whooping. amount of ships on order. But if you take the LR2s and the Afromaxes combined, that's a very few uncoated Afromaxes being on order, the picture becomes more balanced. Where you get to this as per the SUSMAXes, where there is an equal amount of vessels above 20 years, that is on order. And with that, we basically don't look at the order books as a big threat, particularly so for the VLCC going forward. There's five vessels scheduled to be delivered next year, and there are 131 VLCC trading in the market, which formerly wouldn't be qualified to trade. Similar numbers in SUSEMAC, there are 108, about 20 years as the year comes to an end. And if you look at the AFRA-LR3 market combined, You've got more than close to 200 vessels trading in the market. Basically, ships that are not necessarily accessible for the mainstream players. So moving from page 10 and going to 11. So in summary, we like to call the holocaust a bull market still. Frontline has a modern fleet. strong balance sheets, and we continue to retain the upside here. Oil supply is expected to outpace demand in 2025 with the implications that may occur. The current trade flow developments are challenging as sanctions bite, and I put bite in exclamation marks because basically the sanctions is forcing the long ton miles onto ships that we don't identify ourselves with. Policy changes on Middle East and with the maximum pressure, which Trump has been calling for going forward, this will be a very interesting space to watch. The order book growth has stopped and modern asset values remain firm. And a small note on that, with the order book now kind of moving into 2028, no shipyards are in any urgency of discounting tankers as they are or they continue to be busy contracting or getting interest or contracts on container ships and other asset classes. And also some fun fact at the end of the presentation. World oil trade is now serviced by the oldest fleet in more than two decades. You need to go back to 2002 to have an average tanker fleet of this age, which is somewhat surprising considering efforts in trying to reduce emissions and the tightening of scrutiny around the world we're observing.

So with that, I'll open up for questions.

Thank you, Isa. As a reminder to ask a question, please 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. Once again, please 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. Thank you. We are now going to proceed with our first question. The questions come from the line of Jonathan Chappell from Evercore. Please ask a question.

Thank you. Good afternoon. I want to start with you. I know you've done a lot with the capital structure this year, refinancing, paying down debt, etc. As the market becomes a bit more volatile and maybe lower lows that people are concerned about, maybe just the leverage by appearances looks still a little high. So has there been any thought about taking the strong market that we've had for the last couple of years, some of the strong asset values, some of the older fleet that you've sold, And even though you don't have any near-term big debt maturities, to be a little bit more proactive in deleveraging the balance sheet in this part of the cycle?

My thinking is that the loan-to-value that we have currently is just below 50%. And we don't really see any risk that the model fleet will decrease in value. We don't feel that this is the high leverage that you probably are looking out to. We are comfortable with that depth level.

Okay. Lars, you've touched on a couple times narrative, geopolitics, watching what's going to happen from here. Maybe we could just tease that out a little bit because sometimes the narrative kind of dominates the view of the market. Um, I think there's probably two, well, one thing that people are really focused on and one thing maybe a little bit less so, so, um, maybe short answers to both, but if there were to be a resolution in Ukraine, but the sanctions and the pressure were to be ratcheted up on Iran, what would be the puts and takes of those two things happening somewhat simultaneously?

Um, well, you know, if, um, Let's do the Russia-Ukraine first. The sanctions that are imposed on Russia are, I would argue, somewhat flaky. So Europe is buying record amounts of gas from Russia whilst they're having this price cap on oil and products. We're also, just as a coincidence, buying a record number of fertilizer from Russia as well. So this kind of leads me to the thinking that any kind of long-term solution to the conflict or the situation from Russia and Ukraine, I think the sanctions may be reversed fairly quickly. The political cost of holding these sanctions in place, particularly now coming into what's expected to be a cold winter in Europe, could actually motivate politicians to actually walk back on these sanctions fairly quickly. This would almost immediately put a lot of oil which locally belongs to Europe, back into Europe. And that would push a lot of the Atlantic Basin barrels to find another home, and that's more likely to be priced into Asia, incurring longer-term loss. If you, on top of that, do something about Russia, sorry, I mentioned it numerous times, that Iran are having very, very great success in exporting huge amounts of oil, despite... And if one is able to limit that, that oil also needs to be replaced. And there the likely replacement is from OPEC. It's quite surprising to me that OPEC are happy kind of cutting the amount of barrels they are, watching Iran growing their exports. And so if something happens there as well, this means that the Iranian flow needs to go and comply on tonnage. And that will kind of give an exponential effect on our market. With regards to the Russian fleet, basically what's happened over the last couple of years is that Russia is now more than close to self-sufficient on tonnage. They're closer to 300 vessels. To the most part, it's Afromax and Susmax, meaning that they can cater for their own volume. So you're not going to have this massive shift. Of course, some of these ships are They're coming back to the compliant market once sanctions are lifted. But we have to consider that the average age of this fleet, more than half of these vessels are north of 20 years old. And those, we don't believe, kind of compliance charters are going to change their age restrictions just yet.

Okay. That's very helpful. Thank you, Lars. Thanks, Inger.

We are now going to proceed with our next question. The questions come from the line of Omar Nocta from Jefferies. Please ask your question.

Thank you, Lars and Inger. Good afternoon. Just a bit more discussion from my end on the market itself. I wanted to ask just in terms of how the VLCC market specifically, how that's been developing. It seems, and I think, Lars, you touched on this early in the presentation, rates tend to be drifting at unexciting levels. It's been a run-up in charging activity. It takes rates higher. But then that activity kind of slows again and you're back to where we were. And it just seems that rates are in this narrow range of call it, you know, for modern shifts, maybe 25 to 50K. And that's been the case seemingly since August. Do you think that there's a case that we can see rates break out this winter? Or is there just simply not enough cargo in the market to move?

As you know, Omar, that's a very difficult question to answer. I think the fact that we are actually in fact raging is a sign that the market balance is not that completely awful. It's basically we're just missing those incremental barrels that we need to push the scale further. I would say, though, that the market has changed characteristics a little bit. We have the Middle East, or the AG market, as we call it, which, you know, is kind of, you know, there are Asian interests in more than 80% of those boat cargos. And the Asians, again, are friendly with each other, meaning that you don't really get pressure out of those negotiating. So basically, it's the Atlantic Basin that needs to price the markets. This TV3C, which is the benchmark index for Middle East to China, have kind of, you know, it's like the Dow Jones of freight, but it has the least kind of open interest to use the term from the oil market. So you basically need that kind of basin to price, because the mechanism then is that the vessels will just shun, it means it goes straight to US Gulf, Brazil, or West Africa, because that offers a better return. And for that, we basically lack the expansion in ton miles from the Atlantic Basin East. I mentioned that in my presentation, that that volume has been more or less flat. So we need some dynamics to change here in order for that to occur, basically to force Atlantic Basin barrels to not force them, but attract them to Asia to a greater degree than what we've had. So I would say, if you ask me right now, it seems like we are in this range bound kind of motion. But again, the balances are still tight. We're actually making black numbers on the fixtures we make here. So it's not an absolute disaster. But it's very difficult to put beyond this 50k per day as you described.

Yeah, thanks, Lars. I appreciate that. It's definitely a difficult question to answer. Maybe I'll throw another one at you that's probably perhaps just as difficult, or we'll see. But I guess maybe just in terms of 2025, and as talked before with John, there's so much going on between the Middle East conflict, Russia, Ukraine, the Red Sea, Iran, OPEC changes. There's just a lot of different variables. How in general would you see, from your vantage points, Heading into 2025, what do you think is the base case next year for VLCCs in terms of earnings potential? I know it's obviously very difficult to define, but maybe just in relation to how 2024 is averaged, how would you say from your perspective what 2025 will look like relative to this year?

I was actually hoping that 2024 would be what we now probably have to wait until 2025 to see. We've completely underestimated to which extent this current state of the market can extend. I think if somebody told me, say, that we will have 17% of the tax receipts, it will be above 50 years old, you know, 6-7% of the world's receipts on the whole tax sanctions and so forth, and everybody will be happy with the trading, you know, I would say that's impossible. But apparently it's not. I think the exciting part is that the incoming kind of government of the U.S., are arguing for very hard stance on the sanctions evading. I think it's obvious to most what these exports is financing. I think it should be also even at some point here obvious to IMO that they should maybe focus on what's going on in the unregulated shipping markets rather than talking about decarbonisation return. So, so I'm very hopeful. I'm also, you know, I think kind of, we are, we are extending ourselves. They're not, not by way of, we're very, very happy, but the market itself is extending itself here. So any adverse events in this market say, you know, you know, we discussed if something happens with Russia, Ukraine, that shifts the balances. If something happens to Iran and we miss their ability to export, we're extremely sensitive to these changes, which obviously would put the tanking market all of a sudden in a very, very strong position.

Yeah, understood. Well, Lars, I appreciate it. I'll turn it over. Thank you.

We are now going to take our next question. The questions come from the line of Sherif and from BTIG. Please ask a question.

Hi. Thanks for taking my questions. I was hoping you could give a little bit more color on the sale and purchase markets. It seems like asset values have softened slightly in the last month or two. And I'm wondering, you know, is that due to more sellers coming to the market, maybe less appetite for vessels from the dark fleet? Any color would be helpful.

I think it's a combination of less appetite from the sanctioned trade. I mentioned previously that Russia are themselves more or less saturated in respect of the fleet they need in order to trade their markets. The margins, as I believe we mentioned a little bit in our Q2 presentation, the margins in this market is under pressure. We're even seeing that the discounts on the rain and crude are getting smaller and smaller, meaning that there's less kind of for freight. So there is hope that these markets are getting saturated with the effect that, you know, the latter or the older part of the pancake fleet will lose that kind of bid and you'll have an adjustment in values. This is exactly why Frontline has been so focused on selling all the dress, basically because we've seen that you could say, or overperformance on asset values on the more older markets to be extremely risky. But I think from what we're seeing, it's not many weeks ago that we saw fairly good prices on modern secondhand vessels. Right now, the market is a little bit paralyzed. There's nobody really exchanging numbers, nor trading shifts firm. but you know we were quite comfortable that for the modern part of this fleet it hasn't actually grown at all for the last couple years and that the downside is very limited but for the older part of the fleet and the tail end of the curve I think we'll need to kind of recycle parity fairly soon

Thanks. And then regarding this phenomenon of larger tankers that are trading products, you know, hearing some industry reports that they're coming back into the dirty trade. My question is what keeps them in the dirty trade once they switch back, especially, you know, kind of you highlighted what's going on with the rate momentum heading into December.

Well, it's, you know, this is, just pure mathematics or economics to put it that way. If you have the ability, when the crude market is subdued and you have a vessel and a cargo history that gives you the opportunity to within a reasonable cost to clean up, you will do that. But none of these ships on the crude tanker side are really designed to carry products. So it means that they can't do it for an extended period of time But I think kind of the key motivation here is the economics. And obviously now the clean market is not offering the economics to compete with crude and basically that you rather than switch back. But I think what this has showed us that we saw kind of in May, June this year is that the efficiency between asset classes has increased. You know, we were ourselves surprised to see how quickly kind of these e-cons put the crude tankers into the clean trade, but that was obviously also due to the fact that the crude market was challenged at the time. So this will... In a scenario, say if the clean market suddenly rallies now, you would get crude vessels to clean up, but in a case where both rallies, you won't have that kind of interconnectivity between the asset classes.

Yeah, that's very helpful. Thanks for taking my questions. Thank you.

As a reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. We are now going to proceed with our next question. The questions come from the line of Devon Sandoy from TAGE Investment. Please ask a question.

Hi, Lars. I have a couple of questions. One on the China demand, which I asked you last time. So there's been a massive shift and significant downgrade in the consumption pattern due to shift to LNG and to more cleaner EV. How do you see the demand going back into 2025 and how much difference does it make to overall tanker demand?

No, you're absolutely right. There is, particularly on the heavy duty trucks, there's heavy subsidizing going on in China in order to kind of get that fleet, which was 16 million vehicles or something, to get them to go into, you know, for ease, let's call it gas propulsion. It's LNG and LPG. With staggering sales numbers where 50% of new sales are actually on alternative fuels. That is being reported to have reduced diesel demand in China by somewhere between five and 700,000 barrels per day. This is out of three and a half million barrels per day with the current population of alternative kind of heavy-duty trucks. Having said that, we're actually at a very good position to having observed these kind of developments ourselves, particularly from Norway, because Norway has had the highest penetration of the highest new sales of EVs in the world. For a long period of time, there were more Teslas sold in Norway than in the U.S., due to heavy subsidizing. And basically, surprisingly, we've seen that fuel demand has not fallen as expected, which basically leads us more on to the point that it's more activity and consumer-driven than actually the penetration. Even though you have two or three million alternative fuel trucks, or maybe more, six million, I guess, you could get to fairly soon in China, you still have that existing fleet that is also driving. And on increased economical activity, these tend to drive longer or further. This is at least what we've experienced here. On the EV side, there's a huge population of cars in China. I think we are still some years away from that market getting to a tipping point where actually petrol demand starts to decrease materially. But I think we have to expect that in most markets around the world, except the US, we are actually getting to stages where at least for personal cars, demand is not expected to grow materially. And it's actually, we've reached peak gasoline demand in many countries already. But kind of on that note, What we haven't seen peak demand of is on petrochemicals. So if you look at the various agencies and how they report on petrochemicals, there is a tremendous growth. So this means that although transportation is a huge part of the demand picture, we're also seeing quite sustainable growth on demand coming from the pet chem markets. So I think it's a little bit too early to call the doom to oil demand basically due to high numbers of sold EVs in Asia or in China.

The second question is on the OPEC. OPEC has kept on pushing back the production increase. What's your view going back in going to the 2025 year? How do you see the production? Will they focus on market share or will they focus on

That's another question, isn't it? You know, we read the same narrative as you do. You know, one month, you know, it's said that OPEC will look or particularly Saudi will focus on market share rather than absolute price. And, you know, a month after, the narrative is completely the opposite. What surprises me is that, you know, we are actually in this territory for such a long period of time, and it's quite impressive to see OPEC so disciplined, you know, as they see you know, production numbers increased and taking market share to this extent. So, you know, it's illogically for me, you know, I can't really understand why they're so disciplined, but that's only, you know, kind of how I see it. But I think kind of it's very difficult to understand what's happening in the whole west of Vienna. Well, actually online now on Sunday, but when they discuss these matters.

And how do you see the current season, current quarter, which is typically very strong? We haven't seen that, but as we go in December and January, how do you see the season going forward? Sorry, I missed that. Seeing what? The... How do you see that? Typically, this quarter is the strongest quarter for the rates, but we haven't seen that. So how do you see the rates going forward in December and January?

Well, it's actually been noted by a couple of market analysts that maybe Q1 will be the new Q4. We've seen that on a couple of occasions, that on the event of Q4 failing, Q1 has come back with a vengeance. It's impossible to call. There are many factors that affects this, but I think as was the point in our presentation here, I think this maximum pressure 2.0 on Iran is far more interesting coming into next year than the potential seasonal slip where actually we see incremental demand coming in. as we start to move into the new year. So I think I'm more excited about political events coming into the new year or in the near term than whether the seasons have shifted. But it is a fact. We have actually seen seasonal demand increase into Q1. you know, there is kind of increased degree of profound return routes basically to do more oil available for trade.

That's what makes you so confident about the Iran. Is it the change in the political scene in the U.S. with the Trump administration coming in that Iran sanction will become much more tougher?

No, we're completely apolitical, but it is a fact that Iranian barrels are sanctioned by most of the countries in the Western world. The way they're able to evade these sanctions is by engaging in ships that are not regulated or adhering to any of the IMO principles. And I don't think, or I hope, that's not a long-term situation. So something has to give her at some point. Actually, the most bullish scenario you can paint is that all sanctions are lifted on Iran. That would be a fantastic scenario.

Thanks, Lars. All the best. Thank you.

We have no further questions at this time. I'll hand back to you for closing remarks.

Well, thank you very much for listening in.

And please don't forget that in 2004 we also thought it was a doom and gloom, and then only months after we were rallying for the skies. So, you know, hopefully this market will develop a bit more excitingly than we expected for this quarter. and have a good Christmas presentation. Thank you.

This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.