Frontline plc.

Good day and thank you for standing by. Welcome to the second quarter 2025 Frontline PLC Earnings Conference Call. At this time, all participants are in a listen-only mode. 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lars Barstad, CEO. Please go ahead.

Thank you, Nicolas. Dear all, thank you for dialing into Frontland's quarterly earnings call. Shipping and tankers from our vantage point is still in the eye of the storm in relation to global conflict and trade policies. We have started to grow numb in respect of our industry's ability to regulate the ever-increasing parallel tank market, stealing margins from the law-abiding citizens of the tanker trade. But now we are hopefully seeing the contours of change, one being trade policy reflected in nations' behavior on crude sourcing, and the simple fact that global oil demand growth has surpassed what sanctioned molecules can satisfy. Meaning incremental oil demand and supply for that sake, its growth seems to benefit the compliant fleet, being the market frontline operator. So before I give the word to Inger, I'll run through RTC numbers on slide three in the deck. In the second quarter of 2025, Frontline achieved $43,100 per day on our VOC fleets, $38,900 per day on our SUSEMAX fleets, and $29,300 per day on our LR2 slash Afromax fleet. This is up from the first quarter of the year, but admittedly somewhat short of expectations. So far in the third quarter of 25, 82% of our VLCC days are booked at $38,700 per day. 76% of our SUSEmax days are booked at $37,200 per day, and 73% of our LR2 slash AFRAmax days at $36,600 per day. And again, just to remind you, all these numbers are on the load-to-discharge basis with the implication of the ballast days at the end of the quarter this incurs. However, we have fixed very far into Q3 at this point in time, so there's not that much that can move the needle coming in from here. And I'll now 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, profit statement. look at some highlights we report profit of 77.5 million or 35 cents per share and adjusted profit of 80.4 million or 36 cents per share in the second quarter of 25. the adjusted profit in the second quarter increased by 40 million dollars compared with the previous quarter and that was primarily due to an increase in our tce earnings from 241 million in the previous quarter to 283 million in the second quarter. As a result of higher TCE rates, partially offset by fluctuations in other income and expenses. Let's then turn to balance sheets at slide five. The balance sheet movements this quarter are related to ordinary items. Johnstown has a solid balance sheet and strong liquidity of $844 million in cash and cash equivalents, including undrawn amounts of revolver cap capacity, marketable securities, and minimum cash requirements bank as of the end of June 30, 2025. We have no meaningful death maturities until 2030 and no new building commitments. Let's then look at slide fixed fleet composition and cash break even rates and OPEX. Our fleet consists of 41 VLCs, 21 Zeus Max tankers and 18 LR2 tankers. It has an average age of seven years and consists of 100% Ecovessels where of 55% are scrubber fitted. We estimate average cash break-even rate for the next 12 months of approximately $28,700 per day for VLCCs, $22,900 per day for SUSEMAX tankers, and $22,900 per day for LR2 tankers, with a fleet average estimate of about $25,900 per day. This includes dry-dry cost for 12 VLCCs and 8 LR2 tankers. The fleet average estimate excluding dry dock cost is about $24,600 or $1,300 per day less. We recorded OPEX expenses, including dry dock, in the second quarter of $8,700 per day for VIL-CCs, $8,900 per day for SUSEMAX tankers, and $7,600 per day for LR2 tankers. This includes dry dock of one VIL-CC and one Zeus Max tanker. And the Q2 25 fleet average OPEX excluding dry dock was $8,100 per day. Then let us turn to slide seven and look at cash generation. Frontline has a substantial cash generation potential with 30,000 earnings days annually. As you can see from the graph on the left-hand side of the slide, the cash generation potential basis current fleet and TCE rates for TD3C for VCCs, TD20 for Zeus Max tankers, and the average of TD25 and TC1 for AfriMax and LR2 tankers. from the Baltic Exchange as of August 28, 25 is $648 million, or $2.91 per share. And further, a 30% increase from current spot market will increase the potential cash generation with about 64%. With this, I leave the word to Lars again.

Thank you very much, Inger. And let's turn to slide eight and look at the current market themes. So what's going on out there? The compliant tanking fleet sees improved utilization. And this is as the compliant oil export is growing. And some of the trade lines are stretching or lengthening. India and China are balancing their feedstock exposure. as they're negotiating US trade policies. And we've also seen increased pressure by both US and EU on sanctions. We also have OPEC 8 voluntary production cut reversals. They have yet to materially affect export volumes. And just to remind you, in the Middle East, About 20% of electricity generation comes from burning oil. So Middle East will still kind of consume about 800,000 to 900,000 barrels per day more during the hot summer months. We do expect this to stop over the next weeks. And we also have quite exciting projections for Q4 global oil supply growth. which is supposed, or at least according to EIA, give us a 3 million barrels per day year-on-year growth. If you translate that into exports, probably going to be close to 2 million barrels per day for increased exports. We are back to solid US exports again, after having a soft development ever since January. And we look in August, at least looking at tracking, to reach 3.9 million barrels per day coming out of the US Gulf. And as I'm going to come back to later, we see more and more of this oil pointing towards Asia. We've also had Brazil and Guyana production performing very, very well, and likewise on their export side. We also are in an environment here with improving refinery margins. that – which basically supports kind of refineries crude demand and the product ARBs. EIA again expects us to reach 105.4 million barrels of consumption in December globally. And we need to keep in mind this is coming from 101.5 million barrels in January. So let's go to slide nine and dig a little bit into the policies and how it affects behavior. So the oil discount that countries are achieving by importing sanctioned oil versus the trade balance, and then in particular towards US, is an important measure for nations not embracing the current sanctions regime. To put some numbers, and this is not exact science, but just taking it off what's being reported around there, India are benefiting around $2.7 billion as a discount to benchmark oil prices by importing large amounts of Russian feedstock. But there'd be bilateral trade. is tenfold of that, or even more. So about 86 billion dollars is their trade worth with US alone. It's also expected that if the US tariff pressure continues on India as it is right now, they stand to lose about 20 billion dollars of trade to the US. This motivates, although not officially, but it does motivate them to change their tactics. We have seen sanctioned barrels increase their market share in key growth regions over the years, and this accelerated after 2022 and Russia's invasion of Ukraine. But now we're in a situation where OPEC ate voluntary production cut reversals And the supply growth, especially in Latin America, has given the market headroom to choose compliant sources of oil without affecting oil prices materially. And as global demand continues to grow, we seem to have found a limit on production and export growth from the sanctioned nations. If you look at the two charts below on the slide, and look at these three key sanctioned nations' production, it seems to be tapering off. And also, if you look at their exports, it's tapering off even faster. There is the fact that when these countries lose knowledge and parts from the rest of the world in order to maintain their production levels, they tend to also lose productivity. If you look at the chart on the top right-hand side, year on year, China and India's compliance crude imports, we see a very positive development. Whether this is sustainable is obviously difficult to say, but we are at least moving in the right direction. Let's dig a little bit further into the flow on slide 10. So on the top left-hand side here, we have year-on-year change in global crude production and also in global exports. Exports is the part that concerns tankers. We've seen quite steep year-on-year changes to the positive in Q2 and also looks to come in in Q3. And this reflects the previously mentioned increase of around 2 million barrels year-on-year in exports. This is predominantly coming from compliance sources. If you look at the chart below, we've just taken out Iranian and Russian and Venezuelan oil, and it looks very prominent.

If you look at the chart on the bottom right hand side,

And this is important. Basically, what's been missing in our market, and particularly hurting frontline, has been the fact that the long-haul trade of oil has suffered. Russia has supplied Asia to a very large degree, whilst Europe has received resupply, as they're missing the Russian barrels, from U.S. Brazil, Guyana, and West Africa. What we ideally want is Latin American and US oil to go east. This is about double the voyage of this local transatlantic trade. But in order to get to that point, Atlantic Basin oil basically needs to price eastbound. It needs to be cheaper, including freight. than the benchmark grade in the Middle East, which is called Dubai. What's happened over the last couple of weeks is with India entering the Middle East market to a larger degree now than what they used to do, they have pushed up prices in the Middle East to the point where now you can actually place US barrels cheaper into the Asian market than taking it from the Middle East. Of course, it takes time for this to be reflected in rates, but what we have seen already is a significant increase in U.S. Gulf fixtures for September, which obviously is going to be October delivery, than what we've seen previously.

Let's move to slide 11. and look at them, the order books.

So basically, what I described on the previous slide, it basically equates to about 6% increase in freight demand. And that's not adjusting for Tom Mars. So the potential change here is greater. But the fleet is not really growing at all. In 2025, it's expected to be reduced by about half percent if you look at the active trading fleet that is either not sanctioned or sitting still. There are so few vessels coming into this market that we're actually experiencing negative growth. So with that equation together with longer trade lanes, more compliant oil in the market, and a stable fleet development is good news as we move into the fall here. We have a record amount of vessels above 20 years of age in the fleet. We have a record amount of or part of the fleet being sanctioned and in light of that kind of setup we continue to have a very limited order book. We also see that the activity on the yards for tankers has been fairly slow for a long period of time now and there's only very few orders being placed. If you order a vessel today you are 90% certain that you need to wait until 2028 to get that vessel on the water. So basically the tanker market is sold out for 2027. There will be transactions on resales for both 26 and 27 delivery, could even be 25. But if you want to increase the order book from here, 2028 is the year. So to try and sum up a little bit, and I have jokingly, but hopefully it's not a joke, called this compliant bull market, question mark. Basically, trade policy is affecting crude sourcing for the key demand regions. And this has been a little bit of a step change as far as we can see it over the last couple of months. We see an increase utilization in the compliant fleet and we see kind of a more healthy growth in both employment and freight as we are proceeding here. The effective tanker fleet growth remains muted both due to the aging and also of course due to the widening sanctions. We have healthy refinery margins, and this is actually the first time in a while, and it's been steadily improving since November last year. We've had a seasonally strong summer market, which again kind of confirms this positive demand growth as we see it. Open cut reversals are expected to yield increased exports from the Middle East as we approach winter. And Frontline continue to retain this material upside with our modern but not the least spot exposed fleet. Thank you. And with that, we'll open up for questions and give some answers.

As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.

Please stand by while we compile the Q&A roster. Our first question comes from Omar Nocta with Jefferies.

Your line is open. Thank you. Hi, Lars and Inger.

Thank you for the update. Lars, always very good as you kind of go through all the detail and all the moving parts in the market. I did want to maybe follow up just on a couple of those discussion points. You know, maybe you made a point on slide 10 talking about those west to east flows. and how those have been missing from the market, but here recently there's perhaps a jump in terms of U.S. VLCC exports going to Asia. I guess how do you think about how that starts to play out as we get closer to winter here over the next several months where you do get an incremental amount of volume into the Middle East market from OPEC? How does that all kind of shift that dynamic overall in terms of the long-haul VLCC trade?

Of course, I should say Jefferies, but I have to actually lean on Goldman here. They and other kind of observers are modestly or even increasingly bearish crude prices this winter, one being due to the return of the Middle East oil. from OPEC, but secondly that we are actually on supply side, we are about a million barrels per day north of the demand side. So it's a very good point. I don't want to be in the predicting or in the betting kind of part of this, but I do subscribe to the idea that we could if not a floating storage contango, but we could get a contango basically with a, you know, well, I assume most of you know what the contango means. That could kind of come into the oil curve this winter, unless we see something very surprising on the demand side. What normally happens then on oil trade is that utilization further increases. Basically, since the future price is higher than the present price, traders and transporters of oil have no hurry to move into port to discharge, and also it kind of gives you the ability to freight oil longer. But lastly, and the most important part, it also incentivizes people to build inventories. And that's been a big missing part as well. We do see reports of China building inventories, but the rest of OECD is kind of very, very low on the inventory side. So if that answers your question, this is a potential scenario we see play out as we come into winter.

Thanks, Lars. That's helpful. And then maybe just a follow-up, kind of talking a bit more on the market, you know, big theme here over the past maybe a few quarters or perhaps a couple of years. is the fits and starts we've seen in the VLCC market where, you know, rates gain momentum. And if you think this is going to be the big shift and then they fall back and then expectations sort of get reset. You know, last week was a bit exciting in terms of the move in spot rates. They seem to have gapped up. And it seems maybe this week that they're holding up. What would you kind of attribute some of the, I know it's very short-term thinking, but what would you attribute those recent gains to? Are you starting to actually see those export barrels from OPEC come to market, or is it something else at play?

I think kind of, you know, what has come to motion here or gotten into the market is this shift from, you know, with some Russian backing up, quite a bit of Iranian backing up, and that oil being replaced from the compliance sources. This has kind of almost like an exponential effect on the demand for compliance tankers. So that is kind of driving it. We have this kind of magic ceiling around $50,000 per day on VLCCs, and we struggle to push through. This has something, we believe, with the structure of the market You know, we are kind of, you know, we are deep in the money, long-term owners of tankers. We, you know, for us, there shouldn't be a ceiling at all. But if you are more on the short-term trading side, then you're taking a ship in on time starter for, you know, $40,000 per day. Suddenly you can, you know, kind of literally close the strategy with $10,000 per day profit. You do that because then you get the bonus next year and can buy yourself a new chalet in Switzerland. And those guys have an awful lot of ships under their commercial control. So you could say that the owners have been a little bit diluted by such a presence in the spot market. What's encouraging right now is that I can promise you, ever since last Thursday, all the charters have been trying to push this market down as far as they could. And it seems like we are finding some support and only lost like $5,000 per day in earnings. So if this is the floor, just to put the VLC there around $45,000 per day, then I'm actually quite optimistic that we'll be able to push through this kind of artificial ceiling at 50,000 and hopefully establish a new floor a little bit higher up. The waiting that's been happening now and all the fun and games to try and push this market down has meant that, you know, charters are actually starting to get a little bit, you know, little time to get the vessels they need in order to lift their cargoes. And that's always very good news to the market. And it's going to be very interesting, you know, as we come into work next week and see how this develops.

Okay, yeah, very good. Thank you, Lars. We'll see how things indeed develop here. I appreciate it. I'll turn it back.

Thank you, Omar.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone. Again, that is star 1-1 to ask a question.

I'm showing no further questions at this time.

I would now like to turn it back to Lars Barstett for closing remarks.

Well, thank you very much. I hope it's good news that there were so few questions at this point, or if it's just Friday. But thank you very much for listening in, and looking forward to see how this develops. Thank you.

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