Good day ladies and gentlemen and welcome to the third quarter 2015 Frontline Limited earnings conference call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Robert Macleod. Please go ahead, sir.

Thank you very much. Good afternoon and good morning. Welcome to Frontline’s presentation for the third quarter of 2015. Q3 kicked off in an exciting manner for Frontline Limited. On July 2, we announced the agreement and plan of merger with Frontline 2012. Q3 was also a quarter which saw $100,000 a day earnings return to the tanker market. We are hoping to see this more frequently going forward. It has been sorely missed. Inger will now go through updating the merger process, the dividend strategy, the quarterly highlights, the main transactions, and a financial review of the quarter. I will then follow up with earnings and market review, the time charter market, VLCC and Suezmax fleet developments, the present market, and finally the market outlook. Inger, please go ahead.

Thanks Robert, and good morning and good afternoon ladies and gentlemen. I would like you to move to Slide 1, third quarter 2015 company highlights. As Robert just mentioned, the third quarter was kicked off with very good news when Frontline and Frontline 2012 in July agreed to enter into a merger transaction, with Frontline 2012 becoming a wholly owned subsidiary of Frontline Limited. Frontline filed a registration statement with the United States Securities and Exchange Commission on August 24, covering the common shares to be issued by Frontline to Frontline 2012, and the registration statement was declared effective by the SEC on November 9. The shareholder meetings of each of Frontline and Frontline 2012 are scheduled to be held on November 30, 2015 to then vote on the merger agreement. Assuming approval and completion of the merger, the Frontline board has recommended implementing a dividend strategy to distribute quarterly dividends equal to or close to earnings per share adjusted for non-recurring items. Timing and the amount of dividends will be at the discretion of the board, and the first dividend for the merged company is expected to be declared and paid in December 2015. The long-term charters for the 1995-built Suezmax tanker, Front Glory and also the Front Splendour were terminated in September and October respectively, and the company received compensation payments of $2.2 million and $1.3 million respectively for the termination of the charters. In November, we also agreed to terminate the long-term charter for the 1998-built Suezmax tanker, Mindanao. The charter is expected to terminate in the fourth quarter of 2015. The company expects to receive a compensation payment of approximately $3.3 million for the termination of that charter. November 23, Frontline entered into an agreement to purchase two Suezmax newbuilding contracts from Golden Ocean at a…

Thank you very much, Inger. Let’s move on to Slide 7, please, the market review. The drivers for the quarter were unchanged from previous quarters in 2015. The rise in oil supply is perfectly matched with rise in demand on the back of the lower oil price, a pretty ideal scenario from a tanker owner perspective. The high supply of oil is, to me, the main factor why we have a fundamentally strong market. I will come back to the oil supply later in the presentation. It is worth noting that the fleet increased its ballast speed back to normal in the quarter whilst maintaining a high utilization rate. The average daily time charter equivalent earned through a combination of spot and time charters in the third quarter by our VLCCs were $45,600 per day, whilst our Suezmax tankers achieved $28,100. Several of our tankers were fixed for positioning voyages, which has reduced the average TCE. The voyages were made to strategically position the vessels ahead of the fourth quarter, which in the past has yielded seasonally higher rates. Just to give a couple of examples, we have the new Suezmax tankers, the Front Ull and the Front Idun. Both ships were positioned for [indiscernible] to Europe in the quarter. We also sold the 1995 build Front Glory and in the sale, we have positioned her to the Middle East to deliver to the new owners. This is a costly positioning but it made economic sense, thus the price we achieved on this sale. For the vessels employed in the spot market, we have covered 80% of our VLCC operating days in the fourth quarter at TCE rates of approximately $68,500 and 87% of our Suezmax operating days at TCE rates of approximately $42,500. The rates for vessels on time…

[Operator instructions] We have an opening question from Fotis Giannakoulis of Morgan Stanley. Please go ahead. Your line is open.

Yes, hello, and congratulations for the great quarter. Robert, I want to ask you about the amount of oil that you think that is in the water right now, and what is expected to be discharged to the U.S. There are a lot of articles talking about the deliveries of crude to the U.S. are going to be quite heavy, or they are quite heavy right now. Do you have any view on that?

Yes, I think if you go back to the summer, Fotis, this was what drove the market up in July to levels we probably have never seen in the summer. That was driven by exactly what you’re describing, which is Middle East heavy grades going to the U.S., and that was Iraqi barrels. Then, that dropped quite significantly in the second half of July, and that was another factor why the market was down in August. So we’re seeing that come back. I can’t give you the estimates for how much the last couple of months, but it’s definitely a factor and it’s one of the signs or one of the factors you can monitor in the crude space there on how the market develops, as they sort of move, and there’s volume going now, as you say, which is positive for the markets.

Thank you, Robert. We have seen tremendous volatility in the VLCC market, which by no means is a bad thing for your earnings; but it seems that this volatility is triggered or intensified even more by the Iraqi production and the Iraqi loading schedule. Do you have any view of how the Iraqi loadings look like the next few weeks and how this activity has been?

First of all, I think when you’re saying, volatility, and that’s what we’ve been missing the last five years. When I started really getting belief to the market getting back was when I saw the first sign of volatility, because we’ve had a flat market for five years. As I said earlier, the market will always be volatile in the tankers here, and it’s a positive thing. When we look at this year, what’s been great about the volatility is that on the downturns, the market has picked up and come back up very quickly. The Iraqi volume is a very popular way to--as a barometer on how the tanker market is, because it’s a program that comes out two weeks before month-end, approximately, and then you can see the next month’s program. This year, it’s been between just over 2 million barrels a day or 2.5, up to 3.6, which was the highest. So, I think fundamentally it’s important, but I think the psychological effect on the market is a little bit more--it’s a little over--more than what it should be in a way, because when they go up a half million, then the market reacts straightaway. But the volumes here are big, so it’s a good thing, and they go long haul as well.

Thank you, Robert. Shall we move from Iraq to Iran, and there are several expectations about the volume that is going to come from the Iranian barrels. What is your expectation, and how many VLCCs will the Iranian barrels require from the market? What I understand a little bit more about the vessels that they already have, it seems that they are used to store condensates. Is this trade going to happen with vessels from the market, or they will be using their own vessels?

The way I see Iranian production, it’s about 2.8 million barrels per day is the production now, and of this, 1.8 is--they have about 10 refineries, I believe, which consumes about 1.8, so they export about a million barrels per day which they’re using their own ships for. This fear of the fleet coming in the spot market, I think is a little bit--I’m not so concerned, because if you look at Isolea [ph], which is the south part, one of the biggest gas fields in the world, in order to extract the gas they have to also extract these condensates, and if you look at this area for the last 10 to 15 years, they’ve always used their ships to store this product. It’s a product that is sort of--through the year, it goes up and down in terms of how easy it is to sell and due to limited funding for infrastructure, they don’t have the land-based storage. So I think you’ll see that these ships will to a large extent keep storing, and at the same time the production is expected to increase by anywhere between half a million barrels and a million barrels per day, so anywhere between 50% and 100% more than what they’re exporting today. So that will take up further of their fleet, which overall I would not be surprised if this is a very positive--[indiscernible], it’s a very positive thing for the tanker market, and you’ll see them having to charter in tankers from the international markets.

Thank you for your answer. One last question, and I’ll stay in the Middle East. There are reports today about Aramco looking to buy several refineries in the U.S. What does this mean for both the crude and the product tanker market? How does this affect oil flows and ton miles, in your view?

I haven’t seen that confirmed, Fotis. It’s a very interesting question. Maybe you and I can go through that afterwards. I need time to think about that one.

Okay, thank you Robert, and congratulations for the fourth quarter, which looks even better.

Thank you, Fotis.

Our next question comes from Eirik Haavaldsen of Pareto. Please go ahead. Your line is open.

Yes, Hi Robert. On the Suezmaxes you announced today, it looks like, as you say, a win-win for all parties. At the same time, it does raise the question on what the tanker order book can really become for ’17. Do you see more of these conversion opportunities out there, or was this sort of the final one or at least the nearest one? If you could comment on that, that would be great.

I haven’t studied in detail how many there could be, but there’s a timing issue. I think the deal here was done last minute, we couldn’t have waited much longer. So I need to have a look through, but I think most of what’s likely to happen, has happened in my opinion.

Okay, and then on your Slide 9 and 10 in the presentation, it looks like your 2016 fleet growth is going to be minimal, and for Suezmaxes actually nothing. Is that right? Is that your assumption right now, or is there maybe an error in the charter?

Let me just get it up. For the Suezmaxes, from now until July, I believe there’s four delivering, but on the VLCCs there are obviously quite a few more.

Okay, nevermind. Finally on Q4 guidance, classic Frontline, very strong, Frontline 2012 a bit softer. As we try to model this as a combined entity going forward, any reason for that Q4 discrepancy between the two entities?

I think the main reason is if you look at the fleets, on 2012 there were five VLCCs operating in the spot market, and you position two of them like I’ve just described on the Suezmaxes in Frontline Limited, then because of the fleet size, you get very big swings here. If you look at Q4 and 2012 versus Limited earnings, then it’s abnormal, but this evens out over time. I think in order to look at our performance, I think you should look at the year-to-date numbers and base it on that, because the three months is a short time, especially if you’re moving a ship from Asia to Europe, for example.

Agreed. Thank you, Robert.

Our next question comes from Erik Stavseth of Arctic Securities. Please go ahead. Your line is open.

Hi guys. My question relates mostly to--you talk about consolidation and mergers in the press release. What’s the main reason for consolidation and merger? Is it growth for the sake of growth? Is it vessel replacement? Is it bigger market cap and that’s your focus? Could you elaborate a little bit on what your thoughts are there?

I think if you look at how this market is now, it’s split into the many entities, and I think controlling a bigger fleet in one area is good for the market. I think if you look at our marketing cooperation we have with Euronav in the TI pool, it’s--yes, it gives strength rather having [indiscernible]. So I think it will create opportunities and, yes, we have a meeting next week which hopefully will approve the merger, and then we can start looking at what’s best for us going forward.

Right, and is it sort of the same on the assets and vessels, and also--I mean, you’ve seen there’s at least been some comments on asset size coming down or coming off a little bit as of lately. Are you seeing that as a consequence of people having been a little bit too optimistic on valuations, or is it just the sellers are now finally succumbing to the fact that prices have really been inflated?

I think it’s classic supply-demand here. If you look at the number of vessels for sale and then you look at how many are actually out there keen buyers, there’s a very sort of overhang of ships for sale. It’s actually quite strange--if you look back, it’s very seldom that you see that you have a very strong not only spot market, you have a strong time charter forward market as well, and then you have the prices coming off. It’s abnormal, but it’s definitely the case, and we’ve seen this trend all through 2015.

Right. On the vessels for sale, is that fleets being offered for sale, or is it more one by one vessels?

Both.

All right, thank you.

Thank you.

Our next question comes from Amit Mehrotra of Deutsche Bank. Please go ahead. Your line is open.

Yes, thanks so much for taking my question. Wanted to just circle back on the concerns around supply that you talked about. Just wanted to get an understanding of what level of supply growth you think can actually lead to a sustained step-down in rates. I ask that just because by our estimates, we think the supply-demand balance in the crude segment sort of deteriorates by the tune of about 15 VLCCs next year on a net basis. Is that enough, in your view, to drive some sustained moderation, given what demand is doing? And then also, obviously the speed of the vessels can have a pretty big impact on the dynamic as well. If you could just provide your thoughts on those two, I guess, related issues, I’d appreciate it.

Yes. It’s also what you’re saying on the supply here, how will supply grow. Supply growth in 2015 has been tremendous. You’ve gone from 93 and a bit, up to almost around 97 now. So I think going back to what Fotis was asking earlier, I think Iran is one on further supply here, and then for the fleet speed, we saw that the ballast speed increased here in Q3, and that was absorbed straightaway. So that’s--but it’s all a balance, and I think what you’ll see going forward with the increase in supply, which we’re expecting, the ton mile is virtually second stone as things look now, and then you add the congestion, which is a very important factor, actually, to sort of absorb the supply of ships. So if the market continues with the trend we’re on now, then I’m not so conservative. Obviously if you have a drop here--there are a substantial number of ships coming, especially the second half of next year, so there is a fine balance, but I think it’s important to look at how the fleet is being utilized, because that’s changing. The number of sailing days is decreasing, and as I say, if this trend continues, I think it will be absorbed.

Right, okay. Just one or two follow-ups here. I just wanted to follow up on the asset valuation question, and I think that’s just really important, obviously, because it’s just an enormous lever to equity value appreciation. I just wanted to understand, what are some of the leading indicators for asset value, based on your experience? I mean, we’re seeing some increased duration here in the time charter market, which is a great sign. Do you think that basically the market just needs to see--you know, we’re sort of in the second inning here of this crude up-cycle. Do you think the market needs to see maybe 12 more months of a relatively robust rate environment before they start giving increased credit on the asset value side? Is that what you think is holding it back?

Yes, [indiscernible] actually how long it takes, and now it looks like people want to see the--or start believing that the second half of next year the tonnage will be absorbed. But what one shouldn’t forget is that generally here, someone invested in tankers is very often invested in other shipping segments as well. With what’s going on in the other shipping industries around us, that could explain part of it as well. But I wouldn’t be surprised if we suddenly start getting more activity on the sale and purchase side of tankers, because the outlook is strong, in my opinion, and it’s reflected in the period charters that people are willing to do and obviously the rates they’re willing to do. Back to the slide on the time charters I showed earlier, if you look at the three-year trend, it’s a very healthy sign.

Right, okay. One last question from me is just on the dividend strategy. I mean, clearly the industry, the tanker industry is going that way in terms of full payout or near full payout in terms of net earnings. But the question I have is depreciation is a very real expense, especially in shipping, and then typically the more successful over time companies tend to de-lever in an up-cycle, so I just wanted to try to understand how you generally, not necessarily in this case, but how you generally sort of think about a full or near full payout policy during an up-cycle juxtapositioned, I guess, against the fact that you do have to invest to renew the fleet and you do have to de-lever the balance sheet over time. So just wanted to get your view on that.

I don’t think this is something which is in contradiction to each other, in a way. I think you can both grow through acquisitions going forward, and obviously of course finance yourself with external capital like equity and debt in connection with acquisitions. At the same time, you also can have a dividend strategy. So I’m not sure I understood your problem here.

It’s not a problem, it’s just a question of when companies are paying near all of their net earnings in the form of dividends, that leaves the depreciation piece for the reinvestment of capital, but I mean, it doesn’t really leave a lot for debt repayment over time. That’s kind of what I was asking about - I mean, the industry is going this way, but is it sort of setting itself up for a little bit of a problem when the market does turn, if it does turn?

Okay, I understand that question, but you’re just asking whether you would like to have for us kind of repayment or your debt instead of paying out dividends? That’s what you’re looking at, in a way?

I’m just talking about more of a balance between dividends and debt.

[Indiscernible], but that’s a problem that’s generally not the intention of the company going forward, based on what we have said.

Yes, okay. Very good. Thank you for taking my questions. Appreciate it.

Okay, thank you.

Thank you.

Our next question comes from Mike Webber of Wells Fargo. Please go ahead. Your line is open.

Good morning, this is Donald stepping in for Mike. Congrats on the good quarter, guys. The majority of my questions have been answered. Just had a quick one on the TCs you’ve booked to date in Q4, and missed the VLCC number. Could you just repeat that for me?

For the time charter out, it’s average $43,000 starting January 15 through to--it’s a mix of Q2 and Q3 2016, so call it mid-16, so average $43,000 over 18 months.

And I think you had mentioned spot days percentage for VLCCs booked to date in Q4 as well, correct?

Yes, that’s at 76%.

Seventy-six percent, at what TCE?

Sorry, 80% at $68,500.

Eighty percent at $68,500 - all right. Thank you, that’s it for me, guys. Congrats again.

Thank you very much.

As a reminder, if you would like to ask a question, please press star, one. Our next question comes from George Berman [ph] of IFS Securities. Please go ahead, your line is open.

Congratulations, gentlemen. A great quarter.

Thank you.

Could you remind us quickly in the merger with Frontline 2012, what kind of assets and ships are we receiving? What will the combined company look like?

If we start with Frontline Limited, there’s 14 ships now on lease from Ship Finance and then there’s one VLCC, older VLCC that’s owned and then there’s two modern Suezmaxes. Then, there’s now two newbuilding contracts added on the Suezmaxes, and then you look at Frontline 2012, we own six MRs on the water, we own six VLCCs on the water, we have six Suezmaxes on the water, another six Suezmaxes coming, another four LR2s on the water, 14 LR2 coming, and I’m trying to see if I forgot something - I don’t think so.

And six VLCCs newbuilding.

Six new VLCC newbuildings, actually the most important of all, delivering in 2017, four from STX and two from JMU in Japan. In addition to that, we run some--we have ships in on time charter and we also manage a few ships for other people. So combined, we have--for the combined company, there will be 67, 68 ships on the water and 28 newbuildings coming.

So it’s around 90 vessels, yes.

Fine, fine. In general, another general question from me, maybe. When you see day rates of 80, 90, $100,000 on the spot market, how does that average down to an average then of--like you said, 45, $48,000 for the VLCCs and a little bit less for the Suezmaxes? Is it--

Go back to August, so the market was down at $30,000 a day. When you fix that voyage, your ship is employed for, say, the next two months, so during that period you’re fixed in the contract, you’re out doing that transportation job, and then if the market goes to $100,000 in the meantime, you’re not going to get the benefit. So you will always average out that, and you’re never going to hit that every peak. So what we’re trying to do here is to have a view of the market and try to time it right when to fix long, when to fix short, and have a forward view. It always averages out, but you can’t get the top dollar every time.

Okay. When there is a delay, additional waiting time in the port, you will collect the agreed upon day rate then, yes?

Then you have something called demurrage rates, which you allow--under the contract, you allow the charterers two days at load port and two days at discharge port is sort of included in the contract, and then additional time used is paid at the daily rate, which is referred to as a demurrage rate.

Okay. Okay, and generally when you fix a tanker on a spot charter, it’s on the water and fixed for anywhere from 30 to 60 days, you mentioned, depending on where they go.

Yes. You go from--the short hops, the Middle East to India, that voyage will take 10 to 12 days, and then you have the Middle East out to the U.S. west coast, which is obviously a very long voyage.

Right, and West Africa to Asia, also longer?

Yes, that’s normally an employment. On the VLCC, they will employ your ship for between 50 and 60 days. Normally when you do that voyage, you will often come from Asia, so you’ll ballast into West Africa from Asia and you’ll go back to Asia, so between 50 and 70 days.

Okay. I understand there’s a lot of shipping done from South America over to Asia as well at the time.

Yes, the Latin American barrels, we’ve seen an increase there, and a lot of those barrels are destined for China.

Okay. Going to China, do you see a lot of storage and filling up of their strategic petroleum reserves?

I think this year it’s about 70 million barrels this year, and the expectation was it was going to be 100 but I think some of them have been delayed. So I think 70 this year and about 70 next year as well.

Okay, great. Thanks very much.

Thank you.

Our next question comes from Gregory Lewis of Credit Suisse. Please go ahead. Your line is open.

Yes, hi. Thank you, and good afternoon. Inger, so I think you just touched on it a couple questions, a couple callers ago about asset prices and rates and financing and banks. How much of this is related to what’s going on with Basel III, and just as we think how Basel III flows through the banking system, should we be thinking about more bank liquidity coming into the market, or was this sort of just a new normal where given the constraints that Basel III puts on banks, there’s just going to be less available funding on asset prices?

So you’re thinking that the asset values maybe affected by that? You think it’s a lack of bank financing, is that what you’re thinking?

I’m asking is that what you’re thinking.

At least from our point of view, we don’t experience that we will have less interest from our banks to lend us money, so I guess it might be that the banks will more, let’s say, selective of clients that they will lend to, but we are fortunately ones which are in favor so far, so we haven’t seen any of this.

So that’s not having any impact on LTVs or anything like that?

No, no.

Okay, thank you very much.

Thank you.

As a final reminder, if you would like to ask a question, please press star, one. Our next question comes from Lars Ostereng of ABG. Please go ahead. Your line is open.

Yes, thank you. Good afternoon. I was wondering, the dividend that you are going to pay in December, what is that going to be based on? Is it the EPS of Frontline or the pro forma combined company?

It is for the combined company, like we stated in the press release, so this is assuming that we get approval for the merger and it’s completed. It will be based on the merged company earnings per share, but adjusted for non-recurring items.

Okay, thank you.

As we have no further questions in the queue, I would like to turn the call back to the speakers for any additional or closing remarks.

Thank you very much. I’d like to then thank you all for dialing into this call, and I’d like to give a special thanks to everyone in Frontline for their excellent efforts. Thank you very much.