Good afternoon ladies and gentlemen and thank you for standing by. Welcome to today’s Q4 2018 Frontline Limited Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I must advise you, this this conference is being recorded today dated 28 of February 2019. I’d now like to hand the conference over to your speaker today, Robert Macleod. Please go ahead.

Thank you, very much and apologies every one for the delayed start. Good morning and good afternoon. Thank you for dialing in to Frontline's fourth quarter earnings call. I will start by briefly going through the highlights of the quarter. Following that, Inger will run us through the financials. We’ll then look at the Q4 and Q1 Spot earnings and go through some pretty exciting market slides. We’ll also look at the risks going forward. The call will be concluded by taking your questions. Let's get started and look at the company highlights. Net income for the quarter was $25.4 million. Adjusted for non-cash items, we made $26.4 million. The VLCC numbers were highly affected by ballast days towards the end of the quarter, deferring revenue recognition into the first quarter of 2019. The TCE [affects] per day, per VLCC is around $8,300. Q1 bookings are at a high level. 84% of the days are booked at $41,300, which includes the third revenue recognition from the fourth quarter of 2018. I’ll get back to earnings of Suezmax’s and Aframax’s later. Our largest shareholder continues their support, the Hemen facility is extended to November 2020. We have also increased our ownership in Feen Marine Scrubbers to 28.9%, and our planning for 2020 is on track. VLCC new building Front Defender delivered in January. This brings Frontline’s current order book down to one VLCC only. Front Discovery, which will be delivered in April. With that, I will hand the call to Inger to take us through the financials in more detail.

Thanks, Robert and good morning and good afternoon, ladies and gentlemen. Let's turn to Slides 4 and 5 and look at the financial highlights and the income statement. Frontline achieved total operating revenues net of voyage expenses of $122 million, and EBITDA adjusted for certain non-cash items of 78 million in the fourth quarter. Frontline reports a net income of 25.4 million, which is equivalent to $0.15 per share, and a net income adjusted for certain non-cash items of $26.3 million, also equivalent to $0.15 per share. The non-cash items this quarter consisted of $8.9 million gain on the termination of the leases on Front Ariake and Front Falcon. We had a $0.2 million share results of an associated company, a $5.4 million unrealized loss on marketable securities, and also 4.7 million loss on derivatives. The fourth quarter shows an improvement of 31 million against adjusted EBITDA of 47 million and an improvement of 34.8 million against adjusted net loss of 8.4 million in the third quarter of 2018. The improvement in net income in the quarter of 34.8 million is mainly explained by an increase in the result on time charter basis of $33.1 million. This is due to the increased and reported TCE rates in the fourth quarter, compared to the third quarter. However, our net income in the fourth quarter was impacted significantly by high number of ballast days towards the end of the quarter, especially for the VLCC, which deferred revenue recognition into the first quarter of 2019. The company is required to account for voyage revenues and voyage costs and the load-to-discharge method according to the ASC 606 on the U.S. GAAP. The total impact of this is about 15.8 million in net voyage revenues have been deferred into the first quarter. Where 13.5 million…

Thank you, Inger. Pretty exciting with the upside on the earnings. $1,000 is over the breakeven, it’s 90 million over the year. So, hopefully we will keep some of that going forward. Let's turn to Slide 8 please, and have a quick look at the Q4 performance and our Q1 guidance. The spot earnings for VLCC we have already covered. We’ve made 26,100 in Q1 on the Suezmaxes. The Q1 bookings are strong 77% at 33,300. Aframax has made 18,700 in Q4 and they are also off to a good start with 73% done at 26,100. Let’s move to the next one. Very exciting slide, the spot markets recent behavior. The market pulled back as we entered Q1, due to OPEC cuts, accelerated fleet growth and seasonal factors. In recent weeks, the market has reversed course, with U.S. export volumes and VLCC rates both doubling since January and showing a contra seasonal trend. Reports show [indiscernible] supplied all markets. Inventories are fallen and would rise in refinery margins, more oil has [indiscernible] the markets increasing demand for shipping. This has created a strong pull on long-haul U.S. crude. Exports in March look to be almost double those in January. The result is that ships are drawn directly to Atlantic from Asia, which in turn has left the middle east ship availability tight and the market has therefore [indiscernible] significantly at an unusual time of the year. The reason spike is very exciting and we read it as a sign that the current tanker fleet is well balanced. As lot of ship capacity will be taken out in Q2 and Q3, due to dockings with Scrubber and Ballast Water delays. 2019 could well be contra-seasonal in multiple quarters and particularly strong in the second half. Our Spot exposure is at 97%,…

[Operator Instructions] Your first question comes from the line of Jon Chappell from Evercore. Please go ahead, your line is now open.

Thank you, good afternoon. I wanted to say, I really appreciate the transparency and the revenue recognition. I think that went a long way in explaining kind of the 4Q and the 1Q volatility, so thank you for providing that. The one big question I had was on the dividend, you know the Frontline of yesteryear with a fourth quarter profit and a big 1Q outlook would have paid a pretty sizeable dividend and it was kind of noteworthy that there was not only no dividend paid for the fourth quarter, but really no mention of strategy for 2019 other than saying kind of managing the balance sheet. So, I do think that’s prudent managing the balance sheet given where you’ve come from, but how do you kind of think about the dividend especially given your optimistic outlook for 2019?

I think, as you say, we definitely have a positive result in the fourth quarter, but we have to remember that we have just [indiscernible] quarters where we have had losses and at the same time when we experience losses in the second quarters, we also had to draw on this facility that we have with our main shareholders. So, we think it’s prudent now to start to download [the debts a bit], especially this more expensive debt that we have with our main shareholder and then we have with the debt related to our vessels. So, but going forward I think this is something we have to review next quarter and with the outlook, which seems quite positive for 2019, I think we will review what to do, also how we should proportion this out going forward. But we definitely would like to have a healthy balance sheet going forward, and I think it’s also in the interest of our shareholders that we actually are [indiscernible] debt situation.

Yes. I agree with that Inger. But just to be clear is there any restrictions from the Hemen facility that – to keep you from paying a dividend or limit the amount you can pay? Or should we think about you want to get Hemen fully repaid before you kind of go back to the previous policies, or it's just kind of going to be a quarter-to-quarter review?

I think it’s fair to say that the board will obviously look at this quarter-by-quarter, but I think it’s for the – the board will look at reintroducing the dividends sooner rather than later and there’s no restrictions on the facility.

Okay, thank you. My second question is just on the Scrubbers schedule for this year. You said there’s only about 1 million left to pay in 2019, but that doesn't include installation costs. So, if we think about the all-in cash outlay associated with Scrubbers, how much cash will be going out in 2019 for those 20 or I guess the 18 that kind of new builds? And I also thanks for the schedule on dry docks [indiscernible]? What's the off-hire time associated with those?

Yes, I think you’re referring to the note [indiscernible] our state in that we have [capitulated] to the Scrubbers saw [$16.8 million worth it], if that’s what you’re referring to? Yes.

Yes.

Okay. And we also say that [indiscernible] installation costs. And installation costs we have included I guess in our – out of the total cost, we have included in our cash forecast for 2019. I believe it’s close to $47 million for everything in a way.

Okay, okay. It’s helpful.

Yes.

And the off-hire time for each drydocking?

Five to 10 days I would say, for the Scrubbers installations, I mean, in addition to ordinary drydocking.

Okay, perfect. Thanks Inger. Thanks Robert.

Thank you. Your next question comes from the line of Randy Giveans from Jefferies. Please go ahead, your line is now open.

Hi, how is it going?

Oh! Good, thanks for coming here.

Great, great. So, a few quick questions for me. So, I see you continue to kind of grow your Feen Marine ownership, is there kind of a – do you want to own 100% of that? Is there any possibility? And how much has that cost you to get to that kind of current 29% kind of ownership?

I think we will stay where we are in terms of our ownership. We – there is no desire from our side to go much after that. So, we have no desire to take over the company. We’re going to focus on running ships, but it’s a strategically given [indiscernible] 2020. We quite like the flexibility that the investment gives us.

Got it. And then the cost for that 29%?

That we haven’t [indiscernible] we’re not going to comment on the cost in this call.

Alright. And then, just looking at the time charter market, you know, I think with the surge in [indiscernible] you’re starting to see those kind of pick up a little as well. I know you mentioned kind of your current spot exposure, but at the same time, with time charter rates pretty well above your cash breakeven levels, are there thoughts of kind of securing some tonnage on time charters here in the next couple of weeks or months?

Yes, that’s a very good question. I think we’re looking at the time charter market all the time. It's finally come up to healthier levels, as you say, well above the cash breakeven. We did two Suezmax’s recently for a one-year period locking in some. At the same time, the Spot is increasing and we expect to put time charter to – time charter rates to also keep improving here as we move towards 2020. So, there’s no immediate rush to secure more, but we are monitoring it closely, and as we did in the last strong market in 2015, we went from very low coverage up to 30% and we will certainly look at taking some coverage this time around. But there’s no sort of clear strategy as to what percentage to look for, but it is the right thing to do for a certain number of ships.

Okay, that’s fair. And I guess a last question on the Scrubbers side, all 20 of those to be installed this year? And any plans for kind of further in 2020?

The majorities this year, some are going into next year, and I just tried it, all of them are up in conjunction with a planned drydock. So, we’ve not done any such thing outside of drydocks. Yet, it’s something that we keep monitoring, and also being a part-owner of a production company will then give us flexibility to get these things on short notice.

Sure, that makes sense. Alright, that’s it for me. Thank again.

Thank you.

Thank you. Your next question comes from the line of Michael Webber from Wells Fargo. Please go ahead, your line is now open.

Hi, good morning guys. How are you?

I’m fine, thank you. What about you?

Good. I wanted to look back on Scrubbers for a second and FMSI. I know they got a facility on this – it’s, you know, primary driver and being able to kind of expand their capabilities in time. It’s scheduled come online in February. Haven’t been able to find any updates on and maybe I missed it, but has that happened? And if not, give a sense on how and when that will happen?

So, the new facility in [indiscernible] just across from Singapore, I visited myself there in January. So, we are currently [indiscernible] parts moving across the new facility, and we will be operational there during the month of March. So, it's happening very soon.

Okay. So, [slide] the month, but sounds like it’s pretty close.

Yes. The aim was end of [indiscernible] to March. So, no big change, and for us, we put most of our drydocking’s to capital in Singapore. So, we basically have our scrubber manufacturing just across from Singapore, so it’s very easy access.

Yes, okay. That’s helpful. I mean just in the context of positioning yourselves for 2020, you know, we’ve seen some competitors, and then, maybe some potential suppliers start moving in advance to secure fuel or kind of get more dynamic in terms of kind of hedging their access into, you know, maybe a bit of uncertainty around availability. [Indiscernible] wide outcomes there in terms of availability. How do you guys think about positioning Frontline for that over the next, you know, maybe next 9 to 12 months?

In terms of the spread we’ve not hedged anything. So, my personal opinion is that it’s more likely to go wider than narrow. I think there is going to be lots of high Sulphur around pushing prices down. So, I don't – I’m not concerned about the availability. Our ships obviously trade to the large ports, so we will be bunkering the main ports as well where the availability is the easiest. If you have smaller ships going to certain places in Africa or Asia, it’s going to be more difficult, but we don’t. So, we’re focusing basically on getting the scrubbers installed; we’re focusing on more operational matters, getting the bunker tanks ready well in time, so that we don’t get any nasty surprises as we reach 1st of January. So, hedging and – which in opinion is most speculative at this time and in any case, we’re leaving [indiscernible] and we’re being [indiscernible].

Okay. No, that’s alright. I appreciate that. I mean then finally just on asset values in general, just given, you know, rates have in general eased off a little bit from Q4 rather, but we’ve seen asset values kind of run in the other direction. You know, when you look at the dynamics right now between, you know, day rates, your equities and asset values, decent disconnect, do you think asset values have gotten ahead of themselves? Or do you think eventually cash flows rise to the [port levels] where they are now? And I say that was in the context of – you know, obviously, you know, the [indiscernible] equities and rates are going to rise [indiscernible] asset values where they are now. If they don’t, we’ll pull back a little bit into a catalyst that you guys believe and it could present an opportunity. So, I’m just curious of how you think about that dynamics right now.

The asset value have not – go ahead of themselves. I think they are – that they got more to go I think and I think the issue is more that the liquidity remains very low. So, there’s not much being done, but there are changes out there and obviously we keep looking at various things, and I think – I don’t see the risk of asset values dropping much as very high.

Okay. That’s it. I appreciate the time guys, thanks.

Thank you.

Thank you. Your next question comes from the line of Fotis Giannakoulis from Morgan Stanley. Please go ahead, your line is now open.

Yes. Hi, and thank you. Robert, we have seen the rate for VLCCs to be much stronger than a lot of people expect despite the OPEC cuts. And as you mentioned, this is primarily attributed to U.S. crude exports. Can you give us a number of how much is the capacity of the port capacity for U.S. crude exports, they reached new high last week? I’m wondering if there are any bottlenecks from the shipping side such as the timing to load a vessel or the congestion is that there can be a bottleneck to this [indiscernible]?

I think we – if you look at how the exports developed from January to March, I think March will be a good tester on eventual bottlenecks. The investment is obviously huge, and the things are improving very quickly. So, it doesn’t look to be the case, but I think March will be a test and I think the U.S. will pass the test and obviously going into 2020, there’s going to be more places to low Vs and things will – capacity will increase further. So, it could well be, I don’t have a clear answer to, but I think the risk of major life is not that way it used to drop the export capabilities.

Thank you, Robert. And we have seen – with exception of January that we had a few new orders, [indiscernible] or new building activity especially seems asset prices have increased compared to where they were about a year ago. I mean you’re discussing with the shipyards given what is going on in the dry bulk market, are there any concerns about potentially ship yards adjusting the new building prices seasonally will have a less demand for dry bulk orders?

That’s a very good question Fotis and I think the answer is on my opinion is that other segments in dry bulk are still placing orders and you’ve got consolidation going on in Korea, which will make them stronger. So, if you look at the overall activity and interest for new buildings, it remains very low and to me that’s a very good sign. Looking at the market now, normally we’re in shipping and we’re so used to bad times that if we can have a choice between having the ship deliver in two months or in two years, we go for two years. But now with the outlook and sort of general outlook in the market, then people sort of agree that we are going into a stronger period. So, now you prefer to get a ship delivering earlier and they are all – some ships that will deliver within the next year and interest even there is low. So, I mean there’s fair chance that new building order will stay low and the focus will be on re-sales and obviously that’s something I’m also hoping.

Okay. thank you, Robert. One last question about IMO 2020, we’re being focusing a lot about the movements of products. I’m trying to understand if you think that there’s going to be any increase in the movements of a fuel oil so far as VLCCs, they do very rarely cargos of fuel oil. With oversupply fuel oil and the potential of Middle East absorbing more fuel oil, how much that would be the potential demand for the crude tanker sector? And especially if you have any discussions with the Middle Eastern clients, whether they are considering of switching some of the crude consumption for power generation into fuel oil? How quickly this can come and how many ships or how – what percent of the demand can absorb for VLCC market?

First of all, to take the first part, you mentioned products briefly, then the other is on the products and its obviously – it’s difficult to say, but IMO 2020 is probably going to lead to more trading, more movements and should be a positive trigger for sure. So, we’ve had – we have our 18 owned LR2s. We’ve been through a very strong period on the Aframax market, but we did keep most of the ships clean in anticipation for a stronger clean market, and until two weeks ago, we were actually outperforming on the clean side. So, that could be exciting going forward. In terms of the fuel in the Middle East and how the switch will be, I think fuel will be – I don’t think it will – there will be more fuel produced as we need bigger crude output for the refineries here to meet these demands. So, there’s going to be a [indiscernible] of fuel. So, our generation that’s using more fuel looks pretty sad and how that’s going to affect those either it’s coal or others let's see, right. But that’s likely to happen. And other thing on the fuel, there will be a lot of extra fuel. So, I think the older ships that I mentioned earlier in the presentation, I think there’s a fair chance that some will go on to fuel storage in places like Singapore as we’ve seen in the past to find places and store less.

Thank you very much Robert.

Thank you, Fotis.

Thank you. Your next question comes from the line of Magnus Fyhr from Seaport Global. Please go ahead, your line is now open.

Just one question, you mentioned operationally positioning yourself for the IMO 2020. With the market being so volatile this year, and, you know, refinery turnarounds coming up, and, you know, more ships going into drydocking, how do you commercially position the fleet near term to optimize, you know, your rates for the ships?

We’re going to have to force ourselves to take – even if the market is strong, we’re going to have to force ourselves to take the ships out of service to get them prepared because we can’t afford being late in this. So, this will happen this year during the summer, and we will stick to that plan however strong the market is and that investment, I think, will be repaid in 2020. And I don’t – we will certainly not be the only ones making this investment in Q2 and Q3 of this year. Most likely, [balance] coming in September, so a lot of just have to apply for that. So, there is going to be a lot of little ships going out in Q2 and Q3 and that’s also why I think that Q2 and Q3, which is normally quite weak seasonally, could be upside down this year. And, yes, it’s very, very exciting. What’s happened last two, three weeks excites me, and I think we’ve got the volatility, but we’ve got some spikes we don't normally see during the year coming up because of this.

Yes, and one wild card we haven’t talked about is the uranium storage, any color there on, you know, it’s too early to tell with the sanctions coming into effect again?

I don’t have the accurate dates on that, Magnus. All I can say is that I’d be surprised if you don't see the same thing happening as was the case last time as that gradually they all go on storage because they don’t have the land-based storage available.

Okay. And then, just one last question if I may on the – you know, on the LR2s. I mean they’ve been very strong seasonally. Any end thoughts there on locking up ships or you’re going to continue to play them Spot?

That is a segment we are looking at doing a few charters on, and we did the same in 2015 and that was basically what saved us when the markets went down. So, we’ve got low cash breakeven there between [15 and 16]. So, we’ve got a potential head to lock in some decent return. So, we will do that, probably not that many units, but some will.

And where do you peg that market right now for one or two-year charter?

It’s in the range of [22.5 to 25] for one, two, three-year charters.

Okay. Very good, Robert. Thank you.

Thank you.

Thank you. And your final question comes from the line Greg Lewis from BTIG. Please go ahead, your line is now open.

Yes, thank you and good afternoon. Robert, just, you know, you kind of talked a little bit about your outlook for asset prices. Just as we think about that in Frontline, you know, what's sort of your view right now on potential acquisitions of on-the-water tonnage? Is that something the company is looking at or is there availability?

Yes, we are looking at it. There are a few for sale, but you’ll be surprised [indiscernible] it actually has. But there are some opportunities out there, and, you know, as I keep saying on these calls, we keep looking and you will see us do stuff.

Okay, great. And then, just one more from me. Clearly, you know, you guys have your Scrubber investment. I imagine you are following this – you know, the overall tanker fleet that is taking Scrubbers closely. Have you done any work around, you know, how much utilization impact we could see in the market from Scrubber – from vessels being out of the market to have Scrubbers installed in 2019 and 2020?

I think it’s a great question. And yes, we’ve done some studies on it and we’ve seen our own and we’ve seen external, we have our guesses, but we don’t put a figure on it. What we do think is that Q2 and Q3 of 2019 will see a lot of supply being taken out and you could have the market that is very, very seasonal of normal. So, exciting, but I don’t have a – I haven’t put a figure on it.

Perfect. Thank you very much for the time.

Thank you, Greg.

Thank you. There are no further questions at this time. Please continue.

Okay. Thank you very much. I would like to thank everyone at Frontline for their great efforts and thank everyone for calling in to this [presentation]. All the best.

That does conclude our conference for today. Thanks for participating. You may now disconnect.