Thank you all for standing by and welcome to today's Q2 2021 Frontline Ltd. Earnings Conference Call. [Operator Instructions] Please be advised the call is being recorded. And I would now like to hand the call over to your speaker, Lars Barstad. Thank you.

Thank you. Good morning and good afternoon. Welcome to Frontline's second quarter earnings call. Different from the first quarter this year second quarter ended up being quite evitable. As many of you have asked quite a few times now, will Frontline try and exploit the weakness in this market to grow further? And I guess we have answered that now during Q2. We are in some way a three-legged shipping platform with VLCCs, Suezmax, and LR2s. Our VLCC leg has been a bit shorter than the others. Now we're amending that somewhat. Parts of the challenges in the market this quarter has been the continuous flareups of COVID infections in various locations around the world. Vaccination has come far in the Western parts. But other parts of the globe are not so fortunate. We remain vigilant towards our seafarers' well-being and are happy to share that our efforts to arrange vaccines for them is going well. In addition, I'd like to mention we are very grateful certain port states are being extremely generous offering vaccines to seafarers literally for free. So, let's move on and have a look at the highlights on Slide 3. Q2 2021 performance reflects the challenges the market faced this quarter. It is, however, a further proof that our business model, efficient operations, modern fleet, and a very hardworking chartering team manages to outperform the key benchmarks. To put this in perspective, an average weighted earnings index I checked recently for oil tankers came in just over $6,000 per day in Q2 2021, the lowest print in more than 20 years. In order to outperform this, the owners and in particular the owners' charters must fight for every cent and know their position well to be able to play their hands best possible. Regrettably, this is…

Okay. Thanks Lars and good morning and good afternoon ladies and gentlemen. Yes following the acquisition of the VLCCs as Lars mentioned, we have progressed on the loan financing. And in August this year we obtained financing commitments subject to final documentation for three senior secured term loan facilities. They are in a total amount of just $247 million, and they will partially finance the acquisition on the two VLCCs built in 2019 and three of the six VLCC newbuilding contracts. All facilities will finance 65% to market value. They will carry an interest rate of LIBOR, plus a margin of 170 basis points. And they will have an amortization profile of 20 years starting from delivery date from the yard. We intend to establish long-term financing for the remaining four resale VLCCs newbuilding contracts, closer to delivery of the vessels. Then I think we should move to Slide 4 and look at the income statement. Frontline achieved total operating revenues, net of voyage expenses of $80 million and adjusted EBITDA of $28 million in this quarter. And we reported a net loss of $26.6 million or $0.13 per share and an adjusted net loss of $23.2 million or $0.12 per share. The adjustments, this quarter consisted of a $4.7 million loss on derivatives; a $0.8 million gain on marketable securities; and a $1.3 million amortization of acquired time charters; and lastly a $0.8 million share of losses of associated companies. The adjusted net loss in the second quarter decreased $32 million compared with the first quarter. And the decrease was driven by a decrease in our time charter equivalent earnings, due to the lower TCE rates as Lars mentioned; an increase in ship operating expenses of $9.3 million, mainly as a result of higher dry-docking costs; offset by a…

Thank you, Inger. So, let's look at slide seven and recap the second quarter tanker market. So, global oil consumption averaged 96.7 million barrels per day in Q2 2021, that's up 2.1 million barrels per day from Q1 2021. Production averaged 94.9 million barrels per day. Hence the world continued to draw about 1.8 million barrels from inventories. Just to put that in perspective, when you go from inventories, you're not really using that much transportation. And as a rule of thumb on tanker utilization, you need about 30 VLCC equivalents in order to transport 1 million barrel of oil per day. So, this kind of draw represents a loss of 30 to 35 VLCC equivalents in demand. The tanker rate gradually slipped throughout the quarter and volatility faded. OPEC+ did increase supply by more than 1 million barrels per day during Q2 2021. The key OPEC producers also went into higher demand periods, typically in the Middle East, where summer hits and you start to basically burn oil or fuel for electricity generation. US and Brazil added another 900,000 barrels per day. Most of the Brazilian additions came out as exports. But for US they're also seeing a very strong growth in demand, hence less barrels were exported out of the US Gulf. Demand rose sharply in North America and Greater Europe, whilst Asia that led the recovery saw a far more muted development in the second quarter of the year. As illustrated in the two charts below, where we basically isolated North America Europe and Eurasia, we see that during Q2, demand there rose sharply whilst the rest of the world and in particular, Asia and as I mentioned that led the recovery towards 2021 has performed kind of -- performed less first half this year. So, let's…

Thank you. We’ll now begin the question-and-answer session. [Operator Instructions] The question is from the line of Randy Giveans from Jefferies. Your line is now open.

Howdy Randy.

Mr. Giveans, your line is now open. You may ask your questions. [Operator Instructions] The question is from the line of Magnus Fyhr from H.C. Wainwright. Thank you.

Yeah, good afternoon. Looking at the performance in the fleet in the third quarter, I mean compared to some of the peers looked like you had a little bit better performance. I know it's hard to compare quarter-to-quarter, but you've been consistently outperforming the peers. So was there anything else in the quarter, or is there any other flavor you can give on the performance in the third quarter?

Well, it's a good question. This is one of the things that we, obviously, try to analyze. Well, obviously, when you compare to peers there is an aspect of fleet composition and the age of your fleet, and so that does play a part. But it doesn't account for all the comp out-performance. It's also staying true to the fact that we are shipowners, we have assets we need to protect. And we need to try as hard as we can to get our clients to understand that and not kind of give in. And it's also about a modern fleet in addition to economics it also gives you more opportunities to trade around. You basically have all options. So that's an important fact as well as you try to triangulate your vessels in order to achieve, kind of, higher utilization and better returns. I hope that's a good answer to your question.

Yes. No that's. Thank you for the color. Also I mean you're painting a -- was going into the abyss here rates are very weak. We're in the weakest part of the year. You mentioned that the fleet growth may not be as high if you adjust for the age composition of the fleet. But do you have any visibility into the winter market? I mean, we're still in August I know it's a little bit early. But I was just curious your outlook here for a recovery in the fourth quarter.

Well, we -- it's -- the share volatility of the freight market tells you that we know very little to be quite honest. But on the other hand, we fix kind of far ahead so we actually do see the demand quite early. And in that perspective what we see is that what we basically -- now we're doing September dates in the Middle East and West Africa and it looks quite good as to volumes. We've seen rates in Suezmax actually try to edge up a little bit. We are also fixing October -- early October dates out of US Gulf. And that looks relatively busy in the beginning as well. So I won't, kind of, give you any guarantees, but the picture looks a bit better than it did two weeks ago.

Okay. Well, that's good. Just one last question then on the S&P market you've been active buying some resales. Just curious if you see any opportunities in the secondhand market. There was a vessel -- I guess there was a non-ECO 2012-built vessel reported last week at a pretty big discount. I don't know if that was just a one-off transaction or an indication of a potential weakness here in the secondhand market. I don't know if you can give any color on that.

I think, kind of, the -- if there is a curve on values I think kind of the softer spot is kind of the middle-aged generation and particularly if it doesn't have a scrubber. So -- because the older vessels like the really old ones they've been held up by this artificial demand from kind of undisclosed accounts that want to use the vessel for whatnots And then the modern vessels are obviously the ones everyone wants to own as we go into a tightening regulatory framework and face all sorts of efficiency kind of demands going forward. And that keeps kind of these vessels in the middle a little bit, kind of, out of fashion. So I'm not too worried about that transaction because basically from what I see on -- you could kind of -- you can argue that a very modern vessel or a resale or a newbuild is more correlated to asset prices themselves and eventually to the steel price. And as long as that is holding up I'm not too worried by kind of -- for the modern part of the fleet.

Okay. Thank you very much for answering my questions.

Thank you.

Thank you. Next question is from the line of Jon Chappell from Evercore.

Thank you. Good afternoon.

Hi.

Hi.

Inger, so you've lined up $130 million for two of the six VLCC newbuilds. Should we assume that you're looking for similar percent about – by my math around 70% financing, so another $260 million to be taken down for the remaining four?

Yes I will be looking for that. Yes I see that.

Okay. So if we take that $390 million plus the drawdown on the Hemen facility, that's the majority of the payment on this. I think that only leaves like $74 million in cash outlay for the six newbuilds. Is that the type of financing in total you're looking for, or when you get the bank facilities for the remaining four ships would you have to pay that back to Hemen facility immediately?

We will use this Hemen facility as a bridge financing at the moment. And then we will continue – or we will consider in a way a bit further down the road our options on the long-term financing for the equity portion of these vessels.

Okay. And then in addition to the Hemen facility expiring in May of 2022, which obviously you pushed that back several times and it's probably a safe bet to assume you could push it back further if you'd like. Are there any other big bullet payments or amortization profiles coming up in the next let's call it 12 to 18 months as we kind of bridge to the recovery that Lars talked about.

No there is nothing until 2023.

Okay, great. So generally speaking, you feel good about the liquidity profile, it's now just finalizing the debt on the last four newbuilds and kind of holding on until the market recovers. Is that correct?

Yes. That is correct, yes.

All right, great. Well, that's all I had. I think liquidity is important to getting you there. Thanks for moving that out, Inger.

Thanks, Jon.

Thank you. Our next question is from Randy Giveans from Jefferies.

Lars and Inger, can you hear me now?

Yes we can, Randy.

Yes we can.

Excellent. I could hear you earlier, you just didn’t hear me. Congrats obviously Lars on the official promotion to CEO, so exciting times for that.

Thank you very much.

Two questions. Clearly Frontline has been pretty active in acquiring tonnage. Is this strategy to continue to grow the fleet that way, or will you now maybe look to sell some older assets?

Well after – almost every time, we speak, it's difficult to kind of give you the playbook kind of here on the air if at all. But we obviously keep all options open. So I'm not going to dismiss it nor kind of confirm it. But we will always look at our fleet composition. And we favor the more modern units. So that could be a part of our strategy going forward, yes.

Okay. That's fair. And then looking at your quarter-to-date rates, they are pretty good relative, right? Do those include any recently signed time charters? Have you signed any of those this summer? And then we start to see some rates ticking up on the product side. Is that maybe the start of a recovery or still too early to tell?

The first question first. So we haven't done any time charters. And it's a very good question because short-term time charters we record as spot and we haven't done any of those. Secondly on the LR2 market, you're referring to yes, it's firming out in Asia, and it's actually quite strong. We like to think it has legs, but it's -- we've been kind of disappointed a few times now when it's had wrong freight had one back in April as well. So it's -- let's say, the jury is out. What we have done in the meantime is actually cleaning up one of our LR2s. So we're kind of the balance is more tilted towards the cleanup with seven of the 20 vessels trading dirty, and then obviously, 13 clean and ready to rumble in that market.

Perfect. Dirty and 13 clean. All right. Well, hey, sorry for the difficulties here earlier. But thanks for getting me back on.

Oh, thank you.

Thank you.

And there are no further questions at this time, please continue. Magnus, wishes to ask a question again. Would you like to take it?

Okay. Yes. Of course.

Yes.

On the cleanup of the LR2…

Continue Magnus.

Yes, hi, thanks. Just a follow-up question on the cleanup of that LR2, can you just tell me a little bit about the process and the length of time and when you'll be ready to clean -- just the process of getting it to trade cleaner products?

Well, there are different avenues. And obviously, in this case, we found an opportunity to actually wash the tanks and at a reasonable cost and have a voyage -- a following voyage lined up already. But that's more luck than kind of skill I must admit. But normally the way you do it is, you start kind of -- you need -- in order to trade properly as a clean ship you need to have the last three cargoes kind of clean. So the first cleaning cargo could be condensate and then you might move into another product. And then finally, you're actually able to transport like a gas oil or gasoline even. And then by that you basically clean up the vessel. But that kind of experience means that you sometimes need to discount freight in order to get to that point. So basically what we look at is if there is a $750,000 to $1 million spread between the two markets, and we can line something up, we will basically start the process of cleaning that LR2. Obviously, switching the other way, you can do it instantly. But in this case, we actually decided to invest some money in doing the physical clean. And that meant that we could -- depending, obviously, on the charter and each requirement we managed to -- within a relatively short time on one voyage we managed to become a properly clean vessel.

So from the time you wash the tanks to carrying gasoline, what's the timing of that?

I would -- in this case it was probably approximately 25 to 30 days.

So that three cargoes didn't apply because you washed the tanks or…

No. Yes. Otherwise it would have taken longer yes.

Okay. Thank you. Thanks for that color.

Hey, welcome.

And there are no further questions now. Please continue.

Okay. If that was all thank you very much for listening in on a busy day kind of on reporting, and we will soldier on at Frontline. And hopefully next quarter, we can report a completely different situation in the market. Thank you.

That concludes our conference for today. You may all disconnect. Thank you all for participating.