Good day and thank you for standing by. Welcome to the Q3 2023 Frontline plc Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] 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. Please go ahead.

Thank you. Dear all, thank you for listening in to Frontline’s third quarter earnings call. To start off, I believe it’s prudent to mention that Q3 this year started challenging, and remind the audience of July, August, and Sept is normally called the summer lull in the tanker industry. The excitement in June did give us high expectations for the fall market. And although not jaw dropping, we have seen worse. The tanker market continues to be firm with risk rather on the upside than the downside. But there are many pieces to this puzzle. I will get to some of them in this presentation. Before I give the word to Inger, let’s look at our Q3 numbers on slide 3 in the deck. In the third quarter, Frontline achieved, [Technical Difficulty] a day on our VLCC fleet; $37,600 a day on our Suezmax fleet; and $33,900 per day on our LR2/Aframax fleet. We saw the more normal split between the segments. But this converged again as we progressed into Q4 with 81% of our VLCC days booked at $48,100 per day, 70% of our Suezmax days at $50,300 per day and 70% of our LR2/Aframax days at $51,300 per day. Again, all numbers in this table are on a load-to-discharge basis and they will be affected by the amount of ballast days we ended up having at the end of Q4. We would also like to highlight that these numbers exclude the ‘24 VLCCs that are delivered during this quarter and next. Further as you can only account for revenues when the vessel is laden, the new vessels are not likely to affect revenues for Q4 materially. I would now like to let Inger take you through the financial highlights.

Thanks, Lars, and good morning and good afternoon, ladies and gentlemen. Then I think we can turn to slide 4, Profit Statement. Frontline achieved total operating revenues net of voyage expenses of $232 million in the third quarter and adjusted EBITDA of $173 million. We reported net income of $107.7 million, or $0.48 per share and adjusted net income and net profit of $80.8 million or $0.36 per share in the third quarter. Adjusted profit in the third quarter decreased by $129 million compared with the previous quarter. And that was mainly driven by a decrease in our time charter equivalent earnings due to lower TCE rates in this quarter, which was partially offset by fluctuations in other income and expenses. The adjustments in the third quarter consist of $17.9 million gain on marketable securities, a $1.7 million share losses of associated companies, $400,000 unrealized loss on derivatives, and $11.1 million of dividends received. Let’s then look at the next slide, slide 5. Frontline has strong liquidity of $715 million in cash and cash equivalents, including the undrawn amount of our senior unsecured revolving credit facility, the marketable securities and minimum cash requirements for the bank as per the September 30, 2023. The current portion of long-term debt in the balance sheet at the third quarter includes $91 million from a loan due in the first quarter of ‘24, which was refinanced in November ‘23 and then also $75.3 million related to the senior unsecured revolving credit facility, which we, in October ‘23, extended to the first quarter of 2026. We have no remaining newbuilding commitments and no meaningful debt maturities until 2027. And we also have a healthy leverage ratio of 52%. Then I think we can turn to slide 6. We estimate average cash cost breakeven rates for…

Thank you very much, Inger. As I started with, in the introduction, Q3 was a challenging quarter. And, just so the audience on slide 8 can remind themselves, if we look at the three graphs at the bottom side of the slide and you look up July, August, and September, you’ll see kind of what state we were in. Despite this, we actually managed to churn quite a good return for this quarter, I believe. The big theme in Q3 was definitively the G7 price cap that came into force, in earnest on Russian crude and increased scrutiny on the fleet sailing with Russian crude. A lot of these vessels and owners decided to return to the non-Russian fleet, which increased supply, basically competing with the Frontline fleets as we progressed through Q3. I think on the positive side, China continued to grind with record import volumes. And U.S. exports surprise to the upside, incurring very healthy ton miles. We got U.S. sanctions on Venezuela lifted. I’ll come back to that later. We did see towards, as we got into Q4, a growing political risk and the Israel/Hamas conflict. This has yet to affect the physical kind of trade of ships, per se, but it’s a security concern in respect of our seafarers, and it’s also an operational concern when we sail through the area. I’ve also mentioned earlier in presentations that we do have normal seasonality at play, now that we have kind of less amounts of black swans in operations in the market post-COVID. And then we come back to, which is very, very current, OPEC action and OPEC’s eagerness to balance markets. So on that note, let’s move to slide 9. So, I was actually just trying to check on Twitter whether if OPEC has actually come…

[Operator Instructions] And now we’re going to take our first question, and it comes from the line of Jon Chappell from Evercore ISI.

I have three kind of quick clarification questions mostly. Lars, if I can start with you. So, the slide on the output versus production versus exports is very interesting. Obviously the exports have started to pick up meaningfully from August. But if I look at your quarter to date bookings on the VLCCs, just a little bit -- only a little bit higher than what you did for the full third quarter and you’re also insinuating that because of the ballast days that number comes in less than 48,000, so probably even a shorter or more narrow outperformance relative to 3Q. What’s been holding back the seasonal recovery in the fourth quarter so far for VLCCs, if the exports have lifted so meaningfully off the bottom in August?

It’s a very good and it’s a daily discussion point amongst us at least in-house in front line because the general activity in the tanker market is extremely high. There are a lot of cargos being worked, a lot of fixtures being conducted every day. But, very -- quite a few players are seemingly very happy with doing last ton. I think kind of one way to explain it, and I’m going to be quite frank here. If you look at the Middle East as an export region, about 70% of the cargos going out of the Middle East are contracted. So, it means that they’re either under a COA or some form of time charter coverage. They are -- the COAs are priced off the spot market or spot pools. But it only leaves like kind of 30% of the cargoes coming out into the spot market to begin to be negotiated. And then, if you look at the balance between the owners, you also find that quite a few of those 30% owners that are pairing kind of in that market don’t necessarily have -- are very inclined for the market to go up. Either they’re kind of -- they’re both charterers and owners or for other reasons, they’re not really that interested in fighting this market. So, it leaves us with kind of very few -- well, to reuse the term, real owners that are there to basically hold back and fight for the next growth scale points. And I think kind of regretfully, the market has become more and more efficient. So, when we have situations in the VLCC markets where you would say, okay, this is going to pop by 5 points, because there’s only one ship in position, suddenly that one ship in the position does last ton [ph] or 2 points below last. So it’s a very -- kind of the dynamics is very difficult to understand right now. On the Suezmaxes and Aframaxes, I believe kind of -- it is explained by the increased scrutiny, particularly by OFAC on former Russian traders, which basically has increased the fleet supply in kind of this conventional market at a price of the indices. So, I think basically, what you need to do, what you need to see is that this market just need to grind for a bit longer before the tightness becomes evident. Lastly, we do still see a significant volume of oil being transported off ships -- on ships that are totally out of IMO or insurance or legal or whatever kind of framework. So, if you look at the population of ships that are above 20 years, and it was commented by one analyst in the morning meeting today, you see a 1996 VLCC lifting Iranian crude, you do wonder why is this still going on. So, I think that should answer both your and many other people’s questions, I guess.

Okay. Yes. I appreciate that. Thank you. Inger, second one is for you. On slide 7, completely understand the ambition to minimize the shareholder loan of $540 million and I understand that there’s opportunities to refinance and also potentially sell some non-core vessels. But your liquidity is $715 million. If I look at this chart, I assume that that $149 million, the cash on hand, $49 million, the $100 million on the senior unsecured is part of that $715 million, so that takes you down to $565 million of liquidity, which would be more than the shareholder loan. So, I guess, the question is, why can’t you use the existing liquidity, understanding you don’t want to use every last dollar of liquidity, to bypass a significant portion of the shareholder loan immediately without being then reliant on vessel sales or refinancing?

This is $715 million that includes the shares in Euronav, also it’s a part of the financing of this transaction. So we have to take that out first at least. And then also this $715 million includes the undrawn portion under the senior secured revolving credit facility, where we have stated in this slide that we will plan to use about $100 million of. And also, of course, we need to have some cash on our balance sheet to support the operation and also minimum cash requirements. So, I think you will find that we do need this -- the cash of $540 million as well.

Last one, super quick, just understanding the dynamics for the fourth quarter. I think you were clear, the revenue from the 24 VLCCs, we shouldn’t expect anything until January when they lift their first cargo. Obviously, the interest expense would fall in December. What about operating expense and depreciation? Will operating expense and depreciation hit the profit and loss statement as soon as the vessels hit and therefore the revenue will be the only lag?

Yes. I guess, what we talked about earlier today was that you could probably assume that as much as 15 vessels will be delivered in the fourth quarter out of these 24. Let’s assume that one vessel is delivered every second day in December, then it will get to about 255 operating days in December for these vessels. So, as you say, you will have operating expenses, of course, because from the very first day you take delivery of a vessel that will start to accrue. You will also have interest expense on the loan draw-downs and you will also have depreciation on the vessels. So, that’s correct.

And the next question comes from the line of Amit Mehrotra from Deutsche Bank.

Hey. Good morning, good afternoon, Lars and Inger. This is Chris Robertsonon for Amit. Just first question, Inger, for you. On slide 6, talking about the drydocking expected for 4Q, how have drydocking days kind of trended recently? I know that they were pretty elevated during the COVID congestion times. But, are they around 30 days now per vessel, 35? Where does that sit?

Now for the assumption for these drydockings that we have in the fourth quarter, it’s about 20 to 25 days for each docking.

And then, Lars, maybe a market question for you. Turning to China. Chinese oil import demand has been pretty robust this year, I guess, despite some economic issues and the property market issues going on still. What are you seeing in terms of today of Chinese oil product demand domestically? And what are your expectations around export quotas coming into 2024?

Well, as you’re absolutely kind of right, and the economical headwinds that have kind of dominated the narrative around China hasn’t really been noticed on the crude oil import side. And incidentally, it’s actually the same case, if you look at LPG and coal and iron ore as well, that China is seemingly pretty healthy. I think over time here, China, oil and oil products have become more kind of a consumer good rather than an industrial good, potentially explaining some of this resilience. We’re also seeing that China did -- or at least, it’s implicated that they built a lot of inventories, kind of as we proceeded into Q3, but which they’re apparently drawing on now. On the product export side, I think kind of how this winter will bear with us is going to be a key to that, because we did see that a little bit last year, that with the fairly mild winter in the northern hemisphere across the globe, you saw that China’s kind of ability to export or willingness to give export quotas on product was pretty good at the beginning of 2023. So I think that the last question is on product and product quotas, it’s probably more a weather question than anything. On the import side, we saw them just recently increase, the import quotas of fuel oil, which is actually quite positive in light of kind of the fear of China to stop growing.

And the next question comes from the line of Omar Nokta from Jefferies.

Lars, I think, obviously, as this call has gone on, we’re starting to see headlines coming out that OPEC Plus have agreed on a cut. And it looks like we’re still waiting for the statement, but it appears 1 million barrels of incremental cut. Now we don’t know if that’s a cut or just a quota reduction. But just I guess in general, historically, there’s always been this close relationship with VLCCs especially that a cut is bad, a boost is good. That seems to have been challenged here over the past several quarters, I guess, and with your commentary in the presentation. But I guess, Lars, as you kind of think about it, how do you think that this market plays out here in the near-term, if indeed there’s 1 million barrels taken off the market? Obviously, it reads as a negative, but just big picture, what do you think this means for VLCCs and, say, the Suezmaxes, over the next few months?

No, I’m tempted to say it’s flat out positive, but you can’t really say that. I think kind of this notion of OPEC cuts and predominantly that happens, in and or around the Middle East. If you look at it in a very historical perspective, this was when the Middle East countries dominated crude oil exports in total. Now, the landscape has changed, U.S., South America, even the North Sea and West Africa, to some extent, it’s a big contributor. I think there is no doubt that the demand side is kind of East of the Middle East and East of Suez. And then, -- and I’m not the only commentator that has kind of said this, but this is, in fact, great news for U.S. fracking and great news for U.S. production. But then, it will also then benefit the long haul trade of crude oil. But I think initially, it’s obviously a bearish sign. It do contradict OPEC’s very, very bullish stance on demand. So, that’s maybe something one needs to dig a bit more into. But, so number one, you do -- assuming demand is going to be the same, you need to source oil from elsewhere. But number two, also keep in mind that, as I mentioned, production is not necessarily exports, and we do see that the Middle Eastern exports are actually more correlated to the temperature in the Middle East over the summer when they do consume a lot for cooling rather than the stated kind of production quotas.

And I guess maybe it does feel perhaps that as time goes on, we’re going to see more of that non-OPEC production start to fill the gap. I guess, as you think about the 24 VLCCs coming on, obviously, you have those financed and you’ve been pretty vocal about not needing to raise any equity to fund the transaction, and kind of went over the liquidity earlier, Inger. I guess, any updated thoughts on the need or potential willingness to want to issue equity, even though your leverage is still at 52%. Any updated thoughts on perhaps wanting to tap into equity just to derisk the transaction?

Not really to quite understand. I believe we’re fairly vocal in this presentation, and Inger clearly stated that we have capacity in our existing or old Frontline to say, to use another word. We’re also kind of looking to see if we can divest certain assets to maintain our very, very modern fleet. So, I believe we have the same message as we did when we went public with the transaction, and we’ll just continue that.

Thank you. I just wanted to ask that. And then, a final one just on the dividend. Obviously, you have the -- I think I may have asked you this last quarter or maybe last month when you held the call following the announcement of the deal, just in terms of the dividend, you’ve had this unofficial policy of perhaps paying out 80% of earnings, that was recently with the lower net debt gearing. How are you thinking about that dividend? Does that change percentage wise, once the deal’s complete and you’re up to a higher leverage, or are you still comfortable with, say, that 80% being a good threshold?

As you rightfully say, we don’t have a policy, but the expectation should be around 80%, and we’ll continue to do that, as long as the market allows us to do that. This is why we don’t really have a policy because we don’t want to be forced to pay out the dividend when it’s not kind of feasible from a financial perspective. So, this is basically at the discretion of our Board. But, we have a main shareholder who is more interested in dividends than you are, so I think you should expect that to continue going forward.

[Operator Instructions] Now we’re going to take our next question, and it comes from the line of Greg Lewis from BTIG.

Lars, I guess I had a question around as we look out at potential pockets of oil production outside of OPEC, clearly there’s been some -- Guyana has been a nice bright spot. I’m kind of curious as we look at the South America, what’s your outlook on volumes from that? And then, I guess, there’s been more recent headlines this week. I think it’s -- they’re coming at us in a million directions about Venezuela potentially. I don’t know. They’re unhappy with what’s happening in Guyana and there’s talk of invasion of Guyana. I guess my question is, what is -- how much crude is hitting the international market from Venezuela today. How much is coming from Guyana? And if there’s a disruption there, what segments of the tanker market are probably going to be most impacted by that?

Well, I believe the Venezuelan exports, and it obviously will be strongly advocated by the U.S. on relief on the sanctions. It’s basically because the U.S. on a refining industry or the crude slate, which is the word for that, do need these barrels. They can’t refine more shale, so they actually need this mix into the refineries. So kind of one would assume that most of this Venezuelan oil is then going short haul on Afra and potentially Suezmax into U.S. But, what we’ve seen just recently is that there’s a lot of VLCC cargoes being built up, and actually some of them are being are pointing towards India. So, I guess, the jury’s still out on Venezuela. Venezuela is -- were exporting between 300,000 and 400,000 barrels per day prior to the sanctions getting lifted. It’s expected, and this is not my number, it’s what I’ve basically read in the press, is that, they might, short-term, be able to increase this to 300,000 barrels per day -- or with 300,000 barrels per day, so they’re going to be in a 600,000 to 700,000 barrel per day kind of export capacity. Which portion of this is going to U.S., Europe or Asia, it’s very, very difficult case. They do still apparently owe China a couple billion dollars for that oil for loan kind of -- or financing deals that were done some years back. When it comes to Guyana, Guyana is producing and exporting, because it’s a small nation, they don’t really consume anything, around 450,000 barrels per day. I think in the Venezuela-Guyana discussion, one could probably have some comfort in the fact that virtually all their oil production is owned by U.S. interests. So, it’s probably likely to think that the U.S. will help Guyana in protecting their sovereignty over these areas. But it’s very early days to speculate on that. Operations are going as normal out of Guyana, as we speak. But, I think kind of -- there is -- the bright spot here is that we have -- I think most analysts have been quite surprised by how resilient U.S. production has been this year and even going kind of above expectations, despite the lack of DUCs and the lack of CapEx and the lack of everything. And at the same time, we’ve seen that Latin America, there are more and more barrels being kind of squeezed out of the various basins there. So, we’re kind of mildly optimistic about that development going forward.

And then, as I think about the queue at the Panama Canal, I mean, clearly, that looks like it’s impacting the smaller segment of the product tanker markets just as we look at like, North American cargos heading down to Southwest South America. Has there been any knock-on effect on the LR2 market, just given that’s where your focus is? I’m trying to understand, these disruptions, and I guess containerships have priority over product tankers, which is keeping product tankers more -- I was hearing that you might even see some MRs go through the Strait of Magellan. Is there any kind of knock-on effect that we’re seeing there that’s impacting the LR2 market?

I wouldn’t say it’s significant, to put it that way. And we haven’t really -- it’s not that often, we’ve been exposed to the Panama Canal. We have on the other occasion ballasted through from the other end, but it’s not -- yes, I would play down the impact at least on the larger clean vessels, because we haven’t really seen that tighten up the market very much, or increased ton miles to be quite honest.

Thank you. [Operator Instructions] There are no further questions at this time. And I would now like to hand the conference over to Lars Barstad for any speaking remarks.

Well, thank you all very much for listening in, and I wish you a pleasant day. And, hopefully, there is some, I’ve used the word fireworks, at least there’s some firecrackers left in this market, as we move into December here. Thank you.

That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.