Frontline - Earnings Call - Q1 2020

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by, and welcome to the Frontline twenty twenty Q1 Limited Earnings Call. I must advise you the conference is being recorded today, Wednesday, 05/20/2020. I would now like to hand the conference over to your speaker today, Robert MacLeod. Thank you, and please go ahead, sir.

Speaker 1

Thank you very much. Good morning and good afternoon, everyone. First of all, apologies for the delay in starting the call, which was due to some technical difficulties. So first to kick off the call, I would like to express gratitude towards our shore staff and our crew members for their extraordinary efforts and dedication. They are clearly critical factors to our strong results.

Frontline's performance in the 2020 was the strongest since 2008 and we have made solid bookings for the second quarter. The year has been extraordinary, quite a rollercoaster ride, but tanker earnings have been very strong amidst an unprecedented world situation. Let's kick off by moving to Slide three please and quickly look at the highlights from Q1. Net income of £165,300,000 or $0.84 per share, certainly a solid quarter. Adjusted for non cash items, the net income was 179,300,000.0 The £7,100,000 profits related to the filed profit at Suezmaxes are not included in these figures.

Frontline declares a $0.70 dividend. The last dividend paid was $0.40 for 2019. The VLCCs made around $75,000 in Q1 and we have booked 75% at 92.5 for Q2. Suezmax has made 57.8 in Q1 and we have booked just over 60% of Q2, just shy of 72,000. LR2s made just over 30,000 in Q1 and are just over 50% done of Q2 at around 50,000.

On the finance side, we closed the $544,000,000 ICBC facility for the 10 Suezmaxes. Then before discussing the tanker markets, I would like to hand the call over to Inger. Please take us through the financials.

Speaker 2

Thanks, Robert, and good morning and good afternoon, ladies and gentlemen. Let's then turn to Slide four and then take a look at the income statement. We achieved total operating revenues net of voyage expenses of $289,000,000 and EBITDA adjusted for certain non cash items of $234,000,000 in the first quarter. Frontline reported net income of 165,300,000.0 equivalent to $0.84 per share and a net income adjusted for certain non cash items of $179,300,000 equivalent to $0.91 per share in the first quarter. The net income in the first quarter excludes the $7,100,000 of net cash received and accrued profit share in relation to the five charter in and charter out agreements with Trafigura that have been treated as reduction of acquisition cost of the vessels instead.

The non cash items this quarter was net $14,000,000 in total and consisted of $55,400,000 unrealized loss on marketable securities, a $15,800,000 loss on derivatives, a $1,200,000 gain related to our equity method investments, a $1,800,000 gain on settlement of claim and a $4,200,000 gain on termination of the lease of Fronthakata. The first quarter shows an increase compared to the 2019 of $70,000,000 against adjusted EBITDA and an increase of $72,000,000 against adjusted net income. And the increase in net income in the first quarter of $72,000,000 is mainly explained by the increase in results on time charter basis due to the higher reported TCE rates in the first quarter compared to the previous quarter. Then let us take a look at the balance sheet on Slide five. Changes to the balance sheet as of the March 2020 compared to December 3139 mainly relate to an increase in cash and cash equivalents of $54,000,000 which is the net effect of CapEx payments, repayment of debt, drawdown of debt, cash flow from operation and dividend payments.

Then we had an increase in newbuilding of $21,000,000 explained by installments paid in the quarter. We had an increase in vessels of $278,000,000 related to the five vessels from TCL to Stratagura, which were recorded on the balance sheet when closing of the acquisition place on March. Also, had an increase in short and long term debt of $484,000,000 due to drawdown on the $544,000,000 facility with ICBCL offset by repayments this quarter. We had a decrease in short and long term debt sorry short and long term obligations under finance leases of $298,000,000 primarily due to the five Trafigura vessels moved to owned vessels at closing 03/16/2020. And then we had an increase in equity of $94,000,000 mainly due to the net income for the quarter offset by cash dividend.

As of 03/31/2020, Frontline has $392,000,000 in cash and cash equivalents, including the undrawn amounts under our unsecured loan facility and marketable securities and minimum cash requirements. Our remaining newbuilding CapEx requirements at the March amounted to $282,000,000 related to one Suezmax tanker, which we took delivery on May 19 and one VLCC expected to be delivered in June 2020. And then four LR2 tankers expected to be delivered in January, March and October 2021 and January 2022 respectively. We estimate approximately $239,000,000 in debt capacity for these newbuildings, where we drew down $42,000,000 under the term loan facility with Credit Suisse entered into November 2019 in May to finance the delivery of the Suezmax tanker from Cruiser. The short term part or long term debt includes approximately $310,000,000 debt maturity of the $500,000,000 facility, which matures in December 2020 and approximately $14,000,000 debt maturity of the $60,600,000 facility, which matures in March 2021.

We are in the process of refinancing the $500,000,000 facility and we have signed a terminal facility with Nordea in May in an amount of $50,000,000 to refinance the $14,000,000 maturing in March 2021. In March 2020, as Robert mentioned, we did sign the sale and leaseback agreement with ITVCL of $544,000,000 And then in April 2020, we repaid $60,000,000 of our $275,000,000 senior unsecured facility agreements with an affiliate of Herman. And up to $215,000,000 remains now available under the facility following this repayment. In May, finally, we signed a senior secured terminal facility with Kredia Griegol in an amount of up to $62,500,000 to part finance the VLCC that we have at the construction at Hyundai. Let's then take a closer look at cash breakeven rates and OpEx on Slide six.

We estimate average cash cost breakeven rates for 2020 of approximately $22,000 per day for VLCCs, dollars 18,600 per day for Suezmax tankers and $15,000 per day for the LR2 tankers. And the fleet average is estimated to be about $18,600 per day. These traits are the all in daily rates that our vessels must earn to cover the budgeted operating costs and drydock, the estimated interest expenses, time charter and bareboat hire, installments on loans and G and A expenses. In the graph on the right hand side of this slide, we have shown incremental cash flow after debt service per year and per share assuming 10,000 per day, dollars 20,000, dollars 30,000 or $40,000 per day in achieved rates in excess of our cash breakeven rates respectively. These numbers include the vessels on time charter routes and we are looking at a period of three sixty five days from 04/01/2020.

As an example, with the fleet's average cash cost breakeven rate of $18,600 per day and assuming $30,000 on top, the average fleet TCE rate would be $48,600 per day. And Frontline would in this scenario generate a cash flow per share after debt service of $3.55 With this, I leave the word to Robert again.

Speaker 1

Perfect. Thank you very much, Inal. Let's move to Slide seven please. The first quarter was certainly a volatile one. As the COVID-nineteen pandemic spread across the globe, traditional drivers like ton miles and refinery runs were disregarded as a new powerful dynamic emerged.

As crude oil imports to China began to decrease, the market turned sharply upwards as expected production cuts did not materialize and instead Saudi Arabia, Russia and The UAE increased output. In the freight market, we witnessed the busiest chartering period I've seen in my career as charterers were scrambling for tonnage. With a rapid decline in global oil consumption due to lockdown across the globe, oil production was soon well in excess of demand. Under normal circumstances, a drop in demand might lead to lower freight rates. This time it led to a search for places to store.

On ships was one solution. These were not normal circumstances and the speed and the severity of the drop had an opposite impact on tanker rates as a record increase on oil and water saw freight rates firm significantly. In the chart on the slide, we see how demand has retracted faster than production cuts implying inventories being built at an unprecedented rate both on land and water. These moves in the global oil trade have happened very quickly. Trade developments going forward is linked to how fast demand recovers and to what degree and how quickly production returns.

This is obviously very hard to predict. I'll get back to this on the final slide, but let's first look at the global fleet capacity. Turn to Slide eight please. The global fleet capacity growth is slowing. Global tanker fleet growth is a key driver of long term earnings and the order book is at a level not seen since 1997.

Various factors support our expectation that order books will remain low over the next twenty four months. In addition to the historically low order book, it is worth noting that 24% of the VLCC fleet is above fifteen years this year. Customers versus modern tonnage is only increasing and that puts Frontline's fleet in a great position. We also expect vessel off hire to continue to have a material impact on fleet capacity this year as a large number of vessels are due for periodic drydock and quite a few of the vessels due have recently been granted short extensions, but this is temporary postponement only. The surveys must be carried out.

All eyes are currently on inventory draws, but vessel supply could be a big surprise in the 2020 and into 2021. We watch it very closely. Moving on to the present market and a bit of outlook. Oil demand has been described as destroyed in recent months. We think suppressed describes the situation more accurately as we believe the decrease in oil demand is temporary.

The recent production cuts have been both immediately real, absolutely no doubt and has affected the freight levels negatively. On the oil demand, there has been surprises in recent weeks. Chinese gasoline demand above 2019 figures and recent figures from India also shows a sharp recovery in gasoline sales. Not surprisingly, Asia leads the way on demand recovery, whilst The U. S.

Is likely to recover faster than Europe. Over to floating storage, we currently estimate around 200,000,000 barrels floating and we might be close to the peak. We expect to see an unwind of floating storage during the balance of 2020. Aframaxes in Europe are likely to be the first ones to unload. Some have already done so, whilst VLCCs are likely to be locked up on a longer structure.

This is pure speculation of course, but given recent news on the demand side, we could see production cuts reverse as early as during the 2020. One fact can be stated, volatility will continue forward going forward sorry very much like the year so far. So in conclusion, Frontline enjoys the youngest fleet and lowest breakeven level in the history of the company. And 2020 is shaping up to be a great year for Frontline and its shareholders. With that operator, I would like to turn it over questions please.

Speaker 0

Thank you, you. Your first question comes from the line of John Chappell of Evercore. Please ask your question.

Speaker 3

Thank you. Good morning, Rob or good afternoon good afternoon in here. Three questions for you today. Hopefully, they'll all be relatively quick. Rob, you guys do a great job explaining the accounting on the quarter to date and kind of how that plays out.

So the 75% that you've done at over $90,000 a day, can you just kind of help us frame what we should be thinking about in the next 25%? Mean, obviously, market's come down, but there's always these ballast days. And if you look at 1Q and we took what you had to date and then we back into the 74.8%, it looks like that was actually negative for the last 17% of the day. So I'm not asking for guidance or the exact number, but is it closer to what is today? Is it closer to zero?

Is it somewhere in between? Just so we can frame how the second quarter will kind of shake out.

Speaker 2

Yes. Obviously, it's difficult to predict there, but it will be some valid sales at the end of the quarter, which will take it down. It would also be taken down a bit by that the current rates are weaker than what we saw for the seventy five percent has contracted. But to give you an precise number or anything, that's difficult or very that's not possible in a way. So sorry about that.

Speaker 3

Yes. That's okay. Maybe another way to ask is the ballast days that you foresee for the rest of 2Q, would it be similar to a normal end of quarter? Are there more? Are there less?

Speaker 2

Does vary. Vary. The number of ballast days do vary between the quarters. But for this quarter, was quite high actually. It was three ninety valid days for the VLCCs as an example.

That was up from the previous quarter.

Speaker 3

Okay. That's helpful. Rob, on the fleet side, obviously something that we're watching very closely and very hopeful to set up the next real sustainable recovery, not just the blips. I heard earlier this week that the Korean yards are becoming a bit desperate. Now we were hopeful that they would be filled up with LNG carriers from Qatar, but we're hearing that's becoming a bit more desperate as of VLCC front.

Can you confirm or deny whether you've been hearing from the yards? Then also Frontline and your largest shareholder specifically have been kind of early on ordering at attractive prices. So what's your appetite to order ships today if the Koreans are really becoming aggressive on pricing?

Speaker 1

The yards have, over time, have been, I wouldn't say, desperate, the prices have come down, and we've seen there's virtually been no ordering here lately. When it comes to Frontline and our interest, we have a constructive view of the tanker markets in 2020 and 2021. So our interest in the further out in 2022 when there are resales available, we and other opportunities then. I think that I would say to take the main focus and ordering new buildings here is not on our radar.

Speaker 3

Okay. Thanks. And then just the last one. I don't think anybody is worried about Frontline's ability to get credit facilities given their relationship with European banks. The $310,000,000 is a pretty big chunk at a time where the world is pretty uncertain right now and banks are under pressure.

What should we think about as far as the timing of that refinancing ahead of December 2020? How deep are the discussions? And that the $100,000,000 ATM that you put in the press release, obviously, you said you weren't new to today's prices, but is that something you're thinking about putting in place just in case the financing market becomes very difficult in this uncertain time?

Speaker 1

I think it's very easy to in terms of the backing of the company and Mr. Fredrickson and the access to finance, we have absolutely full confidence. And the ATM is not linked to this in no shape or form. The ATM is sort of housekeeping. It's a tool that we had in the past.

And it's as we clearly state, it's not something we would even think about using at the current share price.

Speaker 2

No, but to answer your question also, I mean, as I referred to, we did recently do a couple of financings in the market. We did refinancing of this Nordea facility. So we don't really have any concern about not being able to refinance the €500,000,000 facility either. So it's only a matter of trying to, let's say, maximize or improve the terms best as possible in a way. But the financing is there, so no problem.

Speaker 3

Great. Thank you, Inger. Thanks, Juan.

Speaker 0

Thank you. And your next question comes from the line of Randy Giveans of Jefferies. Please ask your question.

Speaker 4

Howdy, Robert and Inger. How are you?

Speaker 2

Fine. What about you?

Speaker 4

Doing well, doing well. Yes, two quick questions here. For the fourth quarter, you announced the dividend of $0.40 based on the $0.60 EPS, so about 66% of that. First quarter announced a dividend of $0.70 on EPS of, let's call it $0.91 around 75% there. Do you have a defined kind of dividend policy going forward?

Just trying to think about 2Q and beyond.

Speaker 2

Our dividend policy has not changed in a way. So we do have the statement on our website, which says that we are in a way there to pay broadly the excess cash flow or equal to or close to. And we also of course or the Board also of course also have the possibility to decide to lower it in a way. And what we have to take into account is, of course, the CapEx program that we have going on at any point in time and any other adjustments which needs to be taken into consideration non cash items. So I guess that's more or how it is.

Speaker 4

Okay. And so for 2Q twenty twenty, should we expect similar at least 50%, 60% of kind of EPS there?

Speaker 2

Sorry, didn't really get your question there.

Speaker 4

For the second quarter, is it fair to expect another 50% or higher, 60% of EPS?

Speaker 1

I think for the second quarter, Randy, we'll see what the Board comes up to and decides in August. Looking at the history of the company, we're now well above $6,000,000,000 paid out since The U. S. Listing. And I think the company and the Board has no intention to change this history and track record.

We want to keep building on it and looking at the company and looking at where we are in our cash breakevens, looking at how we've done on the time charters recently and also with our constructive view of the market and with a fleet of an average age just over four years. I think we've got every possibility here to perform well going forward. And looking at track record, think is the best way to answer your question.

Speaker 4

Okay. And then looking at your Aframax LR2s, for most of the first quarter, Aframax crude tanker rates outperformed LR2s. But in April, the crude rates kind of fell off, but LR2s hit all time highs. So currently, kind of how many of your LR2 codex tankers are operating in the crude or dirty trade? And if you can kind of talk to that market a little bit, what has caused that rate spike and then the subsequent kind of rate decline back to maybe 40,000 a day?

Speaker 1

Yes. That's a very good and relevant question. And what you're stating was actually also the case of the 2019. The Aframaxes were outperforming the LR2s. And there were definitely times where I was kicking myself for not having gone dirty on more LR2s.

The between the two segments, obviously, we have 18 LR2s in total. We are trading 11 clean and seven dirty, which fortunately now in recent months, the LR2s have sort of clawed back in terms of the earnings. Not having looked at the exact numbers, but they're probably going to be not far off being on par with what's happened recently. The LR2 market, I find it very difficult to even comment on how it's been going over the last couple of months. It's been I've never seen anything like it.

It's I would describe the LR2 spike to be more extreme in relative terms than what the VLCC spike was. There's a lot of delays in that segment. In terms of number of LR2s, the fleet size is only 23%, 24% of the VLCC in terms of numbers. So as soon as you have a lot of ships delayed or held up on storage or poor storage, then you get these mega spikes. So I think the very, very high rates as we had on the VLCCs as well only happened on a handful of fixtures.

But over the last month or two, it's been extraordinary. So it's now stabilizing, but still it is at very healthy levels. But it's very, very difficult to predict how this is going to carry on. But it looks like although there are signs of, as I was saying earlier, the demand is coming back, especially in Asia, then Europe and The U. S.

Will still be struggling. So you will have ships being forced to store for quite some time.

Speaker 4

Sure. And what's your split there for your Aframax LR2s in terms of crude versus clean?

Speaker 1

LR2, seven Afro.

Speaker 4

11 LR2, seven Afro. Excellent. And then last quick question for the Hemen facility. It looks like you paid down half of that from 120,000,000 down to maybe $60,000,000 Is the plan to repay the remainder during the second quarter?

Speaker 1

Yes. So that's been we've gone from 120,000,000 to 60 Further down payments have not been decided, but we will revert on that when that comes up.

Speaker 0

Thank you, sir. Does that answer your question?

Speaker 4

Yes. That's it for me. Thank you so much.

Speaker 0

Thank you. And your next question comes from the line of Craig Lewis of BTIG. Please ask your question.

Speaker 5

Yes. Thank you and good morning, good afternoon everybody. Rob, just you mentioned some of the vessels at shipyards that are under construction. Clearly, some of those are obviously owned by stronger hands, some of those are owned in Muker hands. It's been an interesting picker adjective to describe the first thus far of 2020.

What is kind of the appetite then from potential sellers of tonnage? How has that changed or has that changed over the last few weeks as kind of it looks like now we've kind of settled into just a firm solid market with these around $50,000 a day. We're not seeing those headline $200,000 rates, but still an attractive market. Has that kind of loosened up or caused any more interest or pickup in maybe not actual physical deals closing, but activity or inquiries interest in the S and P market?

Speaker 1

I think you're touching on something very interesting, Greg. I've not seen anything like this. When it comes to S and P, what's happened so far this year has actually amazed me. And the simple example is that normally when the freight market goes to levels where you can write down a purchase with more than $10,000,000 or even 15,000,000 or $20,000,000 in a short span of time. There were periods there where one year charters would write down a vessel by more than $20,000,000 Even at that point, we didn't see many transactions.

There were ships offered for sale. We did have a look at a few. It's been a very, very strange market with very few things or transactions happening. And with the rate correction and the which also corrects the write down potential in the front, then we're now at very healthy levels still as you described. But we are seeing very little activity.

And I'm also of the opinion that even if the yard prices will fall, the number of deals will be low there as well. Because we mustn't forget that access to finance, as we discussed in the earlier question, I think Frontline's access is superior and it's never sort of a problem or challenge for us. But as an industry, this is more difficult and this affects it. So and also as you're saying, quite a few strong hand sitting and probably happy to sit they share the same constructive view as we do.

Speaker 5

Okay, great. And then just one more for me. You kind

Speaker 3

of and I believe it was

Speaker 5

in the prepared remarks, it might have been the Jonathan's one of his questions, but you talked about vessels going a little bit slower and that's part of the reason why you decided to delay some of these scrubber installations. Just kind of curious how we should be thinking about that. I mean, fuel prices are low, so it's not higher fuel prices that are driving slow steaming. I mean, are firm, so just kind of just any kind of color you could give us around why we are still seeing slow steaming and maybe what's driving

Speaker 1

congestion and general delays, it's all if you look at this and then some is contango driven, some is driven by lack of space onshore. And all these factors, build together and they create this oil and water stack, which is it's up almost 20% this year in terms of how much oil is on the world tanker fleet. So going to each individual, I think it's very difficult to sort of see how they affect the overall market. But this oil and water which gathers all the factors, I find quite useful. When it comes to the scrubber then in actual fact, all we've done is that we've decided to leave the scrubber at our factory only prepare during dry dock, only prepare the ship underwater.

So a small investment of less than $100,000 And then when or if the fuel spread then returns, then we can go alongside and put the scrubber on and then start using it. So the spread is obviously very much correlated to the crude flat price. And when that comes up, then the spread will also increase. So time will show, but we thought it was prudent given where rates were when we decided because this also means that the dry dock time decreases by two weeks. So we thought it was the right decision.

We can reverse it, it looks to be the right because as you're saying, we're still at pretty good levels there in terms of earnings.

Speaker 3

Okay, great. And just really quick following up on that. Do we have

Speaker 5

any sense and realize it's a moving target? I'm not sure how you how Frontline tracks on the average speed of its fleet, I don't know if we look at it on a month over month, week, daily. Is there any sense for how this average speed of the fleet has been trending over however you think about it?

Speaker 1

Generally, the fleet speed has come down since we started with the EcoSpeed. So that's the speed at which the speed flexibility of the fleets come down due to the more economic engines with less power. The latent speed, I. E. The speed that we are contracted to perform voyages at has not changed much.

So it's the ballast speed that is changing. And then generally, it's very simple. It's market slow. You slow down to save some fuel. And when it's high like it's been recently, then you rev up the engine to get to load ports as fast as you can.

But in actual fact, over a year, it doesn't make that big a difference. It's a knot or two, but then you look at how many in ballast. I mean, you look at how many days the ship is laid nor in port. It's an important factor, but it's not a huge factor.

Speaker 3

Okay, great. Thanks, Inger. Thanks, Rob, for the time.

Speaker 0

Thank you. And your next question comes from the line of Omar Nokta of Clarksons. Please ask your question.

Speaker 6

Thank you. Hi, Robert and Inger. Robert, towards the end of your opening remarks, you mentioned floating storage and how some of the Aframaxes have come off that storage, but VLCCs will likely stay a bit longer. From a market color perspective, presumably some of the VLCC charters you entered into had options for floating storage. Can you give a sense of the ships that you have on charter, whether they're in floating storage at the moment or if the charters have exercised options to do so?

Speaker 1

So the it's a good question. Thanks, Omar. And then firstly, the Aframaxes we've seen, seen about 35,000,000 barrels at the peak in Europe. Some of that's been unwound, a bit unwinded. And on the VLCCs, then we've done charter, I think we've done five or six between six months and twelve months.

And these are time charters. So it's not a the charters are free to trade the ships as they wish. They're not pure storage charters. So at the moment, actually I think we've got one Suez that has gone on storage and we've got 1B that's about to start storing. But that's it.

And then we've got quite a few ships that are more the sort of forced storage where there's lack of olicense and so forth. But we'll see how it develops here. But what we are hearing is that some Aframaxes come free. But on the VLCCs, then there are some cargoes here that are likely to store through Q2 and Q3. And remember that obviously the traders are in terms of risk here, flat price risk is not something they normally take.

What's been happening here is that some cargoes have been sold at such heavy discounts the contango has been so strong that I would guess that some of them have hedged out the front of the curve in the next two, three months. And there might be people believing in demand really coming back and the Brent recovering here. So you could see people waiting and for this curve to strengthen forward because some of the timings on crude purchases were historic in recent weeks.

Speaker 6

That's interesting. It's a good point. So you're talking about the discounts from the Saudis and whatnot. And so it's not just simply looking at the front end of the curve and the back end of the six months. There's also the $5 or $10 discounts upfront as well.

Speaker 1

Yes, exactly. And that was where you could really realize how tight the freight market was. So it was the distressed cargoes and then suddenly someone got a ship that could make the dates in West Africa within the next five days or so. Then discounts of, let's say, dollars 5 to $10 a barrel were offered. And then you put the recent jump in the flat price into it, then you can see that there are people that have oil floating here, which is deep, deep in the money.

And there might be some of them that are willing to take the risk to move even deeper.

Speaker 6

Yes. Okay. And then just how does it work, for instance, if for some reason the contango really does switch and they want to go shorter, if they want to unwind the floating storage, is there any impact at all on the charter that you have with them?

Speaker 1

No. They would still have an obligation to keep the vessel on hire and pay us higher until the earliest redelivery date. So what you'd see in that sort of circumstance is that they would then try to trade the ship in the spot market. But many the guys that put ships on storage are very familiar with the spot market having ships themselves. They would then go from being on storage to being normal spot players.

But then as I was mentioning earlier in the presentation, then we thought the peak at take us go back a month. We thought the peak in storage of oil on ships was going to be at a much higher level. What we're hearing now is that we might be close to it, at 200,000,000 barrels floating. So sort of the negative of that is that we are not enjoying the prolonged freight spike that we expect. We expect the crude price to be low and the contango to be strong for longer than what it was.

But on the flip side of that, it means that the crude inventory draw, which everybody's been talking about for the last month or two being the sort of big animal that would sort of destroy the whole market, That volume will then be less. So there's a flip side to the recent drop. And then by that being less, then that means that our return to a more sort of normal freight market will be shorter.

Speaker 6

Yes. Thanks for that color, Robert. One other question I have is just on the you referenced earlier the LR2s, 11 are trading clean, seven are dirty. How are you thinking about the mix going forward? There was a lot of pressure last year to switch to dirty, and then there was a lot of talk about potentially dirtied LR2s coming back to clean.

How do you think about those ships from here as we think about the next six months, for instance?

Speaker 1

Depends on how the market develops here. But generally, what we'll do on the dirty ships then when we have opportunities to clean up in a cheap way, that will be by doing condensate cargos and so forth, then we're likely to take those opportunities. So I don't think there's going to be much change. The 11.7% split we've done for quite some time. And if I was to guess, then I think it's more likely that we'll go clean on one than we'll go dirty on one.

But that's it's all down to how the market develops. And the developments in the market so far this year, it's been a true roller coaster ride. And there's some mechanics here that are truly remarkable. This 35,000,000 barrels floating on in the North Sea or the continent on Afros and then being unwind. We just have to pay very close attention and then we don't have any problems with taking quick decisions on the charting strategy.

Speaker 6

Got it. All right. Very good. Thanks Robert for that. Appreciate it.

Thanks.

Speaker 0

Thank you. And your next question comes from the line of George Barman of CL Securities. Please ask your question.

Speaker 7

Good afternoon. Thanks for taking my call and congratulations to a great quarter.

Speaker 2

Thanks.

Speaker 7

I've got a couple of quick questions on your joint ventures. You have one with Clean Marine and then recently in January, you did one in concert with Golden Ocean and Trafigura on, I guess, fuel supplies. It looks like each one of those added about $600,000 as your share of the gains. What are your plans for these two investments for the company? Are any of them looking to go public?

Or are you what kind of profits do you get out of those?

Speaker 1

Thanks for the questions. So take the first one on the Clean Marine. We own about onesix of the company. It's a scrubber manufacturer. And scrubbers are not being sold at the moment.

And that's why we put our own on at the factory and not taking on the ship. So that all depends on the fuel spread. So the company is looking into alternatives, and we have a brand new factory that can produce many variable things. So that's being looked at. It's a very small investment for Frontline and we are a passive shareholder.

So no sort of immediate plans there. The JV with Trafigura is a fuel JV, which has started off very successfully. It's securing fuel at the right price and the right quality and the right timing to our ships and also ships in the industry. So it's been tremendous growth in that company. And I would say that's the best sort of IMO twenty twenty decision we made was certainly joining forces with Trafigura and Golden Ocean to form that company.

So we have high hopes for that, and it could be exciting times ahead for that company. But I think what's important for the company and us is that we keep focusing on delivering. Then as growth comes on, we can put further plans. But there's nothing in the pipe going on either of these two investments.

Speaker 7

Okay. Then referring to your current valuation in the stock market, it looks like a lot of the crude transportation companies, shipping companies, tanker companies are sort of afforded an extremely low valuation rather than acquiring new buildings or existing ships in the market. Do you see any opportunities maybe for a combination with other companies that are even less attractively valued than yours? Look I know you may

Speaker 1

for the opportunities. And I think if there's any company that can consolidate its frontline. So we'll see what opportunities come up. But for us, the most important thing is to keep working hard with our modern fleet. We the big size.

And you can see from the Q1 results that we returned pretty hefty returns And I think that's going to maintain our focus. And Q2, we made solid bookings. So I think we're in a very good standing. But generally, I agree with you.

If you look at the tanker companies in general, it's they're not being valued as linked to the earnings, it seems.

Speaker 7

Yes. It seems like we need to figure out a way to transport oil via the cloud.

Speaker 1

Exactly, right.

Speaker 7

Okay. Thanks very much and look forward to your future.

Speaker 2

Thank you.

Speaker 0

Thank you. And your next question comes from the line of John Reardon, he's a private investor. Please ask your question.

Speaker 4

Good afternoon, Robert and Inger. I was wondering the recent uptick in demand from China and now India, did that surprise you? Do you think that maybe they were playing catch up on lower inventories? Or do you think that their current appetite is something that's going to happen going forward?

Speaker 1

John, thanks guys. It's a very, very good question. It's extremely relevant. And unfortunately, I don't have the answer to it, but I'll make a guess. My guess is that the demand destruction as described was not as deep as the analysts were projecting.

And I think the return is coming quick. So it could be obviously the data here is The U. S. Data is normally more accurate, there's a trend that we're getting in from various places. And it looks like Asia is coming back quickly.

The Chinese here on gasoline is encouraging. So it could mean that the fall in demand was not as low and the pickup is indeed a V. But let's see. The oil market has certainly been difficult to predict here lately.

Speaker 4

Okay. And in closing, Inger, I detected in your comments that you have a sore throat. And may I suggest a little hot tea with lemon? I think that will help you recover. We need a healthy Ink route here.

Speaker 2

Thank you very much.

Speaker 0

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

Speaker 1

Thank you, Irma. I mean, with that last comment, I think it's a great way to round off. And also to apologize again for the delay in starting. And you might also notice that the quality of the sound on the call here was not as it usually is. So we'll make sure that doesn't happen next time.

Thank you everyone for calling in. All the very best.

Speaker 0

Thank you, ladies and gentlemen. That does conclude the conference for today. Thank you for participating. You may now disconnect.