Frontline - Earnings Call - Q3 2025

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the third quarter 2025 Frontline Earnings Conference Call and Webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be the question-and-answer session. To ask a question during the session, you need to press star one one on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw a question, please press star one and one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Lars Barstad, CEO. Please go ahead, sir.

Lars Barstad (CEO)

Thank you very much. Dear all, thank you for dialing in to Frontline's quarterly Earnings Call. It's noticeable how everyone at Frontline and in the general tanker industry, for that sake, walks with an energetic spring in their steps these days. We have previously argued that this market owes us money, and we have finally started to collect some of it. I'll try not to jinx it by using caps lock on absolutely everything, but it is a mild understatement that we are positively excited by the developments in this market that started to materialize during the third quarter of the year. Before I give the word to Inger, I'll run through our TC numbers on slide three in the deck.

In the third quarter of 2024, Frontline achieved $34,300 per day on our VLCC fleet, $35,100 per day on our Suezmax fleet, and $31,400 per day on our LR2 / Aframax fleet. So far, in the third quarter of 2025, we have booked 75% of our VLCC days at $83,300 per day, 75% of our Suezmax days at $60,600 per day, and 51% of our LR2 / Aframax per days at $42,200 per day. Again, all numbers in this table are on a load-to-discharge basis, with the implication of ballast days at the end of the quarter this incurs. This means that although we continue to fix extraordinary freight rates every day, we are dependent on the cargo being loaded before New Year's Eve to account for that income in Q4. I'll now let Inger take you through the financial highlights.

Inger Klemp (CFO)

Thanks, Lars. Good morning and good afternoon, ladies and gentlemen. Let's then turn to slide four, profit statement, and we can look at some highlights. We report profit of $40.3 million, or $0.18 per share, and adjusted profit of $42.5 million, or $0.19 per share in the third quarter. The adjusted profit in the third quarter decreased by $37.8 million compared with the previous quarter, and that was primarily due to a decrease in our time charter earnings from $283 million in the previous quarter to $248 million in the third quarter. That was such a result of lower TCE rates, in addition to fluctuations in other income and expenses.

With respect to ship operating expenses, they increased $3.1 million from the previous quarter, and that was due to a decrease in supply rate of $2.5 million and a cost of $1.1 million due to change of ship management for seven LR2 tankers. This was partially offset by a decrease in general running cost of $0.5 million. The administrative expenses, excluding synthetic option revaluation loss of $5.7 million this quarter and $1.7 million the previous quarter, decreased by $0.2 million from the previous quarter. Let's then look at the balance sheets on slide five. The balance sheet movements this quarter are mainly related to ordinary items, the sale of one Suezmax tanker, and also the prepayment of debt under revolving reducing credit facilities.

Frontline has a solid balance sheet and strong liquidity of $819 million in cash and cash equivalent, including undrawn amounts of revolving capacity, marketable securities, and minimum cash requirements bank as of September 30th, 2025. We have no meaningful debt maturities until 2030 and no new building commitments. Let's then look at slide six, that is the fleet composition, cash-based breakeven rates, and OpEx. Our fleet consists of 41 VLCCs, 21 Suezmax tankers, and 18 LR2 tankers. It has an average age of seven years and consists of 100% ECO vessels, whereof 56% are scrubber-fitted. We converted seven existing credit facilities with aggregate outstanding term loan balances of $405.5 million and undrawn revolving credit capacity of $87.8 million into revolving reducing credit facilities of up to $493.4 million in September 2025.

We subsequently prepaid a total of $374.2 million in September, October, and November 2025, leading to a reduction in fleet average cash-based even rate of approximately $1,300 per day for the next 12 months. We estimate average cash-based even rates for the next 12 months of approximately $26,000 per day for VLCCs, $23,300 per day for Suezmax tankers, and $23,600 per day for LR2 tankers, with a fleet average estimate of about $24,700 per day. This includes dry-dock cost for 14 VLCCs, 2 Suezmax tankers, and 10 LR2 tankers. The fleet average estimate, excluding dry-dock cost, is about $23,100, or $1,600 per day less. We recorded OpEx, including dry-dock, in the third quarter of $9,000 per day for VLCCs, $8,100 per day for Suezmax tankers, and $9,100 per day for LR2 tankers.

This includes dry-dock of one VLCC and finalization of dry-dock for one Suezmax tanker, which ended dry-dock in the second quarter. The Q3 '24 average OpEx, excluding dry-dock, was $8,500 per day. Lastly, let's look at slide seven and cash generation. Frontline has a substantial cash generation potential with 30,000 earnings days annually. As you can see from the slide, the cash generation potential basis currency and TCE rates for TD3C for VLCC, TD20 for Suezmax tankers, and average of TD25 and TC1 for Aframax LR2 tankers from the Baltic Exchange as of November 18, 2024, is $1.8 billion, or $8.15 per share, providing a cash flow yield of 33% basis current share price. A 30% increase from current spot market will increase the cash generation potential to $2.6 billion, or $11.53 per share. With this, I leave the word to Lars again.

Lars Barstad (CEO)

Thank you, Inger. So let's move to slide eight and have a look at what's going on in our markets. As many of you have noticed, oil in transit has become kind of a more mainstream measure for investors that focus on shipping. It's now at record highs. This happens as export volumes grow, from especially the Americas or around the Atlantic Basin, and we see a positive development in how oil trades. Policy does affect behavior, and it has opened the arbitrage between the Atlantic Basin and Asia. The OPEC voluntary production cuts reversals are starting to express themselves in real export volume gains. Year-on-year, for October, we're up 1.2 million - 1.3 million barrels per day, looking at the Middle Eastern producers, excluding Iran.

There are increasingly logistical challenges around the trade of sanctioned export oil, and this was further amplified as Lukoil and Rosneft were put under sanctions. We have a picture where we see very firm refinery margin environments supporting refinery screw drums. So it begs the question, when are we going to see this perform? Resale asset values are starting to reflect the hike in freight rates as order books for tankers are near full through 2028. Let's move to slide nine. The heading is, "The Arb is Back." The behavior of especially India, but also China, is yielding an increased demand for compliant crudes, especially in the Middle East. This raises the crude price level for local crudes in the Middle East, causing Atlantic Basin graves to price their way into Asia. Since 2022 and Russia's invasion of Ukraine, the long-haul trade has suffered.

We've seen Russian oil taking Asian market share and Europe relying more on Atlantic Basin barrels. This looks to reverse to some degree and could be a sustainable development going forward and means that we are back to the old-school tanker market where the VLCC, with its economies of scale, leads the pack. This VLCC-centric trade pattern change has also been driven by very positive export numbers from Brazil, our new producer Guyana, Canada through the TMX pipeline, and more recently, also U.S. The incremental barrel to the market now is compliant oil, and compliant oil needs compliant vessels. That means unsanctioned vessels and predominantly below 20 years of age. If this supply trend continues on the oil side, we are likely to see a sustained contango structure in the oil market developing. This will imply inventory builds. We are low on inventories in most regions of the world.

It's unlikely to imply floating storage due to the financing cost, which is much higher now than it was in the last cycle. We had this effect to the market, but there is an equally interesting trading pattern that may develop, and it's called time. When you can load a barrel in the U.S. and sell it two months after in Asia, you're actually having a tailwind on that trade as the price of crude is increasing over time. Let's move to slide 10. So the net fleet development, and this is kind of a recurring discussion I have with investors when we are out presenting our company. We have virtually zero recycling or scrapping, but we have actually a substantial order book, not a scarily big one, but there are still vessels to come, and that order book has been increasing.

So what we've tried to do here is to put forward a couple of scenarios just to explain why we are so constructive on this market. So the order book continues to grow, and this is mainly due to limited offering of available modern tonnage on the water. This basically means that if you are a ship owner or an investor that wants to buy a ship, the best way to get access of tonnage is actually to go to the yard, and you're not penalized by missing out on freight, even though the ship is being delivered in 18-24 months. But this looks to change now.

Now that you have spot rates that can give you $5 million - $6 million on the bottom line for a 50-day voyage, you start to think, should I go and access the resale market and get a ship that I can fix in the next cycle, or do I go to the yard and order a ship that will be delivered in more than 24 months? This means that the owners can actually now start to pay up for a resale, and it makes economical sense to do so assuming these rates stay around for a while. We continue to see the trend that other asset classes are populating the yard's order books. There is now limited capacity left in 2028.

If you look at the overall age profile of the global tanker market, and this is basically the key fundamental part of at least how we see this tanker market develop going forward, or as I've said previously, the revenge of the old economy due to lack of investment in particularly tanker tonnage over a long period of time, we are in a situation where we will every year have a new batch of ships that are crossing this magical age cap, which we put at 20 years. If you look at the VLCC chart here on the top right-hand side, just to explain how we're thinking, if you assume absolutely no scrapping, no ships disappearing into the dark, and basically every new ship being delivered on top of the existing fleet, we will have around 15% fleet growth towards 2029, sorry.

But if you assume that VLCCs at least stop effectively trading when they turn 2022, that growth will only be 3.4% through 2029. But what is actually the more realistic case is that VLCCs are either scrapped, start to trade sanctioned oil, or for other reasons, no longer part of the effective fleet at 20 years, will have a negative fleet growth with the existing order book, a negative fleet growth of 2% towards 2029. The other charts are basically showing more or less the same. I think this is kind of the key reason why we believe that there is some longevity in the market we have in front of us. Move to slide 11, order books, and I've been quite repetitive of this. The order book on the asset classes that we are exposed to is in total 16.5% of the existing fleet, 19 above 20 years.

If you put the threshold at 15 years, 44.3% of that fleet is above 15, and 21.6% of that fleet is sanctioned by either or OFAC, U.K., AU, and so we go on. We also have the highest average age in the tanker fleet for more than 20 years. So let's move to slide 12 and the summary, and I've called it old-school bull market because some of the characteristics we see in this market, and I've been in this market for quite a while, meaning that I was actually around in the period from 2002 until 2008, we are actually seeing some of the same characteristics where there is a proper trade going on between a sharker and an owner, and the brokers actually need to do some proper work to find the right ships, and cargoes struggle to get offers, basically.

So we have high utilization, we have strong oil exports, and we have a positive change in trade rates. As I've gone through, limited growth in the compliant tanker fleet, and with compliant, I also add under 20 years, and we also see the sanctioned trade sucking more tonnage in due to logistical challenges. The overall age profile is key, as I just mentioned, and despite the populated order books, effective fleet growth remains muted. We have firm refining margins, and the winter market has actually already started. We are in a situation kind of on global S&E that we might come into a prolonged period of oversupply, and this may yield interesting trading developments, firstly for oil, but also for shipping. And I can assure you, Frontline are prepared to offer outside shareholder returns with our efficient office float fleet. Thank you very much, and we'll open for questions.

Operator (participant)

Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star one, one on your telephone keypad and wait for your name to be announced. To withdraw a question, please press star one, and one again. Please then bow or compile the Q&A queue. This will take a few moments. And now we're going to take our first question, and it comes to the line of Jonathan Chappell from Evercore ISI. Your line is open. Please ask your question.

Jonathan Chappell (Senior Managing Director)

Thank you. Good afternoon. Lars, to your last point about the outside shareholder returns and then tying it into this financing update that you provided today, completely understand. I think the dividend policy will remain as robust as it's been since the start of 2024, but are we looking at a new era now where you're looking at deleveraging the balance sheet as well? You're clearly in a strong enough market where the dividends can be strong, but you're still generating enough cash where you can deleverage, and you've done quite a bit of it in the last three months. So are we looking at a new Frontline where the balance sheet becomes as strong as maybe some of your public peers without violating your dividend policy?

Lars Barstad (CEO)

No. We are different from our peers. We're actually not particularly comfortable working with this kind of fairly low LTVs. I think it's a result of we being hesitant to invest in this market for reasons I actually described a little bit in the presentation. We've had values moving ahead, so resale values moving ahead of the market. We've had kind of since we are very we want our assets to generate cash as quickly as possible. We've been hesitant to stretch kind of far out in time, tying a CapEx on assets that will come in a year or two years' time. And so we basically found ourselves, and term chart rates haven't really defended this either. So we kind of just by pure being quite conservative on our financial analysis, we haven't really been kind of up for doing any massive moves since we did the Euro now transaction.

So I think kind of that's more a result of it, or that's more the reason for us being in this position rather than actively trying to reduce our debt.

Jonathan Chappell (Senior Managing Director)

Okay. And then just to follow up, I want to push back a little bit on slide 10, but then offer an opportunity for you to push back to that. I think the premise of scrapping ships at 22 years and at 20 years, given the rate outlook that you just laid out in the prior slides, is a bit misleading. I mean, people don't scrap ships when they're making that much money. So maybe could you explain to us how those ships become less efficient, or they don't have full utilization, and they still kind of come out of the net fleet supply without them being actually scrapped? Because if investors are waiting to see big scrapping numbers over the coming years with rates as strong as you think they are, and I think they are, they may be disappointed.

So how do those ships become less efficient and still kind of help utilization without actual scrapping?

Lars Barstad (CEO)

Well, as you know, I was going to push back on that. No, the thing is that why we haven't seen scrapping or recycling, to be more politically correct, is the fact that you have an alternative use of these vessels, right? And the alternative use in the old days, it could be conversion into floating storage or production units. There could be kind of other it could be floating tanks or whatever. But the alternative use that's been going on ever since 2019 or 18, 19 is the trade of sanctioned oil. And that has obviously paid a lot of money to the owners that have been willing to engage in this trade. The thing is that we circle around the compliant markets, and we relate ourselves to the compliant oil market.

And in the compliant oil market, even if you're Exxon, or even if you're Shell, or Glencore, or whoever you are, you trade on the margin. If you're going to trade on the margin and you're trying to insure 2 million barrels of oil on a plus 20-year ship, that price of that insurance is going to be so high that you will struggle to actually make the ends meet. So it means that, and it also limits your optionality on how you can trade that oil because you'll have to take away kind of 80% of the terminals that just have a blanket ban on vessels that are older than 20 years of age. So effectively, and we actually see this, you don't really need to look up which ships are sanctioned by OFAC. You can just draw a line at 20 years.

The vessels and the Suezmax and the VLCC side that are above 20 years and not sanctioned, you can literally count on one hand. And we actually see a big efficiency loss in the tanker space when the ship reaches 18 years. And I think kind of the little bit of the proof in the pudding here is that the compliant oil market has actually had a terrible development in volume for a sustained period of time, but still we've had poor rates, but we haven't had car crash kind of rates. And this is basically due to the fact that ships become less tradable, less efficient, limited use, actually starting from the year from they turn 17 and a half years. So there could be that we'll have a wall of scrapping, but I actually don't think that's going to happen.

I think kind of the alternative use is going to be around for a long time, unless, of course, the sanctions are lifted all around. But now we also have another problem here, is that a sanctioned vessel is not easily recycled because the recycling industry is actually a real business, and they access financing, and they deal in many ways in dollars. Where you are right, where ships can easily live kind of past the 20-year age kind of ceiling is if it's for specific use. Let's use India as an example. If you're India flagged and it's for an Indian refinery, you, of course, control the entire value chain on that oil trade. That ship can easily kind of trade until it's 25 years, but it will only be for the purpose of transporting feedstock to an Indian refinery.

But that is only a small portion of the market, and even Indian refiners realize that they can't have too much of an exposure in that market because basically you have virtually no other options than to do exactly that back and forth between the Middle East and India.

Jonathan Chappell (Senior Managing Director)

Great. Thanks for the answers.

Operator (participant)

Thank you. Now we're going to take our next question. And the next question comes to the line of Sherif Elmaghrabi from BTIG. Your line is open. Please ask your question.

Sherif Elmaghrabi (VP of Equity Research)

Hey, good afternoon. Thanks for taking my questions. Lars, maybe first to just follow up on that line of thought about the sanctioned fleet, India and China are lifting more compliant barrels, as you said. And so there's more non-compliant vessels that maybe have less work, and I'm wondering what you see happening to the dark fleet right now, given there's less work, and also maybe in the next 6-12 months, if that's a different picture.

Lars Barstad (CEO)

Yeah. No, there is actually so for once, there are an increasing amount of vessels just sitting at anchor with no crew on and keys left in the ignition. These are kind of the first-generation sanctioned fleet that came out of Iran and Venezuela kind of five, six years ago. And there, you will probably never be able to locate who was the owner. But then you have kind of what's in between, and there are actually initiatives or also commercially things that are being worked on where you basically can buy sanctioned vessels, but you need a license from, and the most important license is from the U.S.

And there is actually some motion in that work now where, of course, since the federal state in the U.S. was closed for a while here, it's not been particularly efficient for the last couple of months, but there is a discussion ongoing to if one can kind of set up some sort of mechanism where against a fine, you can actually access the recycling market, but only the recycling market alone. So I think that could be a solution as we proceed here. One side being that local governments actually need to take action to avoid environmental damage for those vessels left with a key in, but secondly, a growing industry around this kind of licensed, but also fined recycling work being done. Because kind of if you're going to buy a sanctioned vessel, it's actually worth zero.

But then, of course, if it's worth half the normal recycling price, there is actually still money in it. So I don't know if that's going to be the solution, but at least that is something that is being discussed. But it's still so that the sanctions are different countries kind of respect them to various degrees. Oil has a tendency to move anyway. So I have no illusions as to the vast amount of Iranian oil, which is currently kind of being clogged up a little bit, the vast amount of Russian oil, which struggles to find a home. I'm pretty sure it's going to find a home, and it's probably going to find a home one way or another on ships that are either fully sanctioned, halfway sanctioned, or whatever. So I think kind of that industry, that parallel industry, we're probably stuck with for a while.

But the incremental barrel now does not come from the sanctioned nations. It actually comes from the compliant fleet, and that's the only part of the market we really care about.

Sherif Elmaghrabi (VP of Equity Research)

That's very interesting. Thank you. So sticking with the compliant barrels now, you highlighted the tailwind, the futures curve gives cargoes lifted from the Middle East to Asia. That's not floating storage, like you said. So I'm wondering how that affects vessel demand, given it sounds like the contango in the curve lines up nicely with normal voyage timelines anyway.

Lars Barstad (CEO)

Yeah. No, so currently, we don't really have the contango. And actually, I'm no expert on oil pricing, but I'm actually quite surprised of the firmness in the oil price, considering the oil-in-transit numbers that we have. And mind you, that oil-in-transit is a combination, of course, of backing up sanctioned oil. It's also backing up oil that was supposed to go to sanctioned terminals. And it's also commercial oil, which is backing up due to weather as well. That's a really old-school winter market kind of thing, is that there is actually some severe weather around key ports. So we're actually seeing extended kind of waiting time to discharge, basically due to that. But with that kind of pile of oil sitting or being kind of in the logistical chain, I'm surprised that we can have kind of front oil having at these levels.

But anyway, if you believe in EIA or IEA or all the kind of market experts, we are actually going to be in an inventory build environment for the next six months-ish. But in order to get there, in order for that to be even feasible, we can't have a steep accreditation on oil. So then you get into this contango kind of shape of the curve. And that is interesting, as I mentioned in the presentation, because we tend to see trade lanes extend when you have some sort of carry in the oil curve. And it doesn't need to be supportive of floating storage because then you need like two, two and a half bucks per month in order for that to make sense.

But only a modest 50%, sorry, $0.50 contango helps or greases the trading system, basically, because you get a little bit of tailwind as you try to position a cargo.

Sherif Elmaghrabi (VP of Equity Research)

Got it. Thanks again for taking my questions.

Lars Barstad (CEO)

You're welcome.

Operator (participant)

Thank you. Now we're going to take our next question. And the question comes from the line of Omar Nokta from Jefferies. Your line is open. Please ask your question.

Omar Nokta (Managing Director)

Thank you. Hi, Lars and Inger. Good afternoon.

Lars Barstad (CEO)

Hi, Omar.

Omar Nokta (Managing Director)

A couple of questions. I wanted to ask just about the LR2s. Obviously, there's a bit of a big gap between what's going on in the dirty and clean markets, and just wanted to, if you can just remind us how you're trading those. And then also, do you have any comment regarding some of the chatter from last month that you had sold or in the process of selling that entire LR2 fleet?

Lars Barstad (CEO)

Yeah. So let's do the last one first, and that's no. And then do the first one. Kind of this spread right now surprises us a little bit as well. You're an expert analyst too, and you know that kind of high refinery margins, a lot of oil going through the system normally yields a lot of product exports. And we haven't seen that yet. But I'd say that the setup for the LR2s looks increasingly exciting because, number one, due to the relatively stronger crude markets, a lot of LR2s are actually trading dirty. So it means that there is a kind of limited amount of LR2s that are clean and ready to do a clean cargo at this minute.

Secondly, the Suezmax, in particular, are making so much money in crude that there is no economics in cleaning up to do a clean cargo at these levels at all. So my point is, I don't think you need much in that market to flip it. And it can actually be quite good, or you can get these kind of exponential rate developments, basically because you don't have the lid of a Suez Max cleanup or a VLCC cleanup on top of the LR2 market as it is right now. But I don't have a very good kind of factual answer to you on why we are in this situation. But I think we've already seen some kind of small signals. The LR2s have run up $5,000-$10,000 per day just in the last week.

Now we're probably around the $35,000 per day mark, maybe a bit above. It doesn't need much to take it further. So let's see.

Omar Nokta (Managing Director)

Okay. Yeah. So maybe some convergence is happening at the moment. Okay. And I understand, Lars, that it sounds like you said no comment regarding the sale of the LR2s, but humor me perhaps. If you were to potentially, or if you were to consider selling those LR2s, what do you envision the use of proceeds would be? Kind of maybe along John's question, would it be more towards debt repayment, which it sounds like perhaps you don't want to do? Would it be a special payout, or would you consider rolling into the Suezmax and VLCC classes?

Lars Barstad (CEO)

I think kind of between the lines, we're probably answering that in this presentation. And we've been very patient since we started to expand our VLCC part of the fleet. That's grown 33% in the last five years. We've doubled the kind of amount of ships. Regretfully, the trading pattern that developed after Russia-Ukraine did not really support the VLCCs at all. Now that is, and I don't want to jinx it, but it looks like at least right now it's coming together. And it's the economies of scale that then gets into play. So kind of long term, if we were to divest off the LR2s, I think we also think that this market has some runway, just showing you kind of the fairly modest, in our model at least, the fairly modest growth total in supply of tankers, and actually particularly so on the VLCCs.

And also our belief that the oil demand is probably going to grow for a few more years. I think it would be natural for us to focus on the big guns on the VLCCs.

Omar Nokta (Managing Director)

Thanks, Lars. I feel like that's fairly clear between the lines. And then just a last one, just in terms of performance to date here in the fourth quarter, clearly a nice big increase in your earnings power coming here across all three segments. But this is one of those few times where there's such a gap in terms of what you're showing as a realized average to date in the fourth quarter and where spot rates are. And so you've covered, say, just looking at the VLCCs, 75% of 4Q is at 83,000. The spot markets say well over 100. Load-to-discharge accounting makes things a bit tricky here as we think about the realized average for the full quarter.

Do you think, based off of where things are, that there's upside to that 83,000 figure in this quarter, or are we looking at basically these 100,000+ rates becoming much more of a January item?

Lars Barstad (CEO)

I think I'll answer that question by saying that in kind of the load dates that are being worked, so say you do a fixture today on the VLCC in the Middle East that has the rates there around $130,000 per day right now. That's for loading on the 11th, 10th-11th of December, so there kind of you have only 20 days that you would account for then in Q4 when you load that cargo, so half of it will actually come into January, but if you go to Brazil, for instance, you're already fixing kind of around the 20 mark, if not further out on loading, so then you only have like 5 to 10 days to account for that will actually affect Q4, and for U.S. Gulf loading, it will be more or less the same.

So I'm not going to say no, we won't get more money into the chest before we close the year. But I can't categorically say yes either. We'll just have to see.

Omar Nokta (Managing Director)

Okay. Thanks, Lars. I appreciate it. I'll turn it over.

Lars Barstad (CEO)

Thank you.

Operator (participant)

Thank you. Now we're going to take our next question. And the question comes from the line of Devon Sangoy from Tech Investments. Your line is open. Please ask a question.

Thanks for giving me the opportunity to ask a question, Lars. I just wanted to ask more about the floating storage, and we've seen that during the COVID. And how do you see this floating storage and how sustainable is this demand?

Lars Barstad (CEO)

If I understood you correctly, so yes, we had very high floating storage during COVID. That was, of course, more due to the fact that the demand disappeared overnight and supply could not follow. But we were also in a zero interest rate environment, which meant that capital was basically free. And that is an important part of this because if you're going to purchase or take a position of 2 million barrels, it's a sizable kind of amount of money, and you need to finance that. And that adds to the cost of storing on a vessel. And this is why I mentioned that in order for floating storage to work commercially on ships, you basically need $2.50 per month or $2, and $2.50 per month or thereabouts. And that's a pretty steep contango.

And we know we're actually in slight acquisition right now, so it's nowhere near. The storage that we are seeing right now is more due to logistics or distress or weather. So it's not commercial in that way. I don't know if that answered your question.

Yes. Thank you. The second thing is that I've seen that U.S. has different part of sanction for black, dark fleet. U.K. has different. EU has different. And if you put. So is there anything which has gone that that total dark fleet under different sanctions are now getting tighter? And what's your view on that?

Yeah. No, you're right. But it's actually a very high degree of correlation between these sanctions. So normally, it's just a question of time. If EU sanctions one vessel, then OFAC will do it two weeks after, and then U.K. will do it more or less at the same time. So there's actually a lot of overlap between these various kind of regulatory entity or regulatory bodies. But it's for sure it's getting tighter. And this is global politics, right? I think one doesn't need to be a rocket scientist to understand that particularly U.S. is putting a lot of pressure on Russia right now, basically to prime them for negotiations. I think this Rosneft-Lukoil sanction, that was a direct kind of hit on creating a lot of trouble for this industry and for Russia's export.

You're talking about half their exporting volumes that were serviced by Rosneft and Lukoil. For sure, these molecules will, at the end of the day, find their way somewhere. But I think we're probably going to see this pressure continue until we have some sort of resolve on the whole situation.

And last you've seen last year, Q4 was not great, the signaling didn't turn up. But this year, if I see Q4 is good, but how do you see Q1? Because Q1 is going to be as strong as last year or better than what we have seen looking at the current scenario?

Well, you're asking me to give my view on one of the world's most volatile markets. Actually, the fact that it is this volatility tells you that this is not an efficient market. It's a market that's extremely difficult to predict. But what I can say is that from what we're seeing right now, we're not seeing any kind of weakness in this market. We're seeing an old-school, extremely tight physical shipping market. But of course, who knows what can happen next week?

Well, because see, all the factors that the compliant crude producers have gaining market share, dark fleet is being targeted, the volumes overall, at least as of today, there is no debacle of China on consumption side. In fact, China is buying all the commodities in order to put the extra reserves. So put all things together, Q1 can sustain these rates. I'm not asking you to predict, but it looks like Q1 can be better or as good as Q4.

Yeah. No, no.

In these conditions, sustained.

Yeah, yeah. No, 100%. And we pointed to it in this report. There are some key fundamentals here that will not change short term. There are some key drivers to this market that we didn't have Q4 last year, to put it that way.

Thank you, Lars. And all the best.

Thank you.

Operator (participant)

Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star one one on your telephone keypad. And now we're going to take our next question. And the question comes from the line of Louis McKibben from RETAG. Your line is open. Please ask a question.

Yes, Lars. I wanted to talk about frame 7, page 7, where you show the 1150 a share generated with a $149,000 daily VLCC rate. And you were in the business back in the good old days of 2006 and 2008, and also during COVID when they had the floating storage. But I think the rates went up to like $240,000, $260,000, $280,000, $300,000 a day. Was that right?

Lars Barstad (CEO)

Yeah. That's right.

So if you were to get similar rates, your free cash flow would be in excess of $20 a share. Would that be correct?

Yeah. If you do that for 365 days, yes.

It could happen.

All right.

The other thing was that I read somewhere where India will not accept a tanker in excess of 22 years old. And I was wondering if China has a similar policy.

Well, China is not kind of uniform in that respect. They have kind of two different oil systems, one being what is referred to as the T-Ports. But these are big refineries that they're privately owned. And they, of course, have a little bit of a different kind of requirement. The terminals are then also privately owned. But if you look at the government system in China, and UNIPEC, which is kind of the biggest, they actually normally have a 15-year kind of threshold. But of course, they have a maneuvering room between the 15 and the 20. But you very rarely see them take a ship that is materially above 17 years old. So it's a little bit fluid. On India, I haven't seen or heard what you're referring to.

All I know is that if you sail under an Indian flag and you're an Indian ship owner, they have at least up till now accepted trading all the way until 25 years.

Okay. Thanks for answering the questions. I appreciate it.

Thank you.

Operator (participant)

Thank you. The speakers turned up for the questions for today. I would now like to hand the conference over to your speaker, Lars Barstad, for any closing remarks.

Lars Barstad (CEO)

Yeah. No, thank you very much again for listening in. It's extremely exciting times indeed. And I wish you the best for the remainder of the year. Thank you.

Operator (participant)

This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.