Frontline - Q4 2022

Transcript

Operator (participant)

Good day and thank you for standing by. Welcome to The Q4 2022 Frontline PLC Earnings Conference Call. I would now like to hand the conference over to our first speaker today, Mr. Lars Barstad. Please go ahead.

Lars Barstad (CEO)

Thank you. Daryl, thank you for tuning into Frontline's Q4 earnings call. I know it's been a busy day for at least those of you who are analysts. It's quite a few companies reporting today. I have a feeling some of the questions in the upcoming Q&A will be focused on the termination of the combination agreement with Euronav. Let's for now focus on Frontline and the smoking markets we've had in the Q4. Although the implications of Russia's invasion of Ukraine caught most of the headlines, we believe from a tanker market perspective, China was the catalyst to Frontline posting the best quarterly result in over 14 years, as we finally fired on all cylinders throughout the quarter and our lean and mean business model got to shine. Let's quickly look at our TC numbers on slide three in the deck.

In the Q3, Frontline achieved $63,200 per day on our VLCC fleet, $57,900 per day on our Suezmax fleet, and $58,800 per day on our LR2/Aframax fleet. Finally, the inverted earnings relationship between our segments were at least temporarily reversed. So far, in the first quarter of 2022, we've booked 87% of our VLCC days at $58,300 per day, 77% of our Suezmax days at a cool $72,400 per day, and 68% of our LR2/Aframax days at a solid $63,900 per day. Again, all these numbers in the table are on a load-to-discharge basis, they will be affected by the amount of ballast days we end up having at the end of Q1.

Before I give the word to Inger, let's just quickly jump to slide four in the deck. I'll repeat a few key points on the Frontline fleet composition. Frontline continues to hold one of the most efficient fleets in the industry, and our diversification has proven profitable for all our shareholders during 2022. Scrubber spreads continue to incentivize investments hovering north of $200 per metric ton, and we are installing scrubbers on two additional. We have only two of these left without the scrubber. The average age of our fleet is a comfortable five years, and Frontline is well-positioned in CII terms and also for the upcoming EU ETS considerations. I will now let Inger take you through the financial highlights.

Inger Klemp (CFO)

Thank you, Lars, good morning and good afternoon, ladies and gentlemen. Let's turn to slide five. In the Q4, we achieved total operating revenues of $353 million, and we had an adjusted EBITDA of $287 million. We came in at a net income of $214 million, which is the highest quarter net income we have had since 2008. We had an adjusted net income of $215.5 million.

The adjusted net income in the Q4 increased by $133 million compared with the previous quarter, that was mainly driven by an increase in our time charter equivalent earnings due to the higher TC rates that Lars went through earlier in the presentation. This was partly offset by a general increase in expenses. We declared a cash dividend of, for the Q3 of $0.30 and for the fourth quarter of $0.77. The Q4 dividend gives a direct return of 17% on the share. As of December 31, 2022, we have revised the estimated useful life of our vessels from 25 years to 20 years, which is expected to increase depreciation expense by approximately $59 million for 2023.

Let's take a look at slide six, the balance sheet. Total balance sheet numbers have increased with $227 million in this quarter, and the main drivers are delivery of Front Gaula, revaluation gain on the Euronav shares, increase in working capital, and also the net income that we earned in the Q4. As of December 31, 2022, Frontline had $556 million in cash and cash equivalents. Including undrawn amounts under our senior unsecured loan facility, marketable securities and minimum cash requirements. Let's move to slide seven. Let's take a look at cash flow potential.

We estimate average cash cost break-even rates for 2023 of approximately $27,000 for VLCCs, $21,500 for Suezmaxes, and $17,600 a day for LR2 tankers, with a fleet average estimate of about $22,300 per day. This average estimate includes drydock of two VLCCs and one LR2 tanker in 2023, all in the Q1. With respect to operating expenses, we recorded $8,800 per day for VLCCs. $7,600 for Suezmaxes, and $8,700 for LR2 tankers. We drydocked two vessels in the Q4. That was one VLCC and two LR2 tanker.

Looking at the right-hand side on the slide, we show free cash flow, in millions and per share as the debt service bases current fleet and not third party. If we look at assumed VLCC TC rates of $75,000 per day with five-year historic spread to VLCC for Suezmax and LR2 tankers, the annual free cash potential will be more than $1.4 billion or $6.46 per share. With that, I think I leave the word to you again, Lars.

Lars Barstad (CEO)

Thank you, Inge. Yeah, it's, we are in kind of a market where the potential is substantial. If you move to slide eight, just recap what happened in Q4 in the tank market. You now have the title here, sneak peek of what's to come. I think it's probably not a secret that we are tremendously bullish for the next couple of years. During the quarter, all segments, from front of rates, performed. It was finally the turn for the VLCCs to shine. The average weighted market earnings for tankers are actually flirting with 2004 highs. You see in the chart below on the left-hand side, with the yellow column.

I think kind of in general, the market hasn't recognized how substantial Q4 ended up being. Why this is the average weighted earnings for all tankers and obviously what's happening on MRs, on LR1s, LR2s, AF8s, and Supras and VLCCs together has made this possible. It's we are in market conditions where it's not only the VLCC outperforming, it's basically all segments outperforming. Chinese imports are back above pre-COVID levels, hovering around 10 million barrels per day. The VLCC shipments to China are actually at all-time high. I would like to say the big ships are back. During Q4, we saw the G7 crude oil price cap come into effect on December 5th.

We have seen already a lot of crude oil and, fuel oil being redirected to, you know, around Europe to Asia, and Middle East predominantly. The effect of the fifth of December cap was somewhat muted. We also need to keep in the back of our head that, during to a mild winter in the Northern Hemisphere, oil prices were also hovering below or around $80 per day making Russian crude comfortably priced below the price cap. Let's move to slide nine and look at what we believe is the three major themes as we embark on again what we believe is upcycle. First, it's oil demand.

As long as we have oil prices in the area where we are now, hovering $80-$90 per barrel, we believe oil demand will continue to be fairly strong. If you look at the chart at the bottom left, this is from EIA. It's not a confusing chart. It goes in one direction, but it shows a lot of volatility going forward. By the end of 2024, EIA expects global oil consumption to be more than for million barrels per day higher than where we are now. Asia, and in particular China, is expected to be the key driver as China is returning from COVID lockdowns. The second big part of this equation is obviously fleet supply. Total tanker fleet growth is set to turn negative during 2024.

This has not been seen since 2002. If you look at the middle chart below, you'll see the columns for the various years of growth. As we kind of go through 2023, we expect to have about 3% growth in the total fleet of tankers globally. That will be reduced to 1% in 2024 and it will actually turn negative during the year. In 2025, the overall fleet is expected to reduce by 1%. A change in trade dynamics may actually accelerate this. Right now, 12% of the tanker fleet is above 20 years. We've had very limited scrapping and the ships are in fact trading kind of beyond their expected lifespan. So obviously any regulatory changes or any initiatives in this respect could accelerate the fleet reduction.

World seaborne trade, and this is the bottom right-hand graph, is expected to grow by 67% annually over the next two years. This is a function of the key demand centers being in Asia and key production growth coming out of US and Latin America predominantly. The overall order book stands at 5% or actually slightly below and now we're looking at delivery windows in 2026. Let's move to slide 10 and look at a bit further on the order books. During last year, we had the lowest contracting activity in decades. If you look at the graph on the top left-hand side you will not find one column since 1996 and this is the history I actually have available. That is lower than the some around seven million deadweight tons that was contracted in 2022.

As we go into 2023, this activity continues to be muted. If you look at the VLCC fleet isolated there are now, during 2023, we'll have 112 VLCCs passing 20 years. That will be 13.2% of the entire fleet. The order book stands at 28 units and that represents 3.3% of the existing fleet. If you look at the Suezmax, this is even more pronounced. By the end of 2023, 85 vessels will be above 20 years. That represents 14.5% of the fleet. The order book is at a modest 10 vessels and that represents 1.7% of the fleet. The LR2 market, it's a bit more balanced. There's a few more ships on order, but they have the same age profile.

Of the about 400 LR2s in the world, 25 will turn 20 during 2023. That represents about 6% of the fleet. The order book is currently at 51, and that represents 12.8% of the fleet. A point that I made before on the LR2s is that the effective kind of age of an LR2 starts to or the effectiveness of trading an LR2 starts to be reduced after it's turned 15 years due to quite a few charterers limiting their chartering activity for vessels that go beyond the 15-year threshold. If we move to slide 11, and we're gonna look at some of the key exporting regions and what the state, what kind of the state of the market is.

I mentioned earlier that the three major themes are with the oil demand, fleet supply, and distances. In order for demand to be kind of sufficient supply we need production as well. World crude oil exports are now back to pre-COVID levels finally. We're hovering about 42 million barrels per day of ocean-going volumes. That's, you know, just north of 40% of global oil production. West Africa continues to struggle, but saw a modest improvement in the Q4. Latin America is becoming an increasingly important export region in particular Brazil and recently Guyana are the keys for growth. Russian exports are surprisingly resilient and exports are back to pre-invasion levels.

I think some of the statistics there may be colored by the kind of increased exports ahead of the fifth of December price cap. Still, Russia still seems to find home for its crude. US exports continue to be firm, and we're particularly surprised after the SPR releases stopped during November or more or less stopped during November last year. US continues to be the region where we will see production increases. Over the next couple of years, US alone will actually represent close to 80% of new oil coming online globally. If we move to slide 12 and go through the summary. Frontline reports the highest quarterly net income since 2008, a cool $240 million.

Our cash dividend, which is obviously the combination of Q3 and Q4 is $1.07. We took delivery of the three remaining VLCC new buildings from Hyundai and sold one VLCC and one Suezmax both 2009 builds. As far as we see China took center stage in the Q4, imports in China or through China are back to pre-COVID levels. Oil demand continues to recover. There is limited fleet supply, an increasing ton mile demand are the key drivers for the years to come. We continue to believe that Frontline's efficient and transparent business model will generate shareholder returns. With that, I would like to open up for questions.

Operator (participant)

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

Omar Nokta (Managing Director and Senior Equity Analyst)

Thank you. Thanks, Lars. Thanks, Inger, for the update. You know, clearly a lot of positive themes developing here. You touched here on the last slide, Lars, about the new building program now being, you know, officially complete with the delivery of these final three VLCCs. You did sell a couple of older tankers, the Suez and the Afra. What are you thinking about Frontline's fleet here strategically as we move forward, you know, absent large scale M&A, how do you think about the fleet from here? The first time in many years, I would say that you don't have an order book. Do you look to sell more ships in this market? Do you replace the ones you sold? How are you thinking about that?

Lars Barstad (CEO)

No, it's a very good and timely question. What we've kind of are observing is that asset prices are moving a bit ahead of the markets to defend investing in, say, a new build. You look at the VLCCs, you need closer to $50,000 per day of earnings consistently for the next 20 years to make 15%-20% return on the investment. We feel that, you know, asset prices have moved maybe ahead of time, so of time charter rates and spot rates. We don't really have we're not comfortable. Also secondly, due to the lead time to receive a new building, you know, you probably wouldn't get it until 2026.

You know, you have two and a half years there of substantial kind of asset price risk should something happen to this market. On the resale side, the prices continue to be elevated. Again, you know, the spot and the TC market doesn't give us kind of the returns where we're looking for. So it's... Again, we have some assets in our portfolio that probably we should consider selling due to the high kind of asset prices. The thing is that, you know, the earnings potential remains so high on these kind of more mature assets to call it that we are a bit split minds.

You know, are we just gonna continue and harvest and keep these units on as long as they make a lot of money? Or are we gonna take, kind of use opportunity here at elevated asset prices, and take a profit on these assets? All our assets are actually fairly okay from a CI perspective. We're not too nervous about that. I think kind of the question you're raising here is probably the question most shipowners are asking themselves.

Omar Nokta (Managing Director and Senior Equity Analyst)

It's an interesting one. Lots of different ways to look at this, but expensive. As you mentioned, the return profile needed, so on new buildings at least. You know, maybe as you kind of hinted at early on in the call about, you know, the discussion of the combination with Euronav, to the extent you can, you can say anything about this, but, you know, You know, clearly a lot's changed here over the past several months. When it comes to Euronav, for instance, can you envision revisiting that combination or that merger if for somehow CMB were no longer either involved or no longer an obstacle?

Just simply wanting to know as you think about, you know, the termination of the agreement with Euronav, is that just simply specifically because of the CMB situation, or is there something else?

Lars Barstad (CEO)

Well, to do the last part first, which basically or probably answers the first part of the question. It was not only the CMB blocking position that triggered the termination. There were also certain legal requirements that weren't in place. I think of the blocking position was one of the major reasons our board decided to terminate, there were other factors, legal factors in play as well. As it is right now, a combination with Euronav is off the table. Obviously, you know, there could be a scenario in the future where that discussion comes up again.

As it is right now, you know, there has been absolutely no discussions with Euronav since the termination in this respect and it is firmly off the table.

Omar Nokta (Managing Director and Senior Equity Analyst)

Got it. Thanks for that color, Lars. Appreciate the time. I'll turn it over.

Lars Barstad (CEO)

Thank you.

Operator (participant)

Thank you. Now we're going to take our next question. The question comes to line of Jon Chappell from Evercore ISI. Your line is open. Please ask your question.

Jon Chappell (Senior Managing Director)

Thank you. Good afternoon. Apologies for the minutiae of this question, but it's pretty important. Your dividend policy, you know, we're back to paying dividends and I think with the ruling on February 7th, kind of all handcuffs are off. You can do with whatever you wanna do with your cash. If we look at the Q3 and the Q4 distribution, based on adjusted earnings, it looks like about an 80% payout ratio. The first thing I wanted to do was, you know, confirm if there is an actual payout policy that we can model to 70%-80% off adjusted earnings. The second part of it is, you know, this depreciation reset that you're doing, where you're adding $59 million in annual depreciation.

That's not cash but it is earnings. Does that mean that the payout would potentially be pegged to cash as opposed to EPS going forward because of this D&A reset?

Let's take the first. There is actually no set payout policy in stone, if you, if that's what you mean. I guess you can use the 80% that we have been paying now for the Q4. That's a good guesstimate.

Mm-hmm.

Inger Klemp (CFO)

Obviously it will be the board that will decide that going forward. With respect to the depreciation policy, I wasn't sure I got your question, could you please repeat?

Jon Chappell (Senior Managing Director)

Yeah, sure. If your payout policy is based off of net income.

Inger Klemp (CFO)

Yeah.

Jon Chappell (Senior Managing Director)

adding $59 million of depreciation.

Inger Klemp (CFO)

Yeah

Jon Chappell (Senior Managing Director)

you know, is pretty meaningful. It's over.

Inger Klemp (CFO)

It means that probably $0.05-$0.06 a quarter in a way. It's not more than that. Hello?

Lars Barstad (CEO)

I think we lost you there, Jon.

Inger Klemp (CFO)

Did we lose you? Okay.

Operator (participant)

Thank you. We're going to take our next question. The next question comes to line of Amit Mehrotra from Deutsche Bank. Your line is open. Please ask your question.

Chris Robertson (Analyst)

Hi, everyone. This is Chris Robertson on for Amit. Thanks for taking our questions.

Inger Klemp (CFO)

Hello.

Lars Barstad (CEO)

Hi, Chris.

Chris Robertson (Analyst)

Hi. Yeah, you spent quite a bit of time here in the presentation talking about the older end of the fleet and I think it's an important question moving forward. In your minds, the owners with vessels over 20 years of age, do you think that they're simply gonna ride out this current cycle and then exit the market? Do you think these owners will engage in fleet replacement ordering at some point in the future? I guess, in other words, how much of the older end of the fleet is likely to get replaced at some point versus simply just going away forever?

Lars Barstad (CEO)

Yeah, that's again, a very good question. I think if you start with the, you know, the older portion of the fleet, we have, you know, two brackets of the fleet. You know, we have the absolute dark fleet the one who have gone completely rogue and trade Venezuelan and Iranian crude. That basically is a fairly large portion of the 20-year plus fleet and they are probably not gonna reinvest in modern tonnage at any point in time. They're probably just gonna ride these assets as long as they float. We have the more kind of mature ships, you know, if you probably, you know, hovering around 17.5 years, which we now tend to call the gray fleet.

You know, a large portion of this fleet is currently being engaged in trading of Russian crude and products. I think the same goes for this fleet as well. I, you know, in the future where hopefully there's peace in Ukraine and the trading patterns normalize, I would envision some of these owners just exiting the market altogether and probably not doing much of a replacement. I think kind of where you're gonna see the replacement activity is with normal compliant shipowners as ourselves as assets come to age. We are in the industry for the long run, meaning that we're actually gonna be here for the next 20 years as well. It's gonna be actors like ourselves that are probably gonna make up the order book at some point.

Again, back to Omar's, you know, question in the beginning here, we need the economics to work to make that financial decision. You could say that we've had inflation on asset prices. We have inflation on wages. You know, actually, certain countries struggle to even get workers into the yards. What we really need now is inflation on rates because the rates are simply not high enough to defend that investment at this point.

Chris Robertson (Analyst)

Okay. That leads into an important follow-up question, I think. You mentioned the yards here and the labor shortages. My understanding, and correct me if I'm wrong is that the limitations on shipbuilding capacity at the moment is more to do with the lack of specialized labor than it has to do with a lack of infrastructure. In your mind, what, I guess what is the likelihood that certain governments either engage in stimulus or try to revitalize their shipbuilding industries or try to incentivize training of laborers that could help kind of offset that in the future?

Lars Barstad (CEO)

I think that's very likely, and particularly in China who is, you know, net short hydrocarbons in general. They have a huge incentive kind of from a government side to try and revitalize or re- you know, the shipbuilding industry. We're actually already seeing that a couple of yards in China that are kind of getting back online again to obviously to a modest degree at this stage. If you look at orders that can be placed in 2025, these are predominantly Chinese yards. For Japan, it's a structural issue. I just learned that the average age of a Japanese shipyard worker is 67 years.

I'm only 52 myself, but I wonder, you know, how much steel you wanna cut when you reach 60. Korea, you know, extremely efficient high technology. They actually have a higher margin building LNG carriers or VLGCs or even container ships. It's, you know, it's a difficult. I can't really give you a straight answer, just the color I just gave.

Chris Robertson (Analyst)

No, that's really interesting color. Thanks for that, Lars. I'll turn it over.

Operator (participant)

Thank you. Now we're going to take our next question. The next question comes to line of Gregory Lewis from BTIG. Your line is open. Please ask your question.

Greg Lewis (Managing Director)

Hey, thank you, and good afternoon and good morning, everybody. Lars, you know, I was hoping you could talk a little bit about the market and really, you know, I guess some of the questions that we've been having and we've been hearing from investors is, you know, the VLCC market is strong. Really some of that strength in the market more recently has come in the face of, you know, really lower crude exports out of the Middle East, i.e., Saudi Arabia, and we can appreciate that China is absolutely importing more crude oil.

In, you know, I guess we're kind of wondering is there a little bit of a zero-sum game in there, where if China's importing more, it just means another Asian producer or Asian consumer is consuming less? Really, you know, just kind a any color you have around the strength in the market despite OPEC slowly ratcheting down production.

Lars Barstad (CEO)

Of course, Greg. Basically what we witnessed during 2022 was, obviously, it was the smaller segments that started to perform, you know, in the MR segment first, then LR1s, then LR2s. LR2s that were trading dirty were cleaned up to trade products. That pushed kind of Aframax demand up. Then the Suezmax started to have a field day on Aframax stems, and the VLCC started trading Suezmax stems. You are right in a way that a lot of the demand for VLCCs currently is actually what you typically would call a Suezmax trade. US Gulf to UK-Continent, we've seen a large activity and high amount of fixtures where VLCCs are actually stepping in.

We also saw it briefly in Q1, as soon as the West African market for VLCC started to become a bit shaky. The VLCCs were quickly to cap the Suezmax earnings. To try and make sense of it, I think the situation around oil being redirected from Russia to, you know, from going to Europe, being redirected to Middle East and Asia, you're basically seeing both Aframaxes and Suezmaxes getting drawn into that trade, limiting the amount of natural ships in those markets, in the compliant markets. That has given the VLCCs opportunities to enter that market and, you know, basically have good returns in that market too. It is a bit of, you know, the various asset classes eating into each other's business segments.

You're right in saying that for pure kind of traditional VLCC trade, there probably isn't enough oil to engage the fleet fully at this point. You know, it's, this is gonna move, back and forth in cycles, I believe, as we proceed. I think it was quite encouraging to see where everything bottomed out in the Q1, where we're still very solidly north of at least our cash break evens when the markets turn.

Greg Lewis (Managing Director)

Okay, great. No, that's super helpful. Then, you know, another question that I think people are wondering around and I know there's not a, an easy answer here, is around the dark fleet. I mean, clearly everywhere you read, you know, I guess sanctioned cargoes are still moving. You know, I guess I'll ask it this way. Do we have any sense for how many vessels, you know, obviously excluding the Russian, you know, the Russian-flagged fleet or the Russian-owned fleet, you know, could potentially be in that market? Really, as vessels are in that market.

Is there any way to kind a gauge what the utilization of those vessels would be in, say, if I'm trading in, I guess, a dark fleet? I'm assuming that's less efficient, but, you know, kind a any color you have around there, I think would be helpful.

Lars Barstad (CEO)

Yeah. Regretfully, it's gonna be a bit of guesswork.

Greg Lewis (Managing Director)

Your guesses are better than mine.

Lars Barstad (CEO)

Well, first I'd like to say that just with the gray fleet and the fleet trading on Russia, that is, you know, still a good quality fleet, you know, trading in accordance with the IMO rules, well-maintained ships and so forth, although they may be a bit challenged by age. I would kind of leave that at the side. On the dark fleet, I've seen estimations of 5%-6% of the VLCC and Suezmax fleet being engaged in that trade. If you look at the efficiency, if you call a compliant modern VLCC a 100 percenter, I would say these ships are probably a 30 percenter.

You know, we've previously modeled the overall VLCC fleet in that manner, where we would say that a over 20-year vessel that has an owner you've never ever heard of, you would attach a 30% efficiency to that ship, compared to, say, a dark fleet-- sorry, gray fleet Russian trader will probably only get 50%-60% efficiency out of the ship, basically due to the limitations in the compliant markets, a ship with Russian history has. Thirdly, the modern, compliant normal VLCCs that we own will then be 100%. If you do that exercise, you would even see how the fleet growth is, or rather the fleet is not growing anymore. It's actually the capacity to freight oil globally is being reduced as we go forward.

On the dark fleet, the ones trading illicit barrels, I don't think that fleet is growing as much as it did for the last couple of years. That is obviously good, but it's also scary as it is growing older. Mind you these are ships that are not being properly maintained, so we're probably getting closer to environmental disaster at some point here.

Greg Lewis (Managing Director)

Okay. Well, hey, thank you very much for the time and have a great rest of the day.

Lars Barstad (CEO)

Thank you.

Operator (participant)

Thank you. Dear Mr. Jon Chappell from Evercore, if you have any further question, please kindly press star one one. We're going to open the next line. The questions come from line of Jon Chappell from Evercore. Your line is open. Please ask your questions.

Jon Chappell (Senior Managing Director)

Thank you. Sorry, I don't know what happened there.

Lars Barstad (CEO)

Yeah, we lost you.

Inger Klemp (CFO)

Lost you.

Jon Chappell (Senior Managing Director)

Yeah, it's probably my fault. Just to revisit that topic again, and I'm sorry, and I know it's only $0.07 a share, but I just wanted to know, like, with the depreciation going up so much, it's gonna have an impact on earnings. You know, Frontline's historically been a dividend payer based off of net income. I was just wondering if that may shift to from free cash flow, given the fact that the depreciation's changing by so much.

Inger Klemp (CFO)

No. As I'm going back to why we have done this then, I mean, what we have done in a way is to just to reassess the useful life of our vessels.

Jon Chappell (Senior Managing Director)

Mm-hmm.

Inger Klemp (CFO)

we believe in a way that 20 years is a more realistic estimate of useful life than 25 years is. That is why we have done this change. If you look at many of our peers they already have 20 years. This is not only us in a way, it's a kind of common thing. What I've said with respect to numberings, if you just divide it by Q4, you obviously get to that the number using a payout policy of 80% would be about $0.05 per share. That's what you're talking about.

Jon Chappell (Senior Managing Director)

Thank you. You paid down $60 million of the Hemen facility.

Inger Klemp (CFO)

Yeah.

Jon Chappell (Senior Managing Director)

I think there's some, you know, use of proceeds from those vessel sales. With the cash that you're generating illustratively based off of this year, do you foresee a more aggressive pay down of debt and especially the Hemen facility just with cash from operations? Or do you think you need to sell more older tonnage to kind of accelerate that deleveraging?

Inger Klemp (CFO)

We have not made any specific plans of further repayment of the Hemen facility or the Stena facility, which is actually, it's called. It matures in May 2024, and that's it in a way. Yeah.

Jon Chappell (Senior Managing Director)

Okay. Well, thanks for letting me back in. Have a great day, guys.

Lars Barstad (CEO)

Thank you.

Operator (participant)

Thank you. Now we're going to take our next question. The next question comes to line of Amit Mehrotra from Deutsche Bank. Your line is open. Please ask your question.

Chris Robertson (Analyst)

Hi, this is Chris Robertson again. I'm just gonna try to sneak in one last question here as it relates to Chinese demand. You know, there's been an impressive demand recovery so far. I guess, how much further do you think this can go just based on post-COVID recovery? Then in the coming years with the new refinery additions that are being added, where do you think that overall Chinese import demand can shake out over the coming 12 months?

Lars Barstad (CEO)

I'm not that sharp as an oil analyst, I must admit. We have seen China act quite aggressively in periods where they feel that the oil price is discounted, and they're preparing kind of for increased demand, domestic demand. I believe the highest we've seen from China is around 13 million barrels per day of imports in a sustained period of time. It's difficult to say. What I'm fearing a little bit is that I did allude to some of the oil production growth or oil export growth that we've seen, and we're back to pre-COVID levels. China is not back to pre-COVID levels in terms of domestic demand.

They actually have a very big and high-consuming airline market internally in China. As we kind of go towards the summer where Europe is gonna recover, we're gonna go on holiday too, so are the Americans, so are the Chinese. I think that's gonna be quite exciting considering the fact that the oil production levels are not really higher than what we had, and we're missing a couple of years of, you know, normal demand growth, which historically at least has been between 1% and 2% per year.

I do subscribe to those that are quite bullish oil prices in the second half of the year, and I'm a bit worried about, you know, how the supply and demand picture is gonna look on oil once it's fully up and running again. Obviously OPEC has spare capacity, they can still supply China with more barrels. Yeah, I'm looking forward to see how that story evolves. We also need to keep in mind here that although China has imported a lot of volume, they're also exporting a significant amount of products. That will obviously stop when domestic demand catches up. Yeah, it's gonna be interesting one.

Chris Robertson (Analyst)

Yeah, definitely very interesting. Thank you for that. That's it for me.

Operator (participant)

Thank you.

Lars Barstad (CEO)

Thank you, Chris.

Operator (participant)

There are no further questions at this time. I would like now to hand the conference over to our speaker, Mr. Lars Barstad, for closing remarks.

Lars Barstad (CEO)

Yeah. Thank you very much for again, for dialing in and listening to our Q4 presentation. Frontline Management is always available should you have further questions over the coming weeks. I would like to obviously thank the Frontline organization for a fantastic result and a fantastic quarter. Thank you.

Operator (participant)

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