Frontline Plc (FRO) 2003 Q2 法說會逐字稿

This is Tom Jebsen from Frontline. Welcome to our second quarter 2003 results presentation. With me I have Ola Lorentzon, CEO of Frontline Management. I will go through the presentation of ours, which you should be able to download from our Website. I assume a number of you have also received a notification through the Hoogin (ph) e-mail system.

If we move onto Slide Number three -- the fleet. As I will discuss over the next few slides, we have done some smaller reshufflings of joint venture ownerships on our VLCCs. And based on that at the quarter end, we had 39 VLCCs including now eight as joint ventures. In addition to that, there's been a sale, which is actually going through this week of two Suezmaxes to our partner, OMI, brining the total number of Suezmaxes down to 19 from 21 previously.

If we move onto Slide Number four, we had a number of events during the second quarter. In early June, we paid out a $1 dividend for basis (ph) the earnings that we had in the first quarter this year. Then in late June, we did a number of announcements. The first one was that we were selling the two Suezmaxes Front Sun and Front Sky for $49.25 million each to OMI. And those vessels are, as I said, are being delivered to OMI this week.

Also, we announced that two other Suezmaxes, Front Symphony and Front Melody, were sold to German K/Gs. That happened in that June, and chartered back on 12.5 years time chart arrangements. We're accounting for those as capital leases.

Then, we also announced that the call option that Frontline has, or had, on the 3,070,000 Frontline shares held by Bank of Nova Scotia, was exercised. Those shares were acquired at the share price of $8.98 per share. The price Frontline shares were trading at the time, in excess of $16, leaving us with a profit on the transaction in the second quarter of $17 million. I will get back to that when we discuss financial items.

Then, the next thing was that we acquired 50 percent of the vessel -- let's say of the ownership of the vessel, Nuse (ph) Cassia (ph), which was controlled by some British investors, making the Company, or the vessel, wholly-owned to us from June 30th this year.

Then, as a consequence of all of those transactions, well actually the sale -- the outright sale -- and the sale leasebacks -- we also announced that we would pay an extraordinary dividend of $1 per share. That dividend was paid out early July. And from an accounting point of view, that left us with $73 million of extra short-term debt as of balance sheet date (ph). But obviously, that's cleaned up the week after let's say the balance sheet date.

Finally, we also announced in this press release, in late June, that we had reached an agreement with our partners, Euronav and OSG, to swap interest in six joint ventures. The effect of this was that we sold out of two vessels and increased our stakes in the four remaining, so that we now control 50.1 percent in four modern VLCCs.

Move onto Slide Five -- there you see the age demographics of the VLCCs and Suezmax fleets. That's the world's fleet. And it's been a pretty dramatic change over the last three months. A number of older VLCCs have been scrapped and also a number have been added -- excuse me -- taken out of the statistics due to the fact that they had become storage facilities instead. The total number has decreased from our first quarter presentation, when we had quarter 440 vessels down to the current 420 vessels. On Suezmaxes, there's really only been minor changes; nothing comparable to the VLCCs stuff.

In addition to that, you see the order book, which currently stands for the VLCCs at 72 vessels, which compares to only 22 vessels left to be scrapped, that is vessels built in 1980 and earlier. That leaves us with pretty large overhang. On the other hand, again, there's been scrapping and let's say conversion through storage facilities has taken effect before the new builds are coming in. So as we see it, yes, there will be an increase in the fleet size over the next few years. That's actually taking place in 2005. But, again, really, if you assume a reasonable growth in the world economy, and that supplying out of the Middle East Gulf would have to increase, then that increase and the size of the fleet indicated in 2005 really shouldn't be dramatic. You know, one million barrels of oil extra shipped out of Middle East Gulf ties up something like 25 VLCCs.

If we move onto Slides Six, here we show you the trends in the tanker values. As you can see, the secondhand versus new building rate show -- that's the green line -- has increased all the way up to 90 percent now. That is the price of a five-year-old vessel, which, based on new building parity line, should be 80 percent, currently carries a premium compared to the price of a new building VLCC. We haven't doctored (ph) in the data for a 10-year-old single-hull here. But for those vessels, it's quite different status.

A 10-year-old VLCC, we anticipate, would touch something like $31 million. And if you were to -- and that would actually be approximately 46 percent of the current new building price for VLCC. While, based on new building parity, it should be 60 percent. So, what's happening in the market is, old vessels are being, let's say, underpriced compared to new building parity. And based on that, we consider them to be decent cash cows in the current environment. While on the other hand, modern second-hands are turning into being fairly expensive compared to new building prices.

Move on to Slide Seven -- the macro-trend -- I've touched on a few of these already. But, basically, we believe that we are going to see -- continue to see substantial volatility in the market -- two reasons for this. First of all, despite the poor rates that we currently experience, which have been the case over the last two to four weeks, we still believe that the balance is pretty close to -- let's call it the flex point -- which means that you don't really need very much more, let's say, very much of an increase in demand from oil traders before we will see substantial increases in time chart earnings.

In addition to that, we're moving into the winter season, and based on the way OPEC -- OPEC strategy has been conducted over the last few years, they have tailored their production levels so that they follow fairly closely the, let's say, the world's demand in the different seasons. And therefore, we currently have low storage levels. And, everybody should anticipate that OPEC will increase their production levels, and thereby, you'll see an increased trade of oil bought (ph) by sea (ph).

Then, of course, we also have a number of political wild cards, which nobody thought of -- hardly anybody thought of -- twelve months ago. But Venezuela is still struggling to bring up their production to, let's say, past 80 percent of the old production level. Nigeria has their problems, as everybody knows about. And of course, you always have the problems in Iraq.

I would like to mention when it comes to Iraq, we tend to believe that if Iraq oil production increases, it's very likely that OPEC will accommodate that production increase by cutting their quotas. And since we believe that the quotas will be cut across the board, that means that countries that are close to the consuming markets like Algeria, Lybia, Venezuela and Nigeria -- excuse me, also Indonesia -- will be taking their share of any reduction amongst the OPEC ten. And therefore, you will also see that there will be reductions on, let's say short to hull (ph) trade; and it will not only, let's say, damage the VLTCs (ph ) trades. And based on that, we think that any increase in Iraq's production will not necessarily hurt the VLCCs and Suezmax trades very much.

Another important trend is really what is going to happen with the IMO rules. As you surely usually all know, the E.U. has put tremendous pressure on IMO to get them to bring forward the final trading dates of single hull tankers. For pump lines vessels -- single hull vessels -- that has so far implied that IMO rules would phase out those vessels in 2015. And for double side vessels, it would be 2017. And our depreciation schedules have been tailored accordingly.

If the E.U. succeeds in bringing -- let's say getting IMO to accept bringing those dates forward, that will, of course, have an impact on the market, in the sense that it will force a faster phase out of single hulls. But it will also, of course, have an impact on, let's say, Frontline's results in the sense that we will have increased depreciation. On the other hand, it's reasonable to expect that earnings for all of our vessels would increase in the meantime.

If we move onto Slide Eight, estimated oil demand supply -- basically, just showing that these are finally -- fine-tuned. Actually, the International Energy Agency came out with their prognosis, updated prognosis, yesterday. And they basically have done what they've been doing over the last few months, increasing their estimated demand levels once again. We're going onto use on the next few slides here are similar estimates done by J.P. Morgan.

If we move on to Slide Nine, you can basically see how the oil production is supplied from non-OPEC countries. And, as you can almost at the bottom there, there's hardly any changes over the last four years. It's been very steady around 34.0 million barrels per day.

On Slide Ten, you can see what's been happening in the former Soviet Union countries. We've seen very strong increases over the last three or four years -- approximately 6 or 700,000 barrels of increase per year. And of course, this has been one of the things constraining OPEC's production. On Slide Ten, you can see how OPEC's production levels have fared over the last twelve years. And obviously, in the middle of the graph, you can see how they've changed their strategy from having steady production levels throughout the first half of the mid-1990s, and changing it into very much of a seasonal or cyclical play. They are trying to tailor their production levels to accommodate actual demand and also bring down inventory levels.

If we move onto Slide Twelve, you can see production levels on the left-hand side in the former Soviet Union. And again, the red line shows that the inland consumption has been very stable over the last six, seven years. I guess a little bit surprising, considering the strong growth that they have in Russia. But I can only assume that one possible explanation is that they are upgrading, you know, the car parts; they are upgrading lots of factories to, let's say, use more energy-efficient machinery, etc.

On the right-hand side, you can see the North Sea oil production. This is definitely an advantage to us to see that the North Sea oil production has come down by approximately a half a million barrels over the last three or four years. We anticipate this to continue. Basically, the North Sea is done with the major oilfields. And that means that highly depleting major oilfields will have to be replaced by satellite oilfields. And nobody should expect that England and Norway should be able to keep up their production levels based on that scenario.

And, looking at Slide 13, you see spot market volumes out of the Black Sea and the Baltic. If you look on the left-hand side, you see the Black Sea listings. And just over the last year, the combined lifting by Suezmaxes and Appamaxes (ph) has been increased over the last twelve months -- has been more than half a million barrels per day. So obviously, there's a strong demand increase coming out of the Black Sea.

On the right-hand side, you see similar figures for the Baltic, where we haven't experienced that dramatic of an increase. But still, it's also showing positive signs there.

Slide 14 and also Slide 15 handle the oil inventories for OSD (ph), U.S., Europe and Asia. And as you can see on those slides, while inventories have been increasing in April and May, it is really surprising to see how little they have increased. And for that matter, looking at the statistics were applied or supplied for June and July, there's hardly any increases in those areas too. So it looks like, despite the fact that OPEC supposedly has been producing way in excess of Colin (ph) OPEC during the second quarter, it seems that we -- inventory levels haven't increased really that much, and that leaves us with the question whether the world actually is consuming more energy than what most analysts seem to anticipate.

If we move on to Slide 16, that really, here we show you, in the middle, J.P. Morgan's estimate of Colin OPEC and compare that with International Energy Agency and the U.S. Department of Energy. And interestingly enough, the IEA, yesterday, increased the fourth quarter estimate from 25.5 million which we have indicated, up to 26.2 million barrels, which is an unbelievably large increase, as I see it. And of course, that increase, the average for 2003, all the way up to 25.8 million barrels.

What you see on all of them is that they basically anticipate the second quarter to be the worst and that it's supposed to increase in the third and fourth quarter. So the outlook seems to be pretty good for us moving into the winter season.

Slide 17 shows you the same for 2004. The agencies basically anticipate approximately 1 percent increase in oil demand in 2004 for the whole world. That is up from approximately 78 million up to 79 million. Again they anticipate that if you, for example, look on Slide 17 -- J.P. Morgan's line -- you see that they are anticipating actually, fairly volatile Colin OPEC. They have been smoothing out the true stockbuild, thereby leading to OPEC crude being fairly stable in all four quarters. We tend to believe that that's a rather conservative assumption. We think that OPEC will be tailoring their production levels much more to inventories. They have to do that to secure full control over the amount -- let's say the price -- of oil.

I jumped past the Slide 18. Slide 19 shows you the correlation between OPEC crude production and DLC spot trades. I guess my only comment to that is that lately, due to the fact that one has been seeing scrapping coming before new building flux (ph), the latest observations have definitely tended to be on the upper side of the regression line.

Slide 20 shows you that natural gas prices in the United States have been holding up very well. Thinking of the fact that we are in August, currently the prices are too low compared to Western Texas (ph) (indiscernible) to lead to any switching. But at the same time, we feel that it's a good sign for us that the price is so high now, because it probably means that when we get into the winter season, yes, then, we will see switching.

The left-hand graph shows you Western Texas intermediate to brent (ph) blend spread. Again, a very healthy margin, which should indicate there's still a strong demand for transatlantic cargoes to the United States and North America.

Moving on to Slide 21. We, here, show you the profit and loss statement. If you look at the second quarter column, we have total earnings -- excuse me -- net operating revenues. That is revenues on time charter equivalent basis of $229 million. We show -- we posted a loss in the quarter of $4 million. That is related to the two joint ventures which we have left during July. But according to U.S. GAAP, since we knew that there was going to be a loss on those, we had to post that loss during the second quarter, when we negotiated the deal. Total expenses -- I will get back to later. EBITDA of $174 million; that's operating income before depreciation; and operating income after depreciation showing $138 million.

Financial items are positive. I repeat, positive, $16 million. The main reason for that is that we made this profit on the Bank of Nova Scotia, Frontline -- excuse me -- the Frontline shares held by Bank of Nova Scotia, which we called on. In addition to that, we also posted other financial items, $13 (ph) million in results of our -- let's say, our share of results in associated companies.

That leaves us with an income before taxes and minority interest of $155 million; EPS for the quarter of $2.04. And again, as I mentioned earlier, we have already paid an extraordinary dividend during the quarter of $1 -- was paid out in early July, actually. And we -- the Board now announced that it will pay out a further dividend of $1.10, payment to be released from Frontline's side on the second of September. Shares would go ex-dividend in New York and Oslo on the first day this week.

Slide 22 gives you the breakdown of our TC (ph) rates. We announced $46,000 for the VLCCs when we released the earnings last week. The split between VLCC spot and VLCC PC and BB is $49,800 for the spot vessels, and $32,600 for the average result for the TC vessels and bareboat (ph) vessels, the latter adjusted on a TC basis. Suezmaxes showing $39,600; and Suezmaxes OBOs showing $35,200.

When it comes to -- so far in the third quarter, we have currently fixed 66 percent of the VLCC fleet for the third quarter. Average earnings, so far, has been in excess of $30,000 per day. The same figures for Suezmaxes are 50 percent has been covered of the third quarter. Average earnings, so far, fixed, is in excess of $23,000 per day.

Moving on to Slide 23 -- ship operating expenses. What we see there is that we have, during the second quarter -- you look at the graph on the left-hand side -- you can see that we basically spend the summer months doing dry dockings. In the second quarter, we've done five of them. Dry docking policy of Frontline is expensed as incurred, which is one of the alternatives under U.S. GAAP. That explains why VLCC operating expenses are slightly on the high side during the second quarter -- $6,400. We dry-docked VLTCs (ph) during the quarter. The remaining two vessels dry-docked were regular Suezmaxes. Also, that sector showing a slightly -- on the high side of operating expense. While there were no dry-dockings amongst the dry boat (ph) or Suezmax OBO vessels.

Total expenses, on Slide 24. Again, the first line, ship operating expenses was handled on the previous slide. Chart to higher expenses at 19 million into the second quarter. Please keep in mind that that includes the four BP (ph) vessels that we took on from the third quarter last year. General administrations, to that (ph) $2.5 million in the second quarter.

Slide 25 shows you financial items. Basically, our comment on the box at the bottom there -- again, you see that share results in associated companies, in the second quarter, in excess of $13, million. Net interest expense -- approximately $14 million, negative. And then other financial items -- positive $18 million. The biggest item being the $17 million gain on the sale of Frontline shares under the BNS facility mentioned earlier.

Moving on to Slide 26, the balance sheet. We have $245 million in cash at the end of the quarter. And also the working capital element of current assets is a healthy $159 million.

New buildings -- $35 million, Front Hock (ph), which is mentioned in the box there, was delivered in early July -- excuse me -- mid-July. And it is now -- will no longer be shown on that line from the next quarter on.

Moving on to Slide 27. Just to -- obviously, since we declared a dividend, and that's going to be paid out -- or was paid out in early July -- we end up with a situation where the net working capital, excluding cash, looks rather ugly or (indiscernible) -- that's the lowest line. But the point is really on the seventh of July, when we paid out -- excuse me -- the $73 million. Then, that net working capital, all of a sudden, looks much more healthy again, bumping up to in excess of $100 million. And, of course, the same thing happens in a negative way with the cash line, which then comes down from almost $250 million down to approximately $160 million.

Slide 28 -- associated companies -- I basically include this in our presentations to help analysts doing NAV (ph) analysis, if they want to. As you can see, we currently had, as our share of debt in these ten companies -- $132 million. Of this debt, $30 million was Yen-denominated. Since the end of the quarter, we sold our interest in Pacific Lagoon, reducing Yen debt by approximately $26 million.

Average income on the joint ventures was, incidentally, slightly higher than our own reported spot rates -- in excess of $51 million -- excuse me -- $51,000 per day.

Slide 29 -- balance sheet liabilities. What you see here is that we got a short-term interest-bearing debt of $156 million. In addition to that, under other current liabilities, there's approximately $17 million of short-term interest-bearing debt related to capital leases. So total debt due over the next twelve months is approximately $174 million. That compares to our depreciation rate, which currently, is -- or at quarter-end, was approximately $142 million.

Yeah, I would just like to mention, in the box on the left, the second to the last figure -- deferred gain on sale to K/Gs -- when we sold the Melody and Symphony to German K/Gs at the end of June, we did have a gain of $7 million. According to U.S. GAAP, that is not to be accounted for as a gain on the P&L, but is to be booked as a liability under -- or in the balance sheet, and taken as an expense over the next -- over the charter period. So any effect that deferred gain on the sale of K/Gs is really, as I see it, almost characterize it as debt to shareholders because it really is not a liability to anybody except for ourselves.

Slide 30. Here, we give you a breakdown of our debt structure. As you could see, we have, at quarter-end, $187 million in Yen-denominated debt. After having sold out the Pacific Lagoon, that debt is reduced to approximately 160. We have floating debt totaling $1.25 billion. And in total, all of our debt, including capital leases, is $1.8 billion. On top of that comes our commitments due to operational lease vessels. And they are handled on the next slide -- Slide 31, where we just give you the names of those off-balance sheet -- or operation lease vessels.

Slide 32 -- remaining new building commitments. This is the last time you're seeing this slide, gentlemen and ladies. We took the liberty of (indiscernible) in mid-July and since then, there's basically no, let's say, capital commitments, except for regular operational commitments in Frontline.

Slide 33 shows you the statement of cash flow. I would just like to mention that some of the figures may look -- or are -- in essence, grossed up. For example, when we sold Front Melody and Symphony, the accounting is that we sold the vessels, and then we -- since the vessels are taken back on financial lease -- they are taken back again, or purchased again. And, the same goes, really, for debt. The debt is paid down and then new debt is taken up. And the same goes also for new SeCassia (ph), with the vessel which we increased our holding in from 50 percent to 100 percent, since the vessel was accounted for under the equity method beforehand. Now, all of a sudden, we're taking in a vessel bought at some $60 million, with debt to (ph) $52 million. And, of course, that leads to some rather large numbers in the second quarter column.

Slide 34 -- break-in rates. Healthy rate, still -- $20,500 for cash breakeven for VLCs. And, low 14,000s and 13,000s for Suezmax and Suezmax OBOs, respectively.

Slide 35 and Slide 36 shows you, basically, our current break even levels compared to the historical average and spot rates over the last 13 years.

That is really all I intended to present to you. In addition to that, I'd just like to mention that we are working on, let's say, doing changes in our balance sheet structure. Due to the fact that we no longer have any capital commitments in the form of new building orders, we are in a position where we can dividend most of our excess cash out to the shareholders. We have told the market that we intend to have approximately $200 million going into a bad, or down cycle. But except for that, to the extent that we can gear up our portfolio of vessels, we think it's an appropriate thing to do. Debt is cheap; and shareholders should probably need -- or probably agree that it's better than we pay out excess cash instead of sitting on the money -- earning 1 percent interest on it.

So, that was all I had to say. Operator, could you be so kind to open for us the question and answer session, and just tell them how to do that?

Walter Lovito (ph) from Passport Capital.

Good morning, Tom.

Hello, Walter. (indiscernible) in San Francisco?

Right and funny. A couple of questions, if I may. It seems, first of all, you had some asset sales. Are those ongoing? I guess you also mentioned that sort of more recent second-hand vessels are relatively expensive. So is that something that you're taking -- you are going to continue taking advantage of to raise cash and pay out to shareholders?

I will let Ola Lorentzon answer that one, okay?

We've done it. That's an indication that that's something we're prepared to do. Whether we do more deals or not is really related to what prices we can fetch, and if we can find an interested buyer that we can agree with.

Is the market still there? Are there buyers out there? I mean, is this a question of --

It might be. But it's a little bit less active now since the current spot trades are quite lower than they were a while ago. So that usually makes people more cautious.

Okay. What is your plan with the OMI shares that you'll receive?

I guess we have (indiscernible) settled them or keep them. We haven't really taken any final decision on them. We may (indiscernible) some or keep some or just settle them. I don't think the Board has actually finally decided what their position on that one is.

The other question on the cash on the balance sheet -- that does not include the cash from the OMI sales -- is that right?

No, it doesn't. It's only happening today and tomorrow.

Okay. The other question I had was -- it seems that you've already fixed a fairly high amount of third quarter a days (ph). Is that more than normal, or --

I think it's fairly normal. You know the first day of the quarter, we have already fixed quite some percents of the way it works and the way we account for fixtures. So, I think we're fairly normal. At this time of the quarter, we should the around this number -- yeah. Nothing abnormal.

One final question. What's -- after Q3, and the final vessel -- what's going to be the quarterly debt repayment schedule?

It's about 37 -- 38 million per quarter.

(indiscernible) with (indiscernible) Investments.

Good afternoon. I'm a colleague of Peter Teister (ph), which I believe you have met -- he's away. Just a couple of questions. The first is on giving back the capital to shareholders, in terms of asset sales and leaseback. What amount of money do you think we can pencil in for the next year or two?

I don't think you can actually make in the -- we haven't really done any such assessments. And I don't think we are, you know, intentionally at the launch (indiscernible) reducing the fleet to pay back to shareholders. It may be more likely related to refinancing, as Tom mentioned earlier -- if we can refinance on such terms that it increases the cash position of the company through sales and leasebacks, etc., where we keep the ships. That's the more likely way. And that will (indiscernible), depending on the market condition allowing (ph).

So I don't think you can really assume very much more than the -- what was in the new dividend policy statement, that we'll endeavor to dividend out 25 percent -- 25 cents per share per quarter as a sort of a normalized dividend. And, if we, you know, market allowing, strong market or transactions -- financial transactions -- allowing, then we dividend out more. But we have no predictions to give you on that.

Okay. Good. The second question is a more general question. Can you tell us, in terms of legislation changes on safety of the boards and on obligation of having double hull and things like that, where do we stand at the moment? And what are the next things that you expect to happen? And what kind of timetable one can think?

Well, I guess you -- you can say the European Union legislation is already in place. It has to be formalized in certain aspects to be actually applicable somewhere in the autumn (ph). And that provides for single hull tankers as being barred (ph) -- of our sizes; I should qualify that, because smaller ships may have different rules of the sizes we manage and own. At 2010, they will not be around to trade with the European flag or into Europe. The European Union bought this (ph) or is trying to (indiscernible) the IMO, to adopt similar rules.

And of course, there is a will in IMO to have uniform (indiscernible) all over the world. But my understanding is that there a number of countries who oppose the way that the Europeans have legislated on this, because it becomes really a problem for the industry and the uses of the vessels to remove so many ships in one year, and some of them will be quite young. So it's a bit of a problem. So a number of nations have objected in IMO. Having said that, the IMO is probably going to a meeting to discuss and maybe take decisions on this late in this year.

Apart from that, the Europeans have also decided that certain heavier grades of oil cannot be carried in single hulls for the future. That's really what we know right now.

Okay. And the last question -- I see on Slide Three of your presentation, I believe it is, where you say that you have 71 percent of double-hull tonnage in your fleet. What is the plan for the 29 percent, which is single-hull?

I think, in principal, where we stand right now, we keep them.

You keep them?

Yeah. As Tom said, the relative pricing of the single-hull is already reflecting the, you know, the limitations to its trading after 2010. There's a big discount compared to age of the single-hull vessels. So we expect that, for the time being, and for the near foreseeable future, they will need to be used, you know. Because, you know, the double-hull fleet cannot handle the world's transportation alone. So we expect they will be employed; and, you know, they will be cheaper ships than the double-hull ships, so they will be cash cows for the year. You know, at least the year or foreseeable future.

And then lastly, what kind of capacity utilization you're running at the moment in the third quarter? And what you expect to be in the fourth quarter? Give your time table --

I'm not sure I can answer that question. You know, the way we account for ships every day, in every quarter, is accounted for. So -- but, of course, having said that, ships do not necessarily trade 100 percent. But they do wait for cargo for scheduling reasons or because there is no cargo available where the ship is at the time it's ready to load cargo. So, on average, I would say, you know, the utilization -- you know, the waiting time on a fleet like ours is somewhere between five and ten percent, over time; sometimes, as you know, in certain -- in very bad market, it can be more. In a very strong market, it can be less. So, it's about -- you can calculate something like 8, 10 percent -- 5 to 10 percent (indiscernible). But it varies from quarter-to-quarter with the market.

Last thing is if -- (multiple speakers)

The TCE (ph) rates -- they are on all the waiting days are already in those rates.

Indeed. Can you add a little bit of color on how the market is developing and how prices have developed, and what your view is? (multiple speakers)

Right now, we believe the market (indiscernible) is quite weak right now. And the activity is not very low but lower than normal. (multiple speakers) Then again, the number of ships arriving in the next month or so in the Arabian Gulf is not overwhelming high compared to normal; it's rather on the low side. So we expect activity to pick up in the third quarter. And we are rather optimistic about the winter. Because that is -- as Tom showed you on the slides, there are now 420 vessels -- the LCC-type vessels around. And the few ones left that are single-hull from the 380 (ph) builds are difficult to employ.

So really the fleet is (indiscernible) now than it's been on average for quite a number of years. And if we have a move towards more oil production in the last quarter and the first quarter next year, the fleet has already shrunk in size. So, we believe we can have a very good winter market. Having said that, you know, we are not comparing it with this year's winter market, which was exceptionally good. But we believe we will have a pick-up in a good market.

Walter Lovito from Passport Capital.

I have a follow-on. On your time chart, (indiscernible) business. What's the average length of those contracts?

I don't have that figure. Do you have the figure on that, Tom? Yeah, three or four. They were originally something like ten down to five years, and some years have gone. Most of them are related you know to the Golden Ocean acquisition. And there is probably something like three to four left on average.

Okay. Tom, another question -- on the current accounts, you have a graph (indiscernible) have voyages in progress of about 105 million. Is that sort of a higher than normal number? If rates were to trend back to long-term average, would we expect to see that number closer to 50 million?

Yes, that's absolutely correct. You know, rates were strong all the way up to the end of June. And then it plummeted. So, it's basically -- every vessel that was fixed and every vessel that was sailing at the time, based on a much higher voyage chart rate, would thereby post strong voyage in progress figures. So, you're absolutely right.

I could see that as 50 million of cash waiting to kind of -- excess cash waiting to come in?

Absolutely correct.

Thank you, very much.

It looks like we're getting music here now. Operator, anything more?... (music playing)... operator?... okay -- I don't know if anybody can hear me. I definitely can't hear anybody.

I can hear. Maybe we have a direct line now.

I guess. Well, in case somebody else is listening, I just want to thank you for listening in. And talk to -- anybody can call anytime if they have more questions.

Okay. So we will follow up later in the week, Tom.

Thank you. Bye bye.