Frontline Plc (FRO) 2004 Q4 法說會逐字稿

Welcome to Frontline's fourth-quarter 2004 results. My name is Tom Jebsen; I'm CFO of Frontline management. With me here today I have Oscar Spieler, the CEO of Frontline management. I will leave a word for Oscar for a few minutes before I go on to the financial results.

Good morning, everybody. This is Oscar Spieler speaking, and welcome to the fourth-quarter results presentation for 2004. 2004 has been a fantastic year with historical high freight weights and a dramatic increase in second values. The fundamentals have been strong, and they look strong for the next years to come.

The organization is working hard, and we are constantly trying to improve our chartering policies, speed, waiting time, strategy, maintenance, etc. The Sarbanes-Oxley process has put extra pressure on the organization. The organization have been through a hectic year, and we are therefore happy and very proud to record a record high net income of US$1 billion for the year 2004.

Now we go to slide number 2. Our fleet consists of 34 VLCCs, 1 J/V, and 2 newbuildings, 24 Suezmaxes, and 8 OBOs. In addition we have also purchased 2 Panamaxes, newbuildings, for delivery to Golden Ocean later this quarter.

Going to slide number 3. Today we will go through the main events for Q4 and Q1 for 2005. We will go through the dividends and corporate financial status; and finally we will do the market update, and then we go for questions. So then I'll leave the work to Tom Jebsen.

Thank you, Oscar. We move on to slide 4 and as you'll see there's been lots of action going on over the last 3 to 5 months. We started off with paying a dividend of $2.50 per share in December, which we relate to the third-quarter 2004 announcement. We have spun off parts of Frontline's Ship Finance holding to Frontline shareholders in December and January, respectively, in the amount of 13 and 25 percent. Then in October, November we acquired 2 Suezmaxes, the Marble and New Horizon. In connection with the Marble acquisition we also issued 300,000 shares in Frontline at the time, with an issuance price of 352 kroner per share.

We have also as discussed in previous quarter's press release exercised purchase options on 3 German K/Gs. At this time we have taken delivery of the first 2; that's Front Century and Front Champion. Those vessels were immediately sold on to Ship Finance en bloc for $196 million, giving us a liquidity boost of $54 million. Vessels have then been chartered back to Frontline for 199 and 204 months, respectively; that is approximately 18, 19 years. The base charter rates for those 2 vessels start out at 31,300 and 31,500, respectively, reducing down to $28,000 per day late in the chartering period.

We have a third vessel, Golden Victory, which we anticipate to take delivery of next week. We expect to put up a similar structure with Ship Finance on that one also.

The next bullet shows you that we sold the Golden Fountain in October. The vessel was delivered to the new owner in December. In the fourth quarter results we have booked a gain of close to $20 million due to that sale. We have also chartered out 2 vessels, the '91 built single-hulled VLCCs, which have been chartered out to a subsidiary of Titan Petrochemicals, which is a Hong Kong Stock Exchange listed company. The period is basically from November last year for the remaining life of the vessels. That is until IMO's single-hull comes into effect in 2010. Charter rate is to set at $35,000 per day, with a 50-50 profit split on Titan's earnings in excess of $37,500 per day.

We also rolled over the charter contracts we had with 3 of our OBOs. All of them were done for new 3-year periods. The first 2 were done at $37,000 per day for 3 years; and the third one was done at $61,000 per day plus, for the first year, and then $31,000 per day for the 2 following years.

Moving on to slide 5. We have also, during November, we started preparation to spin off Golden Ocean Group Limited. On December 1 we announced that we were going to de-merge the dry bulk entity. Effectively this was done and more or less completed by mid December when the new company was listed on the Oslo Stock Exchange. This was a small company, and we felt that we couldn't afford to list the company in the United States. The cost of handling the SEC, the New York Stock Exchange, U.S. GAAP auditors, etc., would be prohibitive for the company. So effectively we decided only to list in Oslo. Also we had to discriminate in the sense that, while Europeans and large U.S. institutional investors could choose between getting a cash refund or taking Golden Ocean shares, smaller U.S. investors had to take a cash contribution. That was effectively set at 60 cents per Golden Ocean share; or in the case per Frontline share, since there were 3 Golden Ocean shares per Frontline share, effectively that was a dividend in kind of $1.80 per Frontline share.

Oscar mention that we purchased 2 Panamax newbuildings in December. That was effectively done as part of the spin-off of Golden Ocean to make it attractive and thereby created value for Frontline's shareholders. As Oscar mentioned the intention is that Golden Ocean will strike its option sometime during the first half of 2005; and thereby that the Panamaxes will leave Frontline's balance sheet so to say. We have also together with Ship Finance sold a Suezmax double-hulled Front Fighter in January this year for delivery next month.

Finally I assume that most of you have already made a note that we filed yesterday with the SEC a so-called 13D in which we confirm that Frontline holds more than 5 percent in General Maritime. As of today's date, effectively we're talking about 7.9 percent of Gen Mar's shares are currently held by Frontline.

We did also cancel a contract of affreightment that we have had with British Petroleum for some years in January. This was basically done due to the fact that BP's trading requirements have changed. They used to have longhaul business from the Arabian Gulf to U.S. West Coast, and Arabian Gulf to Singapore, plus Arabian Gulf to the Suez Canal. Basically the last 2 routes have become much less important for British Petroleum over the last year. So effectively there was really no point for us to continue the relationship with them. So we parted to as friends, and hopefully we will be able to do business again, lots of business, with them also in the future.

We have also been struggling for some time with filing what is termed a shelf registration in the United States or a F3. We initiated process with the SEC back in the summer last year. The way that procedure functions is that you actually, every time you have a draft, present a draft for the SEC, that has to be filed in public. So therefore some of you may have had the impression that -- oh, oh, oh -- now Frontline is going to sell off some shares or something, do a stock issuance; or for that matter the main shareholder and Chairman, Mr. Fredriksen, who has also filed his shares available for sale in that registration.

But please be aware that this is the same shelf all the time. It's just new drafts that have been provided to the SEC. And hopefully within short we will be able to announce that the final draft has been approved and thereby become effective.

We have also finished the first year with Ship Finance, and Ship Finance is entitled to a profit split from Frontline of $114.9 million. This is of course taken care of in the accounts. Finally we have been in the process of discussions with Ship Finance to take over 2 VLCCs. Effectively it will be Ship Finance buying the VLs and chartering them back to us. The anticipated time of delivery will be the third quarter of 2005.

Moving on to slide 6, accounting issues. First of all for those of you who do spreadsheets on us, please be aware in the first bullet we, in connection with Ship Finance, at the time a 75 percent subsidiary of Frontline, issued 1.6 million shares in July 2004. At the time we agreed with our auditors that we should post the difference between book value on the shares and the issuance price as a gain for Frontline. This the SEC disagreed with (indiscernible). We have therefore restated this, and effectively that is restated on the third quarter; and it has also been restated in the year to date figures that we present.

The second bullet shows you that when we spin-off Golden Ocean, since this was -- actually the shareholders had an option either to take shares for most of the people and/or cash -- this has been termed a non pro rata spin-off by the Company. Effectively that means that we have to post the spin-off as a gain in our books. In the fourth quarter we booked $99.5 million as a gain.

At the time, at the end of the quarter we had spun off approximately 90 percent of shares in Golden Ocean. So effectively the last 10 percent that we announced spun off, sold, in January will be booked as a gain in the first quarter this year. That's about approximately $12.5 million to be expected.

Frontline's share in Ship Finance is now 25.8 percent. Based on that, Ship Finance will still be consolidated into Frontline's accounts. But as you can see on the next slide, slide 7, we are about to distribute a further 10 percentage points of Frontline's shares in Ship Finance to Frontline's shareholders.

Effective dates are set up in the second bullet. Record date, 11th of March; ex dividend 9th of March; and a distribution is expected to happen around the 24th to 29th of March. The reason the window period on the last date is simply that it's the Easter week when this will happen. In addition to that we will be paying out dividends of $3.50 per share; and the date of distribution for that is the 9th of March.

Moving on to slide 8. We show you the profit and loss statement. As Oscar said, you can see that we made in excess of $1 billion in net income in 2004, up from $409 million in 2003. Just to drag you quickly through a few of the other figures, operating income in the quarter $471 million. After financial items we ended up with income before discontinued operation, tax and minority interest of $441 million.

The Golden Ocean effect is, as you can see the line just above net income, $104 million in total. That's the $99.5 million of gain plus the regular operations of those dry bulk vessels during the year of $4.5 million. So effectively we end up with the fourth quarter net income result being $498 million or $6.66 per share on a full basis and 5.27 per share disregarding noncontinuous or discontinued operations.

Moving on to the next slide, slide 9. You see our recent dividend history. Basically over the last -- since January 1 last year we have paid out as you can see $13.60 per share in cash dividends. On top of that, we've spun off part of the Company. Those parts have a total value at distribution of $16.50; and the value as per today is $18.40. So effectively we have distributed, using today's value on the non-cash proceeds, $32 per share. At January 1, 2004, the share price was approximately $25.50 per share. So it's been a fantastic performance and a fantastic dividend that we've been able to share with you shareholders.

Moving on to slide 10. We show you the income on a time charter basis. As you can see, in the fourth quarter we posted $115,000 per day for VLCC spot and $85,000 per day for Suezmaxes, which is also spot since we don't have any Suezes on time charters.

In this very strong market there's been considerable differences in the performances of singles versus doubles. Basically the main difference is simply due to speed and consumption and loading capacity. If you look at the VLCCs we're talking about spot rates for doubles of approximately 124,000 and for singles at $103,000 per day. The same figures for Suezmaxes are $98,000 per day for doubles and $73,000 per day for singles.

Basically the fourth quarter showed less delays in the Bosporus Strait than what we had seen in the previous 2 winters. On the other hand, the impact on the hurricane season in the Gulf of Mexico and U.S. Gulf had an impact, in the sense that it stirred up prices on crude; and apparently there was lots of psychology out there, people thinking that there would not be enough crude for the winter season, effectively leading to tremendous spike in spot grades in October, November, and up to early December last year. Since then it faded away, but it has been picking up very steadily again early this year.

We've given guidance as far as the first quarter goes. First quarter of 2004, that is 2004, we had $75,000 per day for VLs and $9,000 per day on average for the Suezmaxes. We anticipate to have pretty much similar earnings for the 2 segments also in the first quarter this year. That is, VLs are probably going to outperform last year's figures, while the Suez's may end up a few thousand dollars below that, as we see it today.

Moving on to slide 11. Ship operating expenses, still at a very competitive level as you can see for the whole of 2004. We have 331 off hire days during the year. 11 vessels were drydocked; in addition to that we had some incidents; that is, repairs that had to be done, etc. But all in all, an acceptable level as far as off hire days goes. When it comes to 2005, we anticipate to dock 9 vessels with a total off hire amount of 130 days during the period.

Moving on to slide 12, you see the expense level. I have already taken the first one, ship operating expenses. I should mention that part of the increase that you see in the fourth quarter last year compared to 2003 is due to more vessels being on the fleet list. But also we did have an increase compared to the annual average last year, which was partly due to upgrading of some of the older Suezmaxes that we acquired during the later part of last year.

Charter hire expenses on the other hand is substantially down from 2003, 2004, which is due to the fact that we don't any longer -- excuse me; we only had a COA with BP and not any time charters during 2004. Actually for analysts, you should be aware that the 3 vessels that we're taking over from the K/Gs were all operational leases and were also on that line. So that figure would be going further down going into 2005.

Administrative expenses for the year, $26 million; higher than what we like, but $7 million of that is really related to share options and bonuses. Effectively we anticipate administrative expenses to fall back to $18 million per annum when we go into 2005.

Moving on to slide 13, the balance sheet. Just a few comments. Total assets, $4.3 billion. The third line there shows you other current assets, which naturally shows a substantial buildup of working capital in the strong market that we have. But here you also find the Gen Mar shares that we had at the time and the remaining Golden Ocean shares that we spun off in January.

When it comes to 2005 we have -- basically CapEx is very limited. When it comes to drydocking, all of that type of expenses are expended as incurred and therefore not considered CapEx by us. The Panamaxes that we hope Golden Ocean will exercise their options on have remaining liabilities of $34 million times 2; that is we are to pay $34 million at delivery of those 2 vessels. Then on top of that we also have one installment of $8 million for the VLCCs to be delivered in 2006.

Moving on to slide 14, we show you the Japanese yen and interest exposure that the Company has. Total debt including capital leases is close to $2.9 billion in the Company. As you can see there's very limited interest exposure left in the Company after we have placed all of the vessels into Ship Finance of the German limited partnerships. Only $413 million is floating debt.

On the yen side we hold a small portion, approximately 5 percent of our total debt level, as yen denominated debt. We also have a small amount of exposure in the FFA market; that is currently only a net position of 1 to 2 VLCCs throughout 2005.

Moving on to slide 15, the cash breakeven rates. It stands at $28,000 per day for VLCCs and $21,000 per day for Suezmaxes. That's really all there is to say to that.

Slide 16 basically shares you how we like to present the Company. There is really nothing particular to say about it except for the mid-box, which whose 25 percent Ship Finance. There we have stated in our announcement earlier today that it is the Board's intention to divest completely of the ownership in Ship Finance by the end of the first half of 2005. Again there is another 10 percent coming in the next few weeks; so effectively within a very short period we're going to be down to 15 percent already.

So with that I leave a word for Oscar to take the market outlook.

Thank you, Tom. Going to page or slide number 17. The newbuilding book is now frightening (ph) under our limited yard capacity up to 2008. With regard to the scrapping, we also see that is not very significant for our share of the market. There were only a few vessels scrapped on the VLCC side, and the same on the Suezmax.

On the limit in (ph) the oil capacity, the scene is more or less set up to 2008. We also seeing lately that there has been a few owners ordering vessels for delivery in 2008 and 2009.

When it comes to the long-term situation, 2010, I will call it heaven or hell for the shipowners. There are signals that this implementation of IMO will not be that effective. U.S. will not change their OPA 90 rules. Hence the vessels will be allowed to trade on the U.S. up to 2015. There are also signals that several countries in the Far East will have a flexible attitude, too, with single-hulls after 2010; and we believe there will be a market for single-hulled vessels after 2010.

In the present market we are skeptical with regard to ordering VLCCs ourselves, at a newbuilding price of $120 million for delivery in 2008, with the big question mark with regard to the phase-out of single-hulls. There are newbuilding, (ph) the price, 120 million, will need around 40,000 U.S. dollar for the next 25 years.

Going over to slide number 18. There had been a lot of confusion of how much of the fleet which will be scrapped in 2005. Vessels can be converted, used as stores (ph), etc. The number varies between 16 and Bassoe's 5.5. We believe 5.5 is maybe on the low side, and it will be something in the middle.

Some players in the market have started to take a negative view on single-hull SBT tankers built from '90 and onward. Whether the oil majors or owners with the majority of the double-hull tankers like it or not, these vessels are needed in the market for years to come. As long as you maintain them properly they will be fit for fight for many years. It is extremely important that you have a proactive attitude with regard to maintenance of these vessels and implement operational procedures in order to reduce the risk.

In the marketplace people claim that single-hulls make less money due to more waiting time. Actually we have less waiting time on our single-hulls than our doubles. The difference in earning is mainly due to difference in speed, intake, and trading areas (ph). In a US$100,000 market, that difference will not equalize a difference in earnings of approximately US$8,000 U.S. on a Suezmax or VLCC.

Going over to slide number 19, the IEA expects a growth of 1.82 percent for 2005, assuming quite a low growth in U.S. of 0.9 percent, and China 6.3, and other Asian countries only 2.7 percent. We believe that the world growth in oil consumption will be closer to 3 percent for 2005. The oil price does really not support any OPEC cuts; and this will be discussed later in the presentation. The decreased production in the North Sea and Alaska and the reduced production in Gulf of Mexico led to more ton miles in 2004; and this will continue also in 2005.

Another big question mark coming up lately is what will happen with Venezuela, which plans to reduce their export to U.S., which will lead extra ton miles into the equation.

Going over to slide number 19, number 20 I mean, 20. This slide shows the global oil demand from 2001 and onwards. As you see IEA have constantly underestimated the growth since 2002. We believe that the majority of the additional oil will longhaul oil from the Middle East and will support the VLCC segment more than other segments. Of course Suezmax and Afromax will of course support -- will be supported by these extra ton miles.

Going over to the next slide, again if you look at China's demand, IEA have also there generally underestimated the consumption. We believe that China's economy will continue with a strong growth both in GDP and oil consumption. An indicator in this respect is the dry bulk market; this is very, very strong and is an indication of the industrial activity in the country. Another factor which we feel is a bit underestimated with China is the human factor. We believe that the Chinese are super-materialists, and with high focus on status, and it's extremely difficult to slow this drive in a country like China.

Again, IEA have underestimated the growth in the past; and our question, can we actually trust IEA in the future? We do not believe so. If you go over to slide number 22, you have a slide showing the OCED oil inventories. The inventories in OCED have steadily declined versus the actual demand since 1993. The reserve in 1993 was 95 days, while in 2004 it was only 80 days forward (inaudible). The OCED inventories have only increased marginally in 2004, by 52 million barrels the last 12 months.

Going over to slide number 23. The growth shows the supply and demand based on IEA and with a cut in OPEC in April 2005. It's a demand curve and a supply curve there in the graph. If the demand is higher than the supply, you will see you will have a stock drop. And opposite, if the demand is lower than the supply, you will have a stock build.

If you then analyze the area below the supply curve and the area above, and deduct the inventory building in OCED stocks, and adjust for more cargoes at sea, due to the fact that there are more vessels trading in 2004 than in 2003, we will then have an estimate of the non OCED inventories. The calculation is shown in Appendix page 42. It shows that the non OCED inventory growth should have increased by 367 million barrels last year, while the inventory in OCED only grew by 52.

We do not consider this scenario very likely, and we believe that IEA are underestimating both actual demand today and the growth in the future. Based on the above, we believe that it is very unlikely that OPEC will cut their production in March, since that will reduce the inventories in the future. On the contrary we actually believe that it is more likely that they will increase the production closer to summer.

Going over to slide number 24, this slide summarizes the supply and demand situation. We will show you the estimate for the growth in ton miles situation and the growth in the fleet. The figures above are based on a very conservative IEA number on growth and call on OPEC, and a very conservative scrapping scenario of 5.5 million deadweight for next year. We have not taken into account any Chavez effect with regard to reduced export of oil to the U.S. Based on these conservative figures, it is fairly balanced with regard to fleet growth and ton mile increase for 2005.

Going over to slide number 25. Timing is everything, and I just want to show you an example of how we actually can improve your earnings by having an active view on commercial waiting time. In September we were extremely bull, and we were pretty certain that the market would pick up. So instead of taking the first cargo available, we decided to hold back the vessel. By doing this we improved our earnings and at the same time lifted the market.

As you see in scenario 1, if we had taken the cargo straight away, we would have earned $42,000 without any waiting time on the round-trip. If we had waited 14 days, we made actually $8,000 more than not taking the cargo straight. It's extremely important that you have an active waiting policy on this. So in certain times it is beneficial to wait; in other times it is not. What we have seen is that in the past that even when we have taken substantial waiting time, both on Suezmax and VLCC, we have actually done better than our competitors.

The reason why I mention this is actually the conclusion of the whole presentation, going over to the last slide. What we feel is that actually psychology rules the market. The minds of the owners and the chartering people are very, very sensitive to minor changes in the fundamentals. For example, if you have warm weather, less vessal availability is increasing (ph), you have less congestion, a lot of charter drops to market unnecessarily due to the fact that they change their mind from bull to bear.

We believe that the fundamentals are strong for 2005 and onwards, and that IEA underestimates the growth of oil demand, the existing demand and call on OPEC. Therefore it's up to the owners whether the market will stay good or not. So, that ends our presentation. So then we go over to the questions.

(OPERATOR INSTRUCTIONS) Mr. Chappell, from JP Morgan.

I want to ask a question about the dividend policy. You raised the ordinary dividend to $2.50, which is quite a significant bump. But in the fourth quarter we had an issue where the dividend was actually well below the earnings, most likely because of the Gen Mar investments. But what kind of guidance can you give us going forward, to the dividend policy? Are you going to try to keep it to the kind of 100 percent of earnings dividend payout? Or as you approach other quote unquote special projects, like the Gen Mar investments, can we see some volatility there?

Yes, the answer to that is if you look up on our website, there you will find our dividend policy. We have made it clear for quite some time that, to the extent that we have projects, as you say, then we will take the liberty to hold back some of the funds created and use that to grow the Company, hopefully, for the shareholders' benefit.

Effectively it's probably been 4 or 5 quarters since we didn't pay out more or less in line with cash flow per share. But as you sort of hint on in your question, we think that people out there in the market should expect that we will do something like this again in the future.

Now you said in the press release that if the Gen Mar thing doesn't work out, you may sell your shares. I am not going to ask you about what you're doing with Gen Mar. But you said that there might be better options as far as buying the physical assets. Given the way that the asset prices have appreciated over the last several months or quarters, do you really think now is the time where you'd want to be aggressive in buying secondhand tonnage?

I agree that it is very, very hard secondhand market these days. But of course as we did in the Autumn, now, we did a lot of purchase on single-hulls, which have been very, very beneficial. Of course you can also pay partly in shares, you know, which reduced the actual price quite dramatically. So we will evaluate on a case-by-case.

Then just one last question if I can, kind of consolidating my first two. Obviously the Gen Mar is a special situation, and that's why the dividend might not have reached the earnings. But would you consider just normal fleet expansion, buying a ship here or two ships there, as being a special project that would take away from the dividend potential?

To the extent that we can do it together with Ship Finance, then it wouldn't take away any of the dividend potential. And that is actually what we hope to end up with when we are done with the 3 German K/Gs which we have just passed on to Ship Finance and then chartered back. Because there we effectively get 100 percent financing.

So it doesn't necessarily relate to all acquisitions. As I guess you may have had time to see on Ship Finance press release, which was put out about an hour ago, that company now will have a substantial cash amount, which they would like to use for strategic purposes, to participate in the consolidation in the industry. So effectively, to a large extent it is possible for Frontline to avoid putting too much money into acquisitions, at least certain types of acquisitions.

Thanks, Tom and Oscar.

Mr. Kartsonas, from Smith Barney.

I want to go back to Gen Mar, the Gen Mar situation here. It's clear that you're pursuing a very aggressive strategy and you are looking a non friendly way at Gen Mar. You're talking about significant cost reduction synergies. Can you quantify that in any terms, in a percentage term? Or at what point do you think that this project would not be profitable? Or how far are you willing to go with Gen Mar?

I probably should have said at the start at this presentation that we are not in a position to comment on that sort of question today. I'm sorry for that. But obviously there is a situation there and it's really no point in tossing up balls and discussing those items at this stage. I'm sorry for that. I can't answer your question.

No problem. A different question, on the dividend policy, the $2.50 regular dividend. What kind of pay rates have you assumed there that could support this dividend going forward?

I'm sorry; what sort of?

What kind of day rates would the $2.50 dividend support?

On the $2.50? Then you are talking about that $35,000 and 28, $29,000 per day for two segments.

Thank you very much.

Mr. Stober (ph) from Diamond Rose (ph).

Thank you. Given your oil demand forecast is substantially better than IEA, etc., it sort of points to -- you're looking for much better rates in good times relative to expectations. When you add that to the fact that there is an arbitrage between public and private markets, one would argue that you would ascribe a much higher value to vessels today than the private markets are ascribing in this market place.

Why wouldn't you then from these things, it would sort of imply that you would be pursuing private market transactions much more aggressively as a use of cash relative to other alternatives?

We are approaching the private market as well as the public market. But I see no -- most of the industry is fairly bull for the future on it. It's very difficult to really get any owners to sell any vessels in this market.

But if the opportunity were available, that would be a much superior choice to pursuing Gen Mar or these types of alternatives.

We are looking at we this or we are comparing these alternatives constantly, and we are trying to have a good market coverage in order to pick up any vessels for sale.

Excuse me, I guess one of the problems we have from a, let's say, investor relations point of view in Frontline recently, has been that people perceive us as not expanding. But the fact is that we have, let's say since June last year, acquired or taken part in acquiring 6 new building contracts; that is 2 Panamax dry bulk carriers, 4 VLCCs. We have acquired 5 single-hull Suezmax tankers.

The total sum paid for all of those vessels or contracts is close to $600 million. Today's value on those vessels or contracts, 11 in total, are probably in the range of $750 million. On top of that we have acquired Gen Mar shares for close to 150.

So effectively have a 20 percent growth on total assets or probably more than that over the last 8 months. So we definitely can defend. We are pretty much doing what you are just suggesting that we should be doing; and I can assure you that we will continue to do that.

Good enough. Can you also make a quick comment on insurance trends? I imagine that probably close to half of your insurance costs are based on NAVs. So there should be some substantial increase going forward.

Actually that is much exaggerated. Total insurance cost in today's market is, that is the insurance cost component which is covered by owners, is probably something like between 1,000 and $1,300 per day. On top of that of course if we take a vessel into, let's say Southern Iraq, to Basra, then various so-called war risk insurance to be paid. But that is actually agreed with the charter at the time, that that is a pass-through from our side. So effectively insurance is really one of the smaller components in today's market.

Thank you very much.

Mr. Shannon (ph) from 55/49 Limited (ph).

I guess I have two major questions. The first is, you talked about heaven and hell after 2010. Could you tell me how many single-hull ships you have in your fleet right now?

We have approximately 20, around 20.

Given that, I guess heaven would be if single-hulls are phased out and dayrates go through the roof. Hell would be single-hulls are not phased out and dayrates tank. Given that you have substantial number of single-hulls, which situation is better for you all?

I think the better for us will be a phase out in 2010, for sure.

So your 20, what percentage of the fleet is that?

Approximately 25 percent of the fleet today is single-hull.

So roughly 25 percent of your fleet would be scrapped so to speak; and then the dayrates on the rest would increase. That is the --.

We'll go to heaven, yes.

That is the heaven. Okay. I haven't done the math, but I assume they would have to go up pretty substantially to justify axing 25 percent of your fleet. But anyway. I guess the next question is you're guiding to 2.92 roughly in the first quarter, which is half of fourth quarter's earnings. Dayrates have been roughly equivalent so far this quarter than they were in Q1 '04; but OPEC production has been significantly greater in Q1 '05 than it was in Q1 '04.

I'm just curious if you think that's a fundamental shift in the supply and demand curve for tankers; or what you attribute that to. Because dayrates are the same, but production is a lot higher.

I just want to jump back to your previous question. We're sitting on approximately 20 single-hull vessels. That as we see it is a fantastic investment over the next few years. We bought Marble back in, just as an example, back in October last year; and we anticipate to have a full payback on that one over a period of 18 months.

So effectively holding onto singles for us looks pretty attractive in today's market. Because you're going to make so much money before you get to 2010, at the time when you may have to scrap, but not necessarily. That was just the first one.

The second one is, why OPEC is producing much more than they did in the first quarter last year. What we basically have tried to promote in our slides is that we think that there it is a fundamental shift in who is able to produce more crude. Basically the non-OPEC countries are struggling tremendously. If you look over the last 5 years (multiple speakers)

Excuse me, if I could. I guess the question was the production is up but dayrates are the same. I'm really -- I can't predict OPEC's production. But I'm just curious as to the relationship between dayrates and the increased production. Because the dayrates don't seem to have increased relative to last year, while production has increased.

Again, we go back to the conclusion of the presentation. (indiscernible) psychology. It is very hard to explain the rates which we have experienced in the Autumn; at the same time it's also very difficult to explain the low rates which we experience in January. So it's very much the psychology of the market. So that is really in the answer to your question.

Thanks for your help.

Mrs. Boyden (ph) from Cadas Fitzdrill (ph).

My question has been asked and answered. Thank you.

Mr. Manler, (ph) Bank of America.

I had one macro question, then two small, more detailed questions. On a macro perspective your call that OPEC would either not cut or potentially increase production in the second quarter I think has not only dramatic impact on the tanker market, on a positive sense, but also on the oil market and the oil price. My question is, do you have any concern on the high amount of gasoline inventories you have in the U.S. and the fall in demand you might see from the refineries as a result of that in the second quarter?

I think, Philip, that of course the U.S. may therefore import less than what you probably would have considered to be a seasonal normal. But keep in mind that the U.S. is importing just above 10 million barrels per day; and in total the world seaborne transportation of crude is probably something like 38 million barrels.

I guess one of the problems that we see in the market is that's everybody loves U.S. statistics because they are so much better than and so much quicker delivered to the market than any other statistic in the world. But effectively U.S. crude imports only make up about 25 percent of the world's seaborne crude.

So in reality I guess part of my answer is yes, you are probably right in the way you are questioning this. But at the same time, the effect is probably exaggerated for the world, let's say, seaborne industry as a total.

Just to follow up on that, we have OPEC right now that has about a spare capacity of about 1.5 million barrels. If demand starts picking up to what you're indicating that you think it would do this year, then you're talking about an oil price that rises up to 60, perhaps above $60. How about the impacts of demand on that? Do you have any concern on that side?

I guess, again, my answer would be that I think the elasticity for the price of crude is much less than what most macroeconomists seem to believe. The amount of crude or energy in general used by most people in the world is far less than what it used to be. Machinery is much more efficient, cars are more efficient, etc. So I think that is exaggerated by most people out there.

Of course there is an impact, there's always an impact when price rises. But it's probably very small, especially due to the fact that there is such a momentum in general in the world economy.

Thank you. Just very quickly on the Company specifically. I had just one question on your balance sheet, regarding your other current assets, which jumped quite highly from the previous quarter. Is that indicative of some payables coming in that we might see going to cash in the first quarter? Or is it something else?

You are right, it's basically a build up of working capital; in addition to that, at the time there was approximately $80 million in marketable securities there. On the asset side, of course. But in addition to that, you are right, there is about $140 million of voyage in progress; and $140 million of accounts receivable; both of them up about 100 percent to previous year's level.

So we would expect that to come back into the cash in the first quarter?

Yes, you are right. Since we are in the spot market, all of that basically follows with a lag of, let's say, 30 to 60 days of the actual earnings of a fleet.

Just one more quick question, on the ships that you indicated that Ship Finance is going to buy at the end of 2005. Did I just have an error? Because I seem to remember having those ships coming in in 2006. Was I inaccurate on that?

We have 2 newbuildings with a Chinese shipyard that are due for delivery in 2006. They we anticipate to feed on to Ship Finance.

We are talking about the same vessels, then?

I'm sorry. You're thinking of 2 vessels that we mentioned in the presentation. We, together with Ship Finance and the John Fredriksen Group, acquired from the Indonesian State Oil Company's shipping arm, Pertamina, back last summer 2 VLCCs. Those have been delivered in the meantime, and the intention is for Ship Finance to take them over early in the second quarter. Then Ship Finance will decide whether they want to put them straight into Frontline, or trade them in the spot for a short time to bring down the cost basis.

The intention is for those vessels to be sold into Ship Finance at $92 million, which is a fantastic price compared to today's price. And then the price will be -- and of course Frontline's charter hire will be based on the same $92 million, and not the current market price.

Great. (multiple speakers) quarter. Thank you very much for your answers.

There are two more questions.

Okay. Could we have them very quickly? We actually have to move on to the Ship Finance presentation in a few minutes.

Mr. Tester (ph), (inaudible) Investment.

Two things. One, if you could explain on the dividend policy as to how -- I mean in December 13 you put out a press release saying that the Q4 payout would not be impacted by Gen Mar. Then it seems to have an impact. Could you explain what change between now and then -- whether in fact it was the Gen Mar stake, or whether it was something else which impacted the dividend payout?

Primarily it was Gen Mar. That was because we acquired much more shares than we had at the time. In addition to that we are still in the process of handling the 3 German K/Gs. So far no cash has been released in that process. That is basically the reason.

So then if you sell the Gen Mar stake or whatever, and take account of the fact that you received the money for the K/Gs during Q1 and other asset movements, would that imply that this cash may be factored into the Q1 dividend payment?

Yes, if we did that, that would be the case, yes. But I guess we acquired more shares in Gen Mar because we hope to succeed in taking them over, not selling off immediately.

But the cash generated from the sale of other vessels, K/Gs and so on, would that be factored into the dividend payment? Because you had said that this would be offset by the K/G. It didn't happen in Q4. It's happening in Q1. Does is that therefore mean the cash comes in Q1?

Yes, I think that is a fair comment. But again I have to refer you to the dividend policy which states that if we have a project then we need more money for Gen Mar shares or for buying other vessels, then we still feel free to reduce it.

Okay. Given that you now own 15 percent or will own 15 percent of Ship Finance, can you explain how Ship Finance could be used as a partner in any larger project? Whether the lower stake, going below 50 percent and so on, does affect your flexibility to partner with Ship Finance in any way?

Yes, as you'll see on the Ship Finance presentation in just a second, we are building up, we are in the process of getting more independents onto the Board of Ship Finance so that we can have this arm's length approach, even though we think that the two companies can work very well together.

If you take, let's say, a fictitious acquisition of a large shipping company, then Ship Finance would probably be interested in buying and financing most of the double-hulls in such a company, and then effectively giving Frontline 100 percent financing on those vessels in exchange for long-term charters. That is much the idea we have been working on.

Last question, on the cash-flow statement there is 126 million gain loss on sale of assets and 270 million change in operating assets and liabilities. Can you explain what these were and how they impacted the P&L, please?

The last one I assume is what the previous gentlemen asked about, the huge buildup of working capital, which is basically due to (multiple speakers) --

I understand that.

The second one was, basically, at least 99.5 million was due to the spin-off of Golden Ocean; and then we had a profit of $7 million on the General Maritime shares. That explains most of it, I guess.

But that 126 million, 99 million of that was a gain. Okay. That was through the P&L, yes. Fine, thank you.

I'm really sorry for the last person that we have to hang up now, because we have to move on to the Ship Finance presentation. I realize that we should have another 15 minutes next time we do this. But thank you all for listening in; and we look forward to meeting you again next quarter. As always feel free to call us here in Oslo if you have more questions. All the best to all of you. Bye-bye.