Frontline Plc (FRO) 2007 Q4 法說會逐字稿

Good day, and welcome to the conference call. For your information today's conference is being recorded. At this time I would like to turn the conference over to your host today, Mr. Bjorn Sjaastad. Please go ahead, sir.

Thank you, and welcome to all of you to this presentation of the Frontline results for the fourth quarter of 2007, and for the full-year results of 2007. If you look at the agenda item on the presentation that has already been posted on our website, on page 3, we have the agenda. Where first of all I will go through the main highlights of 2007, and then our CFO Inger Klemp, will go through the financial review. We then turn to the market update and outlook, and then we open up for questions and comments.

If you then turn to the next slide, number 4, financial highlights, we are happy to present to you our figures for Q4 which were better than Q3, and our net income came in at $202 million after a gain on sale of assets being shares and ships of $144 million giving us a net income excluding gain of $58 million for that particular quarter. The earnings per share came in at $2.70 and the dividend that we paid in that particular quarter was $3.25.

For the full-year 2007 our net income came in at $574 million including then again a sale of shares and assets of 323, giving a net income from operations only of 251. So total earnings per share for 2007 came at $7.67 and a dividend that we actually paid in 2007 came in at $11.09. That includes the dividend of the Ship Finance shares that we did in the early part of 2007.

And the board has declared a dividend pertaining to the fourth quarter results to be paid in the first quarter of $2.00 per share. And we are particularly happy since the negative trend in Q3 were turned around by the hike in the market, the tankers that came in the latter part of November. Now there is a timelag for that to inflate into our figures but we were able to increase our results on the double hull VLCC's from about 35 to about $43,000 a day. And the double-hull Suezmaxes going spot from 28 to about $37,500 a day.

So that was (technical difficulty) looked at the major transactions that we did both in Q4 on slide number five, the next slide, we have the split of the $144 million. Sale of shares of Dockwise 48.70, which is following that transaction that we entered into last year, and we also sold our Imarex shares with a net profit of $41.9 million. We've been holding onto the Imarex shares for a long time. We were one of the initial shareholders in that company. We now feel that it has no strategic value for us any longer to have that, then it was better to sell the shares to somebody else that can help bring the company further.

We also have made agreements in Q4 to terminate the charters for three single-hull ships, the Birch, Maple and Duchess. The Birch was delivered actually in Q4 whilst the two others will be delivered in Q1, and the gain then will be recognized in Q1. We also delivered the second converted heavylift vessel Front Target to Dockwise in December last year. So all told, that gave a profit of 144.

If you then look at the next slide with the transactions done in total in 2007 and 2008 and follows very much our strategy to dispose of our single-hull fleet. And of course, with the oil spill that we experienced, not we but the world has experienced in Korea just lately we see that there is becoming even more difficulties in operating a single-hull tonnage going forward. And the total gain that we had on our heavylift transaction so far in 2007 was about 153 million split on sale of shares, issuance of shares and sale of vessels.

We also sold all our shares in Sea Production that year, 71 million and the four single-hull vessels with a net proceed of 57, and then the Imarex shares, so 42 million being 323 altogether. So basically we have been spending a lot of efforts in selling assets but we have also ordered some, so we ordered two Suezmaxes at Rongsheng in 2007 that we have reported of course before.

What we also have done now is that we have made a financial investment, a minority investment in a company called Navig8 Ltd., which is a Singaporean company. It is an operator in the Clean Petroleum Products market. We have taken a 15.8% share for about $20 million. So this, as I said, is a financial investment but it also gives us a foothold in the CPP market.

We have also decided now to spin off 20% of ITC in the separate company to be listed on the [LTC] over the counter in Oslo, which will be done in Q1, Q2 this year, as soon as the practicalities have been arranged. If we then turn to the next page, we are into the P&L and then Inger, if you can take us from there.

Thanks, Bjorn. I will go through the preliminary fourth quarter and financial year 2007 results. Frontline reports net gain income of $202 million and earnings per share of $2.70 in the fourth quarter 2007. That includes gain on sale of the assets and securities in total amount of $144 million. This gain relates to gain on sale of vessels in an amount of [$3.4] million reported in gain from sale of assets, that is representing $37 million in connection with delivery of the second converted heavylift vessel to Dockwise, and then $16.4 million in connection with the termination of the lease for Front Birch.

Further, a gain on sale of shares in Dockwise in an amount of $48.7 million and gain on sale of shares in Imarex in the amount of $41.9 million which is reported in other financial items in the fourth quarter of 2007. Net income then excluding these gains was $58 million in the fourth quarter compared to $19 million in the third quarter. The main reason for the improved results is the stronger spot market which has resulted in an increase in results from time charter on a time charter basis. And as a result of the stronger market we have also recorded a profit share expense to Ship Finance of $16.1 million in the fourth quarter, which is $10.7 million higher than in the third quarter.

Total operating expenses in the fourth quarter compared to the third quarter have decreased, and that is mainly as a consequence of a reduction in ship operating expenses as a consequence of our reduced fleet due to the sale of vessels which we have been talking about and fewer vessels dry-docked in the fourth quarter than in the third quarter.

The Company recorded interest expense in the quarter of $57.5 (sic - see press release) million of which $14 million relate to ITC and $44.1 million relate to the capital lease interest expense. This is in line with the third quarter. Frontline reports net income of $574 million and earnings per share of $7.68 for the financial year 2007, and that includes gains on sale of assets and securities and a total amount of $323 million.

These gains relate to then gain on sale of vessels in a total amount of $117.8 million, which was supported in gain from sale on assets and gain on sale of shares in Sea Production, Dockwise and Imarex, in a total amount of $122 million before (inaudible) other financial items and then thirdly, a gain on issuance of shares in Sealift and Sea Production in the first quarter of 2007 in a total amount of $83.6 million reported in gain on issuance of shares by associates.

Then moving to slide 8, the VLCC fleet earned in the spot market approximately $43,600 per day for doubles and $31,300 per day for singles. This gave an average spot earning of $43,000 a day, and the average for the whole fleet was about $45,700 per day in the quarter. That includes also time charter.

The Suezmax fleet earned in the spot market approximately $37,500 per day for doubles and then $24,900 per day for single-hull vessels with an average spot earning of $32,400 per day. The average for the whole fleet was about $33,100 per day in the quarter.

And the OBOs earned $42,400 per day in the quarter. And the VLCC vessels are not included in these numbers. The TCE numbers that we show, show that Frontline has outperformed the competitors, which have announced the numbers in the fourth quarter of 2007 so far. Frontline underperformed the market due to that we experienced time lags in earnings in an upward moving market. The results show a continued differential in earnings between single and double-hull tonnage and the differential is about $12,000 per day in the fourth quarter.

Moving to slide 9, in the fourth quarter we have dry-docked three vessels, which is two less than in the third quarter of 2007. The vessels in question are Front Falcon, Front Warrior and Front Page. As you can see from this slide, we had average OpEx of approximately $9,500 per day in the fourth quarter compared to approximately $9,900 per day in the third quarter. OpEx per day has decreased compared to the third quarter mainly as a consequence of fewer vessels dry-docked in the quarter.

In the full year 2007 we have dry-docked 15 vessels compared to 19 in 2006. The average OpEx in 2007 is as you can see, $9,600 per day compared to the $9,000 per day in 2006. And the main reason to the higher OpEx in 2007 in spite of that we have dry-docked fewer vessels than in 2006 is that the dry-docking in 2007 is very expensive, as a consequence we had to do more (inaudible) than we had expected. The weak dollar has also contributed to the increase in OpEx as most of the machinery and equipment originates from non U.S.-based countries. Then if we look at the off hire situation we had less off hire dates in the fourth quarter than we had in the third quarter, and that is mainly related to less dry-dock days. This is also the case for the full year 2007 compared to 2006.

Now moving to slide 10, the total balance sheet is approximately $219 million less than in the third quarter of 2007. Free cash has decreased in the fourth quarter compared to the third quarter due to less payment of dividends based on the second quarter earnings were paid in beginning of the fourth quarter. Due to the same reasons, other current liabilities have decreased in the fourth quarter compared to the third quarter with $112 million accrual for the second quarter dividend payments.

Book value or marketable securities has decreased in the fourth quarter due to the sale of the Dockwise shares and investments in unconsolidated subsidiaries and associated companies has decreased due to the sale of the Imarex shares. Book equity is $465 million after the end of December 2007. The Frontline share trades today at a share price close to $46, has a market cap of $3.4 billion and enterprise value of $5.8 billion.

Moving to slide 11, the cash cost breakeven rates are approximately $31,400 per day for the VLCCs, $22,500 per day for the Suezmaxes and $24,100 for the OBOs. The cash cost breakeven rates does not allow for the contract coverage the company has. Assuming that the contract coverage is used subsidized to spot vessels, we will need a lower breakeven rate for the spot vessels. The cash cost breakeven rates have increased mainly as a consequence of higher ship operating expenses.

Then moving to slides 13 and 14, the number of vessels in the Frontline fleet is 74 vessels including the vessels from commercial management and the ITC vessels. And is compounded by 39 double-hull VLCCs, 7 single-hull VLCCs, 1 single-hull Suezmax, 19 (sic - see press release) in double-hull Suezmaxes and 8 OBOs.

We have contract coverage of 39% in 2008 and 30% in 2009, the average net time charter rate for the total fleet is $41,300 per day in 2008 and $41,500 per day in 2009. And with this I turn it over back to Bjorn again.

Thank you, and then we will focus on the market on slide 15 we are showing the earnings according to Clarksons, for the VLCCs and for the Suezmaxes. And you can see the dramatic increase in rates that happened at the end of November and the corresponding reduction that we saw in January into February. Then it is been going up again, and it is moving a little bit sideways right for the time being. Still the present level is at a healthy level compared to previous periods.

There are no particular external factors behind the spike or the decline. It really demonstrates there is a pretty tight balance of ships. And it is a function of the supply and demand for tonnage. We think that there are many reasons why it went up. We felt that it should -- the market should improve earlier than it did. Because we saw that the oil stocks were going down.

Another factor is also the pricing from the Saudi oil reducing the price to the US, incentivizing the Americans to buy oil. Another aspect is that quite a few ships were slow steaming in Q3 due to the high bunker costs, and that also took away capacity from the market. For the future very much depends upon the OPEC production will they keep it at present level; will they increase, or will they reduce. It is also a function of the stock levels going forward, but we expect in a way that it will follow the at least the seasonality. We have a conversion that will take out quite a lot of capacity also in the first half of this year.

I just mentioned previously then the Hebei Spirit that collided with a barge of Korea, spilling quite a lot of oil and that has led the world market to the charters to be more reluctant to charter in the single-hull vessels. But definitely, the biggest question mark is the world economy and the growth -- or lack of so -- in the US and its impact on the world economy.

If you then turn to the next slide, factors driving demand, we've shown this before, and I will go through some of these items as we go along.

Slide 17 shows the economy and oil demand. And here we have -- the IMF has revised down the world economic growth for 2008 to 4.1%. That is basically triggered by the reduction in the US growth rate. And of course there is a negative in sentiment, particularly in the US. Still, Asian economies are expected to grow at healthy levels here. But this is something we can only follow.

Also, the corresponding oil demand expectations, they have been revised down somewhat from the IEA, but still it is close to 2% growth expected, and above what was in 2006 and 2007.

The next slide, oil price and structure, shows the oil price, which has now been more stable for the last month, between 90 to 100, a little bit less than 90, and also the correspondingly very high bunker costs.

But more importantly for us is the price spread of the four-month and one-month. So the curve, the future curve of the oil price. And normally, when the oil price is in the contango, as we say, that is good for shipping because then it pays you to buy and store oil. But now it is in backwardation for a while, and it was slightly into contango when the Arabs reduced prices in November. But the backwardation is not that huge as it were earlier last autumn. It is just about a dollar difference now. But still, there is not a real incentive to store oil.

(Technical difficulty) The next slide, the oil production. That is up and that is very positive for the tanker market. And we can see why from mid-2006 until mid-2007 there was a decline in -- a slight decline in the world oil production.

Another important factor for us to consider is the crude oil stocks. Here we have good and reliable and updated figures for the US, where you see that there is a growth in the stock level from a low level and that we are far lower than what we were at the same time last year, but about the five-year average curve right now. And we also see that refinery utilization is low in the US.

If you then turn to the next slide, we look now at the supply (inaudible) ships which normally are very oftentimes are critical to rates and values. There are 490 VLCCs, of which the double-hull fleet is 354 and the non double 136. And the orderbook is 174. And from this curve we see that [3 8] will be delivered in 2008 and 65 in 2009. It is a pretty huge orderbook compared to the existing fleet.

If you look at the Suezmaxes fleet on the next slide, it is about the same even though it is a lower proportion of single-hull tonnage to the orderbook. There are 47 single-hulls or non doubles, and the orderbook is 134. We also see here that there are only a few coming into the market in 2008, but a lot in 2009. For both these ship categories, VLCCs and Suezmaxes, quite a few of these ships are ordered in China, quite a few are ordered at new shipyards. And I think it is fair to say that there is an expectation that there might be delays in the deliveries of these ships. In any case, when we say that 68 will be delivered, 68 Suezmaxes in '09, some will be delivered early in the year, and some late; there is a six-month delay factor coming into the market so that it will be more evenly spread out. And due to the financial uncertainties, there might also be yards and/or ship owners that might experience problems in being able to take delivery of the ships. So things might happen here.

But the biggest factor for the short-term supply, or net supply, that is on the next slide we've demonstrated that on slide 23, which is the conversions. And even though the dry cargo market fell at the end of last year and that you have the improvement in the tanker market, we still believe that there will be a high degree of conversions being carried out in 2008. Last year about 26 VLCCs went out in the market for conversion purposes, and 20 Suezmaxes. And most of these went out of the market in the latter part of the year, not giving full effect in 2007. And the plans for 2008 according to our investigation of the information that we've received from various sources are that 38 VLCCs will be deleted or converted in 2008. With 33 planned for VLOC and 5 for FPSO, whilst for Suezmaxes it is about 10 ships that will be converted.

And if you now look at slide 24 we see the kind of net supply overview, which really for the VLCCs shows in fact a decline in number of ships in the market next year for Suezmaxes, it is only a net increase of 7 ships. According to the figures that we feel as are reliable today. Of course we will try to follow this and report this on every quarter.

If you then turn to the next slide, 25, we just show the prices and the time charter rates for VLCCs, prices being both new building prices and secondhand prices for the various five-year old ships. And still we can see that even in the very low market in Q3, the prices didn't fall much, and the new building prices did not fall at all. And we also have listed up some sales that really have taken place. The same has been for the time charter market, with a few transactions but those have been done; been at about the same level as in previous periods.

But I think it is important to say that it is a thin market, but I think it shows a reluctance to both fix and to sell ships because when you have --if you are going to order a new ship today you pay close to $150 million in Korea and with delivery let's say 2011 and you pay a lot upfront, so they are ready for sea costs is more close to $165 million. And the same picture you can see on slide 26 for the Suezmax fleet with the rising new building prices and rising secondhand prices and stable time charter market for one to three years. Time charters are also in limited markets for both as most owners are sitting on their tonnage.

When then look at the final for the prospects in slide 27 we have just shown the FFA market, which is of course also a very volatile market but just for reference only. I think it is to say that the Front months still oil prices in backwardations, and we know that quite a few are moving the ban on single-hull ships forward both the Koreans and also the Philippines, although the Philippines has less impact. We think the conversions are on track despite the drop in dry bulk earnings.

The big question mark is the global economy and its impact on the world oil demand and ton-mile, that is in the end what we are looking for. For Frontline as such we had a good pace into Q1 from the fixed just done in late Q4 and also the first part of Q1. We also have sales profits that we will receive in Q1, in addition to some payment penalties from a court case that went in our favor. And we also think that we will have a strong first quarter, including a good dividend payout also based on the results in Q1 that will be paid.

So that was really what we intended to say, and I'll open up for questions. And also joining us here today is our director of chartering, Stephen Eglin. So please go ahead with your questions or comments, and we will try to answer as good as we can. Thank you.

(OPERATOR INSTRUCTIONS) Doug Mavrinac, Jeffries.

Thank you, and congratulations on a fantastic quarter, just had a few questions for you all. First, when looking at how well your VLCC fleet performed during the quarter, we know how strong rates were towards the end of the quarter but you really outperformed many of your competitors, and outperformed some of the estimates that many brokers put out there for charter rates during the quarter. What do you attribute such an outstanding performance to during the quarter? Did you have many days open towards the back end, or how would you describe your chartering activity during the fourth quarter?

I think we had no more ships at the end of the quarter than some of our competitors. I think the difference whether we somewhat saw the possible rise in the market and held back and accepted some strategic waiting in order to capture the height of the market.

Okay, great, and also I guess since the last earnings call we did see the oil spill in South Korea. How has that changed your thinking as far as how rigidly enforced the upcoming IMO phase-out deadline is likely to be?

We think that it will have an impact, and particularly the Koreans; they have stated that they have brought forward the ban on single-hull tonnage and they will reduce the number of ships call in Caribbean waters. But of course it will have -- it will be influenced by the market, as well. The better the market, the less reluctant they will be. But definitely it will have an impact.

I think also the IMO regulation will be enforced, but some countries will be ahead of that. Today Venezuela announced that no more single-hull tonnage will be allowed to call any of their terminals. Which in practice doesn't change very much from the last few years but it is a quite strong signal effect.

Excellent. Okay, great. Thank you. And then two final questions. One, Bjorn, you mentioned in your commentary about the number of vessels on order at greenfield yards within the tanker sector, a lot of discussions have been had about the impact that these orders that yards that don't exist yet in the dry bulk sector could have to that particular sector. But have you quantified how many vessels within the tanker market could be impacted by the fact that there are unordered yards that don't exist yet?

No, we haven't qualified that, that is more what we hear around, so it is more to have a kind of warning for that might happening.

Okay, great. And then one final question. Your investment in Navig8 Ltd., would you say that indicates an increased level of interest on Frontline's part in the product tanker sector, and do you foresee there ever being a possibility of Frontline ever investing directly in product tanker vessels?

Yes, definitely, yes, we could do that. The fact that we now invest in this company yes, it is a financial investment and it is a rather insignificant investment compared to the total balance sheet and the total risk profile of Frontline. But still it gives us a foothold into that market, yes.

Thank you very much, and congratulations once again.

Omar Nokta, Dahlman Rose.

Good afternoon. I just wanted to check on the -- I remember I think last quarter you talked about the, you had one of the Suezmaxes vessels on [kg] fleet they had a purchase option on, and that you might be exercising that in December. Has that been done? Are you planning on doing that this year?

It hasn't been done because it paid us a lot to wait another year because of the structure of the purchase options and the prices, and values.

Okay, so you will just wait until maybe then end of this year?

Yes.

And I remember also last quarter you talked about the dividends basically first quarter would be the last quarter where you would pay basically as much as possible out of cash flows and then you would revert to EPS. Is that still the plan going forward or are you going to go back to paying out dividends out of cash flow?

I think the dividend policy of Frontline is stable and that is to say that we, everything that we make and that we basically don't need for running the company with this present opportunities and obligations, we will pay out in dividend. So I think it was more to say that there were some structural transactions that were done and that also impacted dividend capacity significantly last time. But later on we have also sold single-hull ships, and we have also sold the Imarex ships, so that will also be impacted. But long-term it is basically what we make that we will pay out.

Okay. So basically assume with all the cash brought in and you're going to be taking roughly 80% of the commitments out of your credit or out of debt, so everything else outside of that is paid out as dividends for the most part?

We have paid already about $100 million on the new building program, and there is another $100 million to pay before we have reached the 20% down payment for all those ships, and that is our plan. And after that basically we will cover the remaining 80% of the new building installments by bank borrowings.

I see, okay. And just finally, are you able to give guided on what your VLCCs have averaged thus far into the first quarter?

No, we have not been giving that. We think that is very difficult in such a volatile market and now we are already -- we are approaching in mid February and time is flying and we are presenting figures every three months. I think that should be okay.

Understood. Thanks a lot, guys.

[Chung Kachozan], Citigroup.

I guess a few questions. First of all on ITC, can you give us some figures maybe year end numbers on net income, maybe free cash flow from ITC?

The year in income was approximately $10 million.

That is net income?

The net income, yes, was approximately $10 million year-end.

And free cash flow, do you have a number there? Is there any free cash flow in there?

I don't have that at my hand so.

When you said free cash flow that is one of the things we have advised before that with the present financial structure there is limited free cash flow for the time being in ITC to be a dividend without to shareholders. And that is what something that we out working on. So basically the ITC, the way we handle that now it is a kind of two-step; first of all we dividend out about 20% and we have a separate listing on the OTC enabling the kind of trading of the shares.

But second, we are working on unwinding some of the structures in order to get liquidity out sooner rather than later. But this is presently limited by the bond structure of the financing of the company.

So the listing of the entity is going to be as is, right, the $10 million of net income and (inaudible) free cash flow in the existing debt structure?

Yes, initially, yes.

Perfect. Second, Inger can you give us some numbers on CapEx meaning you said about 93 million in Q1 for the new buildings. Is anything else remaining for there from the conversions?

You mean the heavylift conversions?

Yes.

Yes, there is some remaining there, as well.

How much is that for 2008?

In fiscal 2008 -- just a moment. In 2008 it is approximately $48 million.

$48 million, probably that is going to be all with debt or are you going to use any equity on that?

No, that is something we will do by financing by equity.

Equity, right, okay.

At the same time we will, of course, receive the rest payment from Dockwise in connection with the conversion of these heavylift vessels. As you might know we didn't receive the full payment upfront; we will receive the remaining $80 million at the end of, when we deliver the last vessel.

80 million?

Yes.

Okay. And also, can you give us for '07 for VLCC, Suezmax and OBOs, what was approximately OpEx per day? You give the combined number but just or were the industries today maybe have a general number.

You saw what we had for (inaudible) with our figures. Yes, that's true. The figure of 9006 I think there is about 1000 differentiated between the VLCCs and Suezmaxes, but that is also related to the (inaudible) age profile of the ships. So definitely when you look at the total figures for Frontline it is some of the single-hull ships that have been dry-docked is driving costs up.

Okay, but where would you say the market is today for VLCCs? Is it around 8000, 9000?

I think it is about 8000 before dry-docking, yes.

8000 and about 1000 differential for the Suezmaxes?

Yes, maybe it is, but it is difficult to say right now because it is been quite an escalating cost for running the ships, particularly crude costs have gone up dramatically over the last year. And it very much depends upon the vintage of the ship and the repair and maintenance part of it.

And lastly on your profit-sharings just remind us this is settled on a quarterly basis on a calendar year, right? Or is it on a volume basis? Meaning like for the fourth quarter was it like until the end of December that the profit-sharing was calculated?

You're talking about the Ship Finance profit-sharing now?

No, that is the single-hulls with the Chinese.

Single-hull, all right.

That is on a monthly basis.

So for example for the month of December did you get benefit of the spike in rates?

Uh huh.

You did?

Yes.

Justine Fisher, Goldman Sachs.

My first question is just about conversions. And I look at a few pieces of data in the market its the fact that the price of the VLCC is still very high as per the chart that you showed in your presentation. And in fact the price of VLCC is probably 20 to $30 million higher than a cape size right now. And it seems as though one way to determine the price of a tanker is to just take a discounted cash flow of the cash flows you think you're going to earn on that vessel. So it's interesting to me that the VLs are still higher than the capes. And then in addition to that the current rates are about even for the two, and then the cape size orderbook is huge and it is much bigger at least than the VLCC orderbook. So what do you think is people's incentive to convert now given all those factors?

I think the conversion is more a question you know the size, first of all the difference in construction cost is not what you said, I think it is more $50 million than it is $20 million. But for the conversions your carrying capacity for VLOC converted from the VLCC is much bigger than from a cape ship. And it also has to do with the timing where you can get it because the curve is very steep. The market is much higher short-term than long-term for capes.

(multiple speakers)

And of course this was of course single-hull ships not new double-hull ships that are being sold for conversion it is owned single-hull ships that basically the owners as we said are trying to find an alternative home for.

I know you guys are tanker operators, so maybe you don't have an answer to this but do you know what the difference between a regular cape size rate would be and then what a VLOC would earn?

I couldn't say -- you have to look at it in a dollar per ton basis, but I couldn't say that. It is not, probably there is a discount on a per ton basis on the VLOC probably.

A discount for the VLOC?

Yes, on a dollar per ton basis, I would say that the new cape. But you know I'm sorry, we are not -- I can't say exactly what it is.

The second question I had was about the spread between VLCC and Suezmax rates. It is pretty wide right now versus what it has been at least through 2007; it was pretty thin through 2007. And I know that when rates go up generally the VLCC rates are more volatile and so you will see that spread widen, but I was wondering if you would think that there are any other factors that could explain that like Arabian Gulf versus non Arabian Gulf production, etc.

I think you're right, when the market goes up the VLs stand most to gain; at the height of the Q4 VLCC spot rates peaked at 260,000, $270,000 a day whereas the Suezmaxes went up to 100,000, $110,000 a day.

Are there any other kind of production related factors or is it just the trajectory of rates? Is there anything else going on in the market that would account for a wider spread than we saw in '07 or is it just that?

I don't think there are any other reasons.

Okay, thanks.

Jonathan Chappell, JPMorgan.

Good afternoon. Bjorn, a couple questions on strategy. You mentioned in your prepared remarks about the big orderbook. Going forward as well as some concerns about the impact the US economy may have on oil demand, with 39% time charter coverage this year and 30% next year, do you feel comfortable with those levels? Or may you increase your time charter coverage a little bit to kind of hedge for some economic concerns going forward?

I think when you look at the contract coverage of 39% for this year that includes the OBO carriers, and it includes our single-hull tonnage. Most of the single-hull VLCCs are on fixed also for '09. So that is basically covered with the same profits bid arrangement. And for the OBO carriers that is one of the reasons why we are reducing contract coverage that is because some of the OBOs are going out on their existing charters. I expect that during this year let's say the first half, we will also fix the OBOs so that we will approach the 40% also for 2009 for that reason. If you ask about our willingness to do a time charter on a double-hull fleet, let's say today for $50,000 a day for one or two years -- or sorry, maybe two, three years -- right now we would rather like to trade those in the spot market.

Okay, and on the 8, 9 double-hull ships that you still have in the fleet, do you plan on selling those assets? Do the time charters that you currently have on those kind of make you want to keep them as they generate stable cash flows? Or do you think that you may want to cash in on the good asset prices right now on the non double-hulls?

On the 9, what do you mean? oh, the non double-hulls?

On the non double-hulls.

Well, that all depends upon the opportunities, you know. If we see that we can get out of the charters and sell at good prices yes, we might look for that.

Okay, when -- what is your best guess as to would you be selling some of those chips? Could you get out of the charters or ere do you think at current market prices right now you would probably keep those ships with the charters they have on them?

We might but of course that depends on the dry cargo market coming back again, because you know that was very strong and if the same strength as we had last autumn, then definitely I would have said yes, there is a possibility that people will be keen to buy further single-hulls for conversion. And we think that in at least some of our colleagues in sister companies they believe that it will improve also in the dry cargo market. So there is a fair chance that will happen for a few ships. But a lot of things needs to happen since these ships are committed on time charter.

Right, okay. Inger, you gave a pretty good breakout of the dry-docking off hire days in '06 and '07. Do you have a schedule for 2008?

No, I'm sorry, we haven't. We don't usually give out that, so.

Okay, take a guess. And the last question is a follow-up to a previous question on the dividend policy. If I look at the presentation you already have $42 million in gains from transactions, plus the $14.7 million from the settlement, minus your $20 million for the investment in Navig8 Ltd. So that is about $35 million in excess cash from 1Q. Would you expect that to be distributed in the form of dividends, or would that be used as the equity for some of the new building commitments?

It is a total picture because all our cash coming in less what we pay in equity installments in the new buildings that will basically be dividend out.

We have to take in (multiple speakers) have some remaining new building installments now in the first quarter and we also have some heavily spent on, and also have generation of cash. But total picture that will actually be the excess cash of that which will then of course be paid out to the shareholders.

Okay. Thank you, Bjorn and Inger.

(OPERATOR INSTRUCTIONS) Siri Evjemo Nysveen, Kaupthing.

First of all congratulations with excellent results on dividends. Now I have a question about the spot rates that were obtained during the fourth quarter. I was just wondering if you could please elaborate a little bit on the rates achieved. Because obviously about 50% of the quarter were quite poor and then 50% of the quarter was excellent. So maybe if you could put some color on whether and how this would affect the first quarter results; that would be very good. Thank you.

Generally a timelag in the spot market from when you fix to when the income is earned of about 4 to 6 weeks. As the rate increase came at the last part of Q4, most of that income is attributable to Q1.

So does that mean that you will have monthly rates that are above 100,000 tier to go into the first quarter earnings?

So as we said before that we are giving no guidance and specific figures for Q1.

Okay.

So I'm sorry for that.

Okay, fair enough; thank you very much.

(OPERATOR INSTRUCTIONS) Ladies and gentlemen, we have now no further questions in the queue.

Okay, thank you very much for attending this conference call. And have a good day.

Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.