Frontline Plc (FRO) 2010 Q2 法說會逐字稿

Good day, and welcome to the Frontline Q2 2010 results presentation conference call. For your information, today's conference is being recorded, and at this time I would like to turn the conference over to Jens Martin Jensen, CEO, and Inger Klemp, CFO. Please go ahead.

Good morning and good afternoon. Welcome to our Q2 presentation. I think we had a good second quarter, and again we outperformed our benchmark competitors.

We will follow our usual program for this presentation with our CFO Inger Klemp going through the Q2 highlights and transactions to offer a financial view of the quarter. After that, I will go through some market slides, fleet development, and an outlook on how we see things. Finally, after that there should be some time for some questions. Inger, please.

Thanks, Jens, and good morning and good afternoon, ladies and gentlemen. I will guide you through the highlights and the financial review in the second quarter of 2010, together with a runthrough of the newbuilding program, as Jens just said.

Moving to slides four and five, in March 2010 Frontline announced the successful completion of its $225 million convertible bond offering, and in April, Frontline completed the issuance of the bond loan and the [loan office burst].

The third and the fourth Suezmax newbuildings from Rongsheng, the Front Odin and the Front Njord, were delivered in May and August 2010, respectively. The third and the fourth VLCC newbuildings from Waigaoqiao, Front Cecilie and Front Signe, were delivered in June and August 2010, respectively.

Then in April 2010, Frontline announced the acquisition of the two 2009-built double-hull VLCC tankers, and the first vessel, Front Eminence, was delivered on May 18, 2010, and the second vessel, Front Endurance, was delivered on June 28, 2010. Further, in May we secured long-term bank financing for these vessels, representing 70% of the purchase price.

Then in June 2010, the single-hull VLCC Front Duke was redelivered from her time charter agreement and subsequently entered into a bareboat charter agreement expiring at the end of 2012. The vessel will be operating as a floating storage unit and has ceased to trade as a regular tanker.

Further in June 2010, Frontline received notices from the owners of two charter-in 2001-built Suezmax tankers and two charter-in 2000-built VLCCs, but the owners exercised their option to extend the charter period for two years until the end of 2013 from the expiry of the [manners] release period at the end of 2011.

In June, we also ordered two new Suezmax newbuilding contracts. They expect to deliver in February and May 2013. We secured two options for similar Suezmax newbuildings from Rongsheng.

Moving to slide six, I will then go quickly through the financial highlights in the second quarter. Frontline reported a net income of $81.3 million, equivalent of earnings per share of $1.04 in the second quarter of 2010. This is an improvement compared to the first quarter 2010 of $1.6 million.

The net income includes a gain of $6.7 million relating to the amortization of a deferred gain on three lease terminations and a gain of $3 million relating to a lease termination. On this basis, we announced a dividend of $0.75 per share for the second quarter.

Moving to slide seven, net income excluding the gain is about $1.8 million better than in the first quarter 2010. The increase can mainly be explained by that we have had an increase in the contract-equivalent earnings in the second quarter, compared to the first quarter, due to more trading days, slightly offset by lower TCEs per day, which has led then to an increase in income on a contractor basis by $60 million.

The profit sharing payable to ship finance is in line with the previous quarter. Ship operating expenses increased by $1.8 million, compared with the preceding quarter, primarily as a result of an increase in building costs of $2.8 million, mainly related to the four newbuildings which were delivered in the period, and then partially offset by a $1 million decrease in drydocking costs.

Charterhire expenses had increased by $8.6 million in the second quarter, compared with the first quarter, primarily due to an increase in the number of Nordic American tank shipping vessels, which entered again the pool and had a corresponding increase in pool earnings.

Please note that with effect from July 1, 2010, these NATS vessels became a full pool partner, [ellenoff] became a full pool partner in the Gemini pool, and we no longer charter in these NATS vessels. This will result in a decrease in charterhire expense in the third quarter with a corresponding decrease in operating revenues.

Then, the financial expenses have increased about $2 million, due to the convertible bond loan issued in April and the drawdown of financing for the delivery of the newbuildings, as well as the drawdown of debt on delivery of Front Eminence.

Other financial items have increased about $3 million, mainly due to costs of approximately $2.7 million which are paid in connection with the early redemption of the debt on Front Voyager.

The minority interest in the second quarter is $900,000 less than in the first quarter, due to the lower results in ITCL in the second quarter.

Moving then to slide eight, Frontline's double-hull VLCC fleet, excluding the vessels on floating time charter, earned in the spot market approximately $51,900 per day. Including the vessels on floating time charter, the VLCC fleet earned $50,000 per day for doubles and $22,100 per day for singles, with an average spot earnings of $49,500 per day. The average for the whole fleet, including the coverage vessels, was about $46,600 per day in the quarter.

The Suezmax fleet earned in the Gemini pool $29,800 per day. As a consequence of that, some of our Suezmax vessels paid outside the pool at somewhat higher TCE rates. We earned an average in the spot market approximately of $30,300 per day, giving an average spot earnings of $30,100 per day. We traded no singles in the quarter.

The average for the whole Suezmax fleet, including the coverage vessels, was about $31,000 a day in the quarter.

The OBOs earned $47,700 per day in this quarter.

The TCE numbers show that Frontline this quarter has traded considerably above of our competitors with respect to the VLCC fleet and slightly below for Suezmax vessels in the Gemini pool. And the ITC vessels are not included in these rates.

Moving down to slide nine, as we can see from this slide, we had average OpEx for the fleet of approximately $10,100 per day in the second quarter of 2010, compared to approximately $9,800 per day in the first quarter of 2010. We have drydocked three vessels in the second quarter of 2010, which is one more than in the first quarter.

Off-hire days were 131 days in the second quarter, compared to 112 days in the first, due to one more docking in this quarter, and we expect to drydock two vessels in the third quarter of 2010.

Moving then to slide 10, the total balance sheet is approximately $310 million higher than in the first quarter of 2010. The main items explaining the changes are, first of all, the cash position which has increased with $83 million compared to the previous quarter, principally due to that proceeds from the convertible bond issue have only been partly used in the quarter.

In this connection, I would like to mention that as per June 30, 2010, we have paid cash for delivery of the Front Endurance, but the corresponding loan of $73.5 million was not drawn down until the beginning of the third quarter.

Other current assets has decreased with $55 million, mainly due to the decrease in receivables related to the prepayments of $110 million gross charterhires to Ship Finance for the six-month period starting April 1, 2010.

Book value at newbuildings are reduced with $73 million and book value vessels are increased to $336 million following the delivery of one Suezmax newbuilding, the Front Odin, and one VLCC newbuilding, the Front Cecilie, in the quarter, and the purchase of the Front Eminence and the Front Endurance.

The Front Vista is booked as investment in financial lease. Short-term and long-term part of long-term debt is increased with $340 million as a consequence of the issuance of the $225 million convertible bond loan, drawdown of debt in relation to delivery on newbuildings, and drawdown of debt on the Front Eminence. This is partly offset by repayment of loan on the Front Voyager, repayment of remaining short-term loan on the newbuildings, and the ordinary repayment of debt in the quarter.

Obligations under capital leases have decreased with $37 million due to ordinary repayments.

ITCL is included in the balance sheet with a total of $475 million of debts and obligations on the capital leases. Debts related to three of the CalPetro Suezmax vessels are not consolidated in the balance sheet with $48 million.

Then moving to slide 11, the cash cost breakeven rates are approximately thirty one -- $30,900 per day for VLCCs, $26,400 per day for Suezmaxes, and $24,500 for the OBOs. These rates are the daily rates that a vessel must earn to cover the budgeted operating costs, the estimated interest expense, the scheduled loan principal payment, debt retire, and corporate overhead costs. These breakeven rates do not take into account the capital expenditures or loan balloon repayment activity.

Furthermore, vessels on short-term TC-in and vessels on bareboat-out are not included in the cash cost breakeven rates.

In the second and the third quarter of 2010, the cash cost breakeven rates will be reduced as a consequence of the prepayment that we did of 80% of the charterhire, the 31 vessels with Ship Finance following the release of the restricted cash taking place end first quarter 2010.

When calculating the reduction in the breakeven rates, you have to remember that the OpEx of $6,500 per day was prepaid 100% by Ship Finance in the first quarter of 2010. This means that the reduction in breakeven rates is 80% of the bareboat rate. This has no P&L implications.

Moving then to slide 12 and 13, as per end June 30, 2010, the total number of vessels in Frontline's newbuilding program is three Suezmax tankers and five VLCCs, which constitutes the contractual cost of about $800 million. This is a decrease of $48 [billion] compared with end March 31, 2010, following the delivery of one Suezmax tanker and one VLCC in the second quarter, combined with entering into two new Suezmax newbuilding contracts.

Out of the total, the financial exposure on two VLCCs of $252 million can be limited to the $54 million already paid in installments; thus, the financial exposure is $601.7 million.

Then, as of June 30, 2010, installments of $246.4 million have been paid on the newbuildings, compared to $313 million at the end of the first quarter, which included payments of the vessels delivered in the second quarter of 2010. The remaining installments to be paid from the newbuildings amount to $355 million, and $269 million if you exclude the Front Njord and the Front Signe, delivered in August 2010, with expected payments of approximately $139 million in 2010, only $63 million if you exclude the Front Njord and the Front Signe delivered in August 2010, then $113 million into 2011, $21.8 million into 2012, and $81.2 million into 2013.

These numbers exclude the payments on the two VLCCs that have a financial exposure that can be limited to the $54 million already paid in installments.

Moving then to slide 14, the Company has long-term pre- and post-delivery rebuilding financing, representing 80% of the construction cost, with four of the newbuildings being -- that was built on Rongsheng and two of the newbuildings built on SWS.

As of June 30, 2010, five of these vessels have been delivered and $334 million had been drawn down on this facility. The remaining amount of $39.6 million was drawn down in August 2010 in connection with the delivery of Front Njord.

In the second quarter of 2009, we established also long-term pre- and post-delivery newbuilding financing representing 70% of the contractual cost of the last two newbuildings that was built at Waigaoqiao. And as of June 30, 2010, one of these vessels has been delivered, and $110 million is outstanding on the facility. The remaining amount of $36.6 million was drawn down in August 2010 in connection with the delivery of Front Signe.

The Company has not yet secured financing for the two VLCCs and the two Suezmax tanker newbuildings to be delivered between 2011 and 2013. However, based on the recently secured financing for Front Eminence and Front Endurance and indications from banks, we estimate 70% financing on market value for these newbuildings.

The net remaining equity investment is thus approximately $41 million, which is fully covered through the recent completion of the $225 million convertible bond offering.

Moving down to slide 15, in this graph we show the installments to be paid under the newbuilding contracts, related to the newbuilding contracts in the period 2010 to 2013, with a total amount of $355 million in the light blue column. The dark blue column includes the established financing and the assumed obtainable financing for the newbuildings' contract of 70% of market value in the period 2010 to 2013, with a total of $314 million.

The gray column includes funds used from the convertible bond offering to fully finance the newbuilding program, with a total of $41 million. This shows that cash flow from operations does not have to support financing of the newbuilding program.

Moving then to slide 16 and 17, the number of vessels in the Frontline fleet is 18 -- and 80 vessels, including the vessels on commercial management and the ITC vessels. And it's compounded by 46 double-hull VLCCs, five single-hull VLCCs, 21 double-hull Suezmaxes, and eight OBOs.

We had a contract coverage of 34% in 2010 and 22% in 2011, and in addition to this fixed-rate time charter coverage, we also have an additional 11% time charter coverage on floating income in 2010 and 13% in 2011.

The average net TCE rate for the total fleet is about $45,500 per day in 2010 and $48,000 per day in 2011, and we aim to increase the fixed charter coverage for 2011 to 2013 from the present levels. With this, I leave the word to Jens again.

Thank you, Inger. That was a lot of information you came with there.

We are now at slide eight -- 18, which is about earnings and market factors. The second quarter was a healthy quarter with VLCC earnings around $50,000 per day and Suezmax's around $32,000 per day.

But contributed positive to this was a relative limited fleet growth in the quarter. This newbuilding was delivered, and a number of VLCCs and Suezmaxes were removed from trading. Also, up to 50 VLCCs were tied up with various storage business.

Also what contributed positively in the market was that the whole Iranian-owned VLCC fleet was tied up in oil storage, plus, of course, the strong demand from China for oil imports.

If we move to slide number 19, regarding the VLCC fleet, as mentioned we had a limited fleet growth in 2000 -- in the second quarter of 2010, with VLCC deliveries flipping back around 20%. I'll go back to that in another slide a little bit later.

The order book on paper for 2011 looks challenging, but as we have said before, next year the expense of VLCC order book starts with average ship costing more than $135 million per ship, so there could be some changes to the order book going forward.

Now to slide 20 on the Suezmax fleet. We have seen about a 30% slippage in newbuilding in deliveries in the Suezmax segment during the first six months of 2010, and we expect the same for the balance of the year as well. So there will be also be changes to the Suezmax fleet.

Our -- as Inger mentioned, our own newbuildings at Rongsheng have been delivered, and some of these ships were up to 18 months delayed. Extensive ordering in the Suezmax segment during the first half of 2010 could, though, put a damper on the party going forward.

We are now at slide number 21. Newbuilding prices for VLCCs of proper specifications is around $105 million, and around $67 million to $68 million of our Suezmax also have a [decent] specification. Three-year time charter rates for VLCCs is around $42,000 per day and high 20s for Suezmaxes with relatively healthy rates and historical levels.

We are now at slide 22. Regarding the actual delivery, as I mentioned, in 2009, we saw a slippage of around 20% of VLCCs and more than 30% for Suezmaxes, and this trend has carried on into 2010, and we expect the same slippage also for this year.

Slide 23, waiting time. I've been quoted in the media quite a lot lately regarding our waiting policy, our non-fixing policy. It does not make any sense to fix $100 million assets with $150 million cargo value on board a $10,000 per day or below, in our opinion.

One waiting day in today's market will cost you about 0.4 Worldscale points, point basis a standard Persian Gulf-Singapore voyage. That means you can basically sit and wait for 25 days and you only need a rate increase of 10 Worldscale points to make the same return on the bottom line, so we believe it makes more sense to wait, take some capacity out of the market, slow your ships down, do some maintenance work, and maybe let the crew do some fishing instead. That will help the market, for sure.

We are now down to the outlook section. I think the popular phrase goes there's nothing wrong with the total demand picture if you take the positive to mild effect China has created in the picture, but the problem lies on the supply side. I guess there is an easy way of explaining what is happening right now.

However, positive signs in 2010, as we will see, as I mentioned, a limited fleet growth in 2010 for VLCC; storage or contango will come back. In fact, we have already been approached with various inquiries mainly related to Brent positions during the fourth quarter.

The cheap, single-hull VLCCs are soon a thing of the past, which will also improve the market, and hopefully the continued strong pulp market and reemerging container market will take away some newbuilding capacity for in 2012 and 2013, which before has given some breathing space to the supply side.

World demand, yes, we need to see America back on track. However, at present, that looks a bit uncertain. However, the diversification of the Chinese crude oil imports, [e.i.], the positive [turn] mile effect are compensated somehow for this. Plus, we need some weather delays and a few strikes, which we have seen before in some of the European ports; all of this will benefit the market positively.

Regarding our own Company, we are working, as Inger mentioned, on increasing our contract cover both on fixed-rate basis but also on floating spot-related basis, so we are able to capitalize on the improved markets which we expect will come in Q4.

As Inger mentioned also, our breakeven rates due to the rearrangement with Ship Finance has been reduced, which makes our situation more competitive. And also, our continued outperformance of our main competitors will hopefully lead us to be able to attract more ships and commercial management, e.i., we should be able to further consolidate the tanker fleet.

With that, we are ready to take your questions. Thank you.

(Operator Instructions). Scott Burk, Oppenheimer & Co..

I just had a couple of questions. First of all, you talked about the increasing charter coverage for 2011. Is that -- 2011-2013 -- is -- would you be going to the same kind of contract coverage level you have for 2010, so around 30%, 35%, or something more than that?

No, it will be around that. Around 30% to 35% basis fixed, and then the rest up to 50% with floating rates. That's what we prefer to do.

Okay. And would that be focused on your Suezmax fleet or VLCC fleets, or just balanced across the two?

It will be one or two ships from each segment.

And then, I had a question about your OBO fleet. That starts to roll off, the nice charters that you had there, in 2011. Do you plan to, at that point, continue to operate those OBOs or do you think you might sell them at that point? What's kind the plan for the OBO fleet?

Well, the -- we have these ships on a lease arrangement from Ship Finance, and they're running up to 2015, so we will continue to trade the ships as bulk carriers until that date.

Some of the ships potentially would already expire during the middle of Q4, and we are already in discussion with the various charters of extending these periods, but of course it will be at different levels than they are now, but they are still -- will still be positive to our bottom line.

And actually, you kind of answered one of my other questions about it. So all the OBOs are still trading as dry bulk vessels? None of them are trading as Suezmaxes?

All of them are trading in dry. They will not come back in the tanker mode.

Okay, and then I had a question about the Front Duke. You said that's gone to bareboat charter [during] storage. Can you give me some more details about that -- where it's being used for storage, and then, does this forestall it being eventually scrapped as a single-hull vessel or -- can it be used as storage long term or does it eventually run up against single-hull restrictions and can't even be used as a storage vessel?

Well, the ship got off time charter in March, in the spring, and we had fixed it for 2.5 years bareboat at the FSO and CS operating off Singapore -- or actually Malaysian water, close to Singapore, and she will not come back to regular tanker trading. A ship like that, under the present rules and regulations, can sit as a floating storage for some time. So, hopefully, we can keep her employed with that.

What level is the charter rate?

We don't normally say that, but I would say -- it's at a profitable rate, but I don't think something to write home about. But it's still a positive for us.

Okay, so enough to -- I assume the operating expenses also go way down once you're just kind of floating there.

It's bareboat. So --

Oh, sorry. Yes, okay. Okay. And then, you kind of talked a little bit about that -- about going fishing with your VLCC fleet, just waiting for better days. Can you talk about the number of vessels that you have that are idle at this point versus active?

I got the same question this morning and I think I replied a handful, so I think I will give you the same reply, if that's okay.

Okay, so a handful of vessels.

I have a quite big hand.

Yes, it would depend on whose hand it is. That's right.

And then, you also kind of gave the timeframe, which was the other question that I had, so 20, 25 days. What if we don't see a rebound in rates by -- in the next few weeks or next month or so? At what point do you just say, we've got to earn cash flow and you just start putting them back to work?

I think we have a very competitive breakeven level, so probably some of our competitors will have bigger problems than us, and if -- that should maybe improve the market.

But I think the bottom of the market has been found, and there is a certain number of fixes being done every month, and the fleet is not so imbalanced as it looks on paper. So, we're positive for Q4.

Okay. And when you say you are positive, can we get back to the same kind of rate levels we were seeing at the beginning of the year? Or what's your view of where we can go in the fourth quarter?

Well, it happened last year. You know, at the beginning of Q4, the market took off, and we -- that market continued into Q1 of this year. So hopefully we'll see the same scenario again.

Justin Yagerman, Deutsche Bank.

I was curious, you called out a current market rate of $25,000 on the VLs, $15,000 on the Suezes in your release. At current levels, given the coverage that you're at, would the expectation be if we don't see a pick-up in September that you'd be at a loss in Q3, or is that too severe? Do you think you'd still be earning at least with your coverage some positive EPS?

Those rates, you mentioned the 25 and the 15, is actually from Clarksons tanker [infinity], as I think they call it, what they predict to be the average rates for Q3. It does not necessarily say what we will [in emit], but that's what they believe the rates will end up, and of course we hope our rates will be better than that.

Although if you are around a cash breakeven type of level, so slightly in a loss or slightly above in the quarter, how do you think about the dividend in relation to that for Q3? Would you keep it the same, given that your Q4 outlook sounds like it's quite a bit better, or is that something that you think you'd have to take down in the current market?

With respect to our dividend policy, it's not a fixed policy with a fixed amount per share per quarter. I mean, our dividend policy is that we are paying out the excess cash flow that the Company has. And obviously, of course, if we don't earn as much money in a quarter, we -- usually we pay less dividends. That's just how it is.

And from a storage standpoint, with the oil price having gone down the way it has in the last few weeks, are you guys seeing more inquiry for storage demand on your ships?

Yes, we have seen it, mainly relating to Brent, Brent oil, so ships that are delivering UK October, November, onwards, there's some inquiries there. And I believe, actually, a time charter was done earlier in the week for 30 to 90 days at $38,000. So there seems to be a slow building up, which could help the market.

Okay. So that could be helpful from an employment standpoint. Would you guys necessarily talk about that if that was coming out in the quarter, or would you -- will we find out about that probably just later on?

The good thing about the tanker industry, there's not many secrets, so I'm sure you will be able to see if something is being done.

Fair enough. (multiple speakers) Then lastly, you indicated 70% advance rates on future newbuilding financing. Just curious what the banks are that are offering those kinds of rates, where you've gotten indications. Are they Asian banks, European banks, a combination of both? That's a little bit better than what we've been hearing from your peers, so I was curious if that's real-time in terms of what's out there in the marketplace right now.

It is actually a combination of Asian, European, and -- yes, all sorts of banks, anyway. So it doesn't -- no specific type of bank.

Okay, and -- but I'm assuming you had done 80% on a couple of those ships. That's not available right now, so 70% is kind of where indications are at the moment.

I would say that 80% is not available now. That would be overdoing it.

Rob MacKenzie, FBR Capital Markets.

This is actually Doug Garber filling in for Rob. Most of our questions have already been asked, but I do have one more. I was curious if you guys are interested in sale-leasebacks at all. I know most of the capacity you've added has been owned capacity and I was curious what kind of rates you would be looking at if you were to do something like a 10-year charter-in on a sale-leaseback?

Well, you know, we look at sale-leaseback, but of course normally that's a quite expensive way of financing -- securing your financing needs.

But we have been offered deals like that and we look at them, but so far we have not found them attractive compared to what the banks can offer us and the use of our own cash, so -- but we look at those, but right now it's not attractive.

So, would it be fair saying, going forward, as you add capacity, it's going to be owned capacity as opposed to charter-in capacity?

We would take some ships on a charter-in, not on a long-term basis. I think, then, we'll prefer to own. But it will be a mixture of short- to medium-term charter-in and buying tonnage, putting on our own books.

And if you were to charter-in something on a long-term basis, let's say maybe seven to 10 years, what would be an attractive rate for that, in your opinion?

That's a difficult question.

(Spoken in a foreign language)

I think we will only do it -- I will not give you any rate examples because then my phone will ring here afterwards. But I would say we will only do a long-term deal like that if we can get purchase options or other kickers in the deal. We will not just do a straight deal. Of course, if it's a very low rate, but otherwise not, no.

Okay. And can you remind me right -- do you guys currently have the purchase options? Are they in the money? Are there any plans on any of your purchase options currently?

We have purchase options on some of the KD ships, both Suezmaxes and VLCCs, and of course we look at that. But we also have charter options and right now, it's cheaper for us just to continue the charters than to declaring the purchase option and financing it ourselves.

But we were looking at that, and I think it's safe to say that the purchase options are in the money if we want to do something with that.

Thanks, guys. I'll turn it back.

Ole Hagen, ABG Sundal Collier.

Just one quick question about the third quarter. Do you expect to be profitable?

I think that's a question for you, Inger.

We don't normally comment on these things. So I don't think we will have any more comment on that.

(Operator Instructions). Scott Burk, Oppenheimer & Co..

I had one more question, about your order book. You talked about these two VLCCs where you could potentially walk away and only lose the deposit, essentially. Now that the VLCC price has come back up, you guys have ordered a few more vessels, what's the likelihood that you actually would walk away from those two VLs while you have that option?

We are actually in a friendly discussion with the yard now and trying to see if we can find a solution which will suit both of us. So, we're working on that right now, and I'm sure within the next weeks, we will come up with some different position than we're in now. So, I think that's all I can say on that right now.

What is the timeframe for delivery for those two VLCCs or -- what would be the delivery timeframe?

That would be the first half of 2012.

David Neuhauser, Livermore Partners, Inc..

I wanted to ask you, what do you think -- what is your view currently of your competitors at this point? You've described that you have a competitive advantage as far as operating expenses, and if the current rates stay this way for the next several quarters, how do you -- how are you positioning yourself in that way?

I think we have been fortunate the way our Company has been structured in our strategy that we have always been, what we say, lean and mean.

We don't have to spend a lot of management time and the cost-cutting exercises, and there are things like that which I know other people have been using a lot of time on. I think we try to operate the same in the high and the low market, and that we make sure to keep costs and the breakeven levels competitive, and I think that has shown -- if you look at our results now and some of the other tanker owners for the second quarter, we were quite happy with that.

What's your view here currently of your capital structure? Are you pretty satisfied with that at this point?

Yes. We are satisfied with that.

Okay. And just lastly, again on the M&A front, do you have any views you find that we'll see further consolidation, again if spot rates stay pretty low?

I think everybody is looking around at opportunities right now, and we are not the only company doing that. There's been some newcomers in the field, and I think some bigger transactions could probably happen in the fourth quarter this year if the market remains as it is and stock values and so on. I wouldn't be surprised if that could happen.

And are you guys in the running for things like that? Are you looking for sort of larger transformational-type events that take advantage of the current environment if it stays weak?

We were looking at a few things, yes.

Fotis Giannakoulis, Morgan Stanley.

I would like it if you can give us some guidance on the dividend. You declared a very high dividend this quarter, very similar to the previous one. And if you can give us some guidance for the next quarter and how shall we start thinking about the next quarter dividend?

Like I just said, we don't give any guidance with respect to the dividends. But our policy is that we pay the excess cash flow that the Company has.

And as I just stated what I went through the presentation, there is no need for the cash from operations to support the financing of the newbuilding program. So in that sense, you are pretty -- it gives you a pretty good idea about the -- what is actually available for dividend going forward, based on your estimates.

(Operator Instructions). [Zow Gizou], Sterne, Agee & Leach, Inc..

I have a question. For the second quarter, how many ships -- or how many, well, VLCCs and Suez, total ships, were used in floating storage?

You mean -- first quarter, it was up to the height, around 50 VLCCs. Right now, I would guess -- it's only guesswork, we haven't -- I would say probably between five and 10 VLCCs. We have one VLCC we use for some short-term storage right now. So, my guess is five to 10 VLCCs, very few Suezmaxes right now.

No, I'm sorry. I apologize. I meant, how many of Frontline's vessels in the second quarter were being used for floating storage?

Okay, apart from the single-hull, which we have on longer-term floating storage, which is five ships, we have one double-hull doing some kind of short-term storage right now.

Okay. And then, for the second quarter, can you give a sense -- I'm not sure if that's a statistic that you provide, but can you give a sense for what the utilization rate was? So, put another way, what percentage of your available ship days were employed in the second quarter?

We don't normally give that guidance. We have given some guidance on off-hire, but of course we also have what we call commercial waiting time where we decide -- a few days. But we don't normally give that out.

Okay, but just in order of magnitude, was it higher than in the second quarter -- than in the first quarter?

It was around in the same in the second quarter as the first quarter.

Around the same, okay. And then, just a clarification on the guidance you provided earlier, did you say that for 2011 that you want your contract coverage to get to about 33%, something like that?

Yes, it doesn't have to be exactly 33%, but as you can see, we have around 34% fixed coverage right now and we would like to be around there, as I say around 35%, so we need to put a few more ships on charter next year and 2012.

And that would be up from the current, on slide 17, it's 22%, right?

Yes, that's right, that's right. So a few more ships.

So, and that charter-in activity you expect to happen in -- well, at this point we're at the end of August. It's probably in the fourth quarter, I assume, right?

Yes, we are in some discussions now already, so it will happen within the next one or two or three months, yes.

Does that represent a change from your prior views? So let's say, like, last quarter's conference call, which was late May, was your intention at that point to be at about 35% for 2011?

No, I think we always prefer to have a big chunk of our fleet in the spot market, and if we increase a little bit to 30%, 35%, we will still have 65% or 70% in the spot market, and that's a level we are comfortable with.

Right, so roughly two-thirds spot, one-third fixed is a level that you, long term, you want to be at.

Yes, that sounds right.

Then, just -- you expressed some caution earlier about U.S. oil demand. I guess, if U.S. oil demand -- because I think the International Energy Agency, their forecast for U.S. oil demand is for slight growth, correct?

Yes, that's right.

So, if it actually turns out to be a little lower than that, like maybe 0.2% or 0.3% decline, does that materially change your view of the tanker market for the fourth quarter?

I think, of course, with the U.S. market, you also have to look at the domestic oil production, so I think some people are predicting also maybe the domestic production can go down a little bit, and then you would, of course, have to compensate with imports.

But that's -- there are many reports on this, and they're almost coming out daily and quite contradicting. So, let me say we hope that the import volumes to America will be increased.

David Neuhauser, Livermore Partners, Inc..

I just wanted to follow up quickly on my capital structure question earlier. Meaning, if you were going out there and looking obviously at some M&A activities, what are some of the options that you're looking at to finance something and what's sort of the metrics that you are looking at, meaning are you comfortable with your current leverage ratio or if you were to acquire a company, let's say, any ideas as far as how financing would be -- options would be open for you?

I would say that all sorts of financial options would be considered and open. I think it's a bit hard in a way to be precise on that. Yes, sorry about that.

That's okay, that's okay. I know that's kind of a tough question to answer.

Then also, Jens, I wanted to ask you specifically if -- what's sort of your global macro outlook at this point? There's a lot of talk on China, a lot of talk on -- we're seeing waning demand. In your view is it's short term or for a quarter or two, or do you think this could go well into 2011?

I think I'm very pro-China, and the China oil demand, which of course we have seen compiling and just going up.

Now, their various storage -- strategic storage are being -- the second phase has been completed. So I wouldn't be surprised if there is suddenly a little dip in the oil price. You can see these strategic storage facilities being filled up, and that will, of course, be positive for the tanker market.

I think that the Chinese oil demand with diversified sources of oil, I think it's very important for the tanker market, and will be fairly positive going forward.

(Operator Instructions). It appears we have no further questions in the queue. At this time, I'd like to turn the call back over to your host today for any additional or closing remarks.

I would just like to say thank you for dialing in, and I would like to thank everybody in the Company for good work during the first half of this year and I hope we can, of course, carry that on for the rest of the year. Thank you.

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