Frontline Plc (FRO) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the third quarter results presentation. 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. Jens Martin Jensen, CEO. Please go ahead, sir.

Thank you. Good morning, good afternoon, and welcome to our Q3 presentation.

The third quarter was a difficult and strange quarter, but I am happy that we managed to come out with a small profit which not many other listed tanker owners did. We will follow our usual program for this presentation with Inger going through and following the highlights of the third quarter and main transactions, financial review of the quarter, and an update of our new building program. Thereafter, I will talk about what happened market-wise in Q3 and thereafter say a few words on how we see things going forward.

Inger, please.

Thanks Jens, and good morning and good afternoon to you, ladies and gentlemen. I will guide you through the highlights and the financial review in the third quarter 2010 together with a run-through of the new building program and the fleet.

Moving then to slide four. The fourth and the final VLCC new building from SWS, Front Signe, and the fourth and final of the original series of the Suezmax new buildings from Rongsheng, the Front Njord, were delivered in August 2010. And in September 2010, Frontline agreed with Jinhaiwan shipyard to restructure its VLCC new building program, resulting in that we now have a commitment to take delivery of five VLCC new buildings with a total contract price of $525 million.

The delivery dates were also then deferred by three months from the original contractual date, and furthermore payment terms of the previously ordered vessels were improved.

In September 2010 Frontline entered into and a agreement to time charter out two VLCCs -- Golden Victory for a period of three years from October 2010 at a gross rate of $40,000 per day, and the Front Eminence for a period of five years from November 2010 at the gross rate of $43,000 a day.

In November 2010 Frontline extended a time charter in agreement of the Front Chief, the Front Commander, and the Front Crown -- all 1999 built vessels -- for one year from January 2011 at $26,500 per day per vessel.

And then finally, in November 2010 the Company secured pre- and post-delivery financing in the amount of $147 million representing 70% of contract price for the first two VLCC new buildings to be built at Jinhaiwan and to be delivered in 2012.

Moving down to slide five, I will then give you a quick run through of the financial highlights in the third quarter. Frontline reported net income of $12.3 million, equivalent to earnings per share of $0.16 in the third quarter of 2010. As Jens said at the beginning of the conference not very good results, maybe, but at least it was positive results compared to our competitors which I think more or less all of them had a loss.

This is a decreased compared to the second quarter of 2010 of $69 million. The net income includes a gain of $6.8 million relating to the amortization of a deferred gain on three leases. The net income excluding this gain was $5.4 million, equivalent to earnings per share of $0.07. And on this basis we announced a dividend of $0.25 per share for the third quarter.

Then moving to slide six. The net income [excluding] the gain is about $66 million weaker than it was in the second quarter of 2010. And the decrease can mainly be explained by, first, a decrease in income on time charter basis with $32 million in the third quarter compared to the second quarter, as we no longer charter Nordic American tanker shipping vessels from July 1, 2010. And in addition to that a decrease in the time charter (inaudible) rate per day in the third quarter, which gives us a total decrease on the income on a time charter basis by $100 million.

Then we have had a decreased in profit-sharing payable to Ship Finance with $6 million. Further, Ship operating expenses increased by $2.4 million compared to the preceding quarter, primarily as a result of increased (inaudible) costs of $1.5 million mainly related to the delivery of new buildings and a $900,000 increase in dry docking costs.

Frontline dry docked three vessels in the second quarter and two vessels in the third quarter, but the portion of costs related to (inaudible) which entered dry dock in the second quarter was expensed in the third quarter.

Charterhire expenses have decreased by $32 million in the third quarter compared with the second quarter primarily due to the fact that we no longer (inaudible) charter the Nordic American tanker shipping vessels from July 1, 2010. And as I mentioned earlier, this has a corresponding decrease in operating revenues. Then depreciation has increased about $1 million due to the delivery of the new buildings.

Moving to slide seven. Frontline's double hull VLCC fleet, excluding the vessels on floating time charter, earned in the spot market approximately $30,200 per day. Including the vessels on floating time charter, the VLCC fleet earned $30,000 for doubles and $24,400 per day for singles with an average spot earning of $29,900 per day. The average for the whole VLCC fleet was about $29,800 per day in the quarter.

The Suezmax fleet earned in the Gemini pool $17,500 per day in the quarter. As a consequence of that, some of our Suezmax vessels traded outside the pool at somewhat lower TCE rates. We earned on average in the spot market approximately $15,700 per day in the quarter. We [carried] no singles in the quarter and the average for the whole Suezmax fleet was about $18,200 per day in the quarter.

The OBOs earned $48,600 per day. These TCE numbers show that [sometime] this quarter have traded slightly below or in line with our competitors. And the ITCL vessels are not included in these rates.

Moving down to slide eight, as you can see from this slide we had average OpEx for the fleet of approximately $9900 per day in the third quarter of 2010 compared to approximately $10,100 per day in the second quarter of 2010. We have dry docked two vessels in the third quarter of 2010 which is one less than in the second quarter of 2010.

Off-hire days were 161 in the third quarter compared to 131 days in the second quarter due to more time-consuming dockings in this quarter and some spillover effect from vessels entering dry dock in the second quarter. We expect to dry dock three vessels in the fourth quarter of 2010.

Moving then to slide nine, the total balance sheet is approximately $120 million lower than in the second quarter of 2010. The main items explained in the pages are -- cash has increased with $39 million compared to the previous quarter; cash generation or cash from operations have been higher than the use of cash in investing and financing activities. Other current assets have decreased with $117 million, mainly due to decrease in receivables related to the pre-payment of $110 million [gross] charterhire Ship Finance for the six month period starting April 1, 2010, and also a reduction in trade receivables and voyages in progress.

Book value new buildings are reduced with $93 million and book value vessels are increased with $129 million following delivery on one Suezmax new building, the Front Njord, and one VLCC new building, the Front Signe, in the quarter.

Other current liabilities have decreased with $95 million mainly explained by a reduction in prepaid OpEx due from Ship Finance and trade payables. Short-term and long-term [part or] long-term debt is increased with $123 million as a consequence of draw down on debt in relation to the delivery of new buildings and draw down of debt on the Front Endurance which was delivered in the end of the second quarter, as we hadn't drawn on any debt at that time. This is partly offset by [orderly] repayment of debt in the quarter.

Obligations under capital leases have decreased with $97 million due to orderly repayment and also determination of the head lease on the British Purpose. The sale is included in the balance sheet with a total of $406 million of debt and obligations on the capital lease. Debt related to three of the (inaudible) Suezmax vessels are not consolidated in the balance sheet with $48 million.

Then moving to slide 10. The cash cost breakeven rate in the fourth quarter of 2010 are approximately $31,300 per day for the VLCCs; $24,900 per day for the Suezmaxes and $30,600 per day for the global OBOs. These rates are the daily rates our vessels must earn to cover (inaudible) operating costs, estimated interest expense, scheduled loan principal repayments, [day boat hire], and corporate overhead costs.

These breakeven rates do not take into account capital expenditures or loan building and repayments at maturity. Furthermore, vessels on short-term [PCMs] and vessels on (inaudible) [out] are not including in the cash cost breakeven basis. The cash cost breakeven rates for the OBOs you will see have increased in the fourth quarter, and this is mainly due to dry docking on the front driver in this quarter, in the fourth quarter.

Moving then to slide 11 and 12. As per end September 2010 the total number of vessels in the Frontline new building program was two Suezmax tankers and five VLCCs, which constitutes a contractual cost of about $650 million. As per September 30 we also had two Suezmax new building options and these two options have subsequently expired.

As of September 30, installments of $162 million have been paid on the new buildings and the remaining installments were paid for the new buildings amount to $488 million, with expected payments of approximately $63.5 million in the fourth quarter of 2010, $95.4 million in 2011, $185 million in 2012, and $144 million in 2013, respectively.

Moving to slide 13. The Company has established long term pre-and post-delivery of new building financing for the six vessels built at Rongsheng shipyard and SWS shipyard. At September 30, all these vessels have been delivered and the facility has been fully drawn with $367.4 million of debt outstanding.

In the second quarter 2009 we also established long-term pre- and post-delivery new buildings for the last two new buildings being built at (inaudible). As of September 30, both these vessels have been delivered and the facility has been fully drawn with $145.2 million of debt outstanding.

In November 2010 the Company's secured pre- and post-delivery financing in the amount of $147 million, representing 70% of the contract price of the first two VLCCs to be delivered from the Jinhaiwan shipyard in 2012. And for the three remaining VLCCs and the two Suezmax tanker new buildings to be delivered between late 2012 into 2013, the Company has not yet established pre- and post-delivery financing. Based on the recently secured financing for the VLCCs however, we have seen a 70% financing of the market value for these new buildings.

Based on that, the net remaining equity investment is (inaudible) approximately $29 million which is fully funded through the excess liquidity coming from the recent completion of the [$225 million] convertible bond offering.

Moving to slide 14, in this graph we show the installments to be paid under the new building contracts related to the new building contracts in the period 2010 to 2013 with a total of $488 million in the light blue column. The dark blue column includes the established financing and (inaudible) obtainable financing for the new building contracts of 70% [to] market value in the period 2010 to 2013 with a total of $459 million. And the blue dotted column includes funds used from the convertible bond offering to fully finance the new building program with a total of $29 million. This shows that cash flow from operations does not have to support financing of the new building program.

Moving then to slide 15 and 16, the number of vessels in the Frontline fleet is 80 vessels, including vessels from commercial management and the IPCL vessels. And its component [by 46] double hulled VLCCs, five single-hulled VLCCs, 21 double hulled Suezmaxes and eight OBOs. We do have contract coverage of 34% in 2010 and 25% in 2011. In addition to this fixed rate contract coverage we also have an additional 11% contract coverage on (inaudible) income in 2010 and 12% in 2011.

The average net PC rate for the total fleet is about $45,300 per day in 2010 and $46,400 per day in 2011. We aim to increase fixed charter coverage for 2011 to 2013 from the present levels to 2010 levels.

And with this, I leave the word to Jens again.

Thank you, Inger. We are now on slide 17, the market. We had hoped that the good summer market would have remained at least into August, but unfortunately, by mid-June the market started to deteriorate. I think the easiest explanation would be that the demand side remained pretty much stable, but the tonnage supply was the main negative contributing factor to the market.

Basically all the VLCCs utilized for floating storage entered into the spot market and this 30 ship injection had quite a negative effect.

China again came out with impressive crude oil import numbers. But the trading pattern changed a bit in the third quarter with more volume coming from the Persian Gulf than the Caribbean or West Africa, and thus reducing ton mileage. But it seems we are back to normal in Q4 when it comes to China's oil sourcing.

Our French friends did what they could to help the tanker market and it is basically a Suezmax market, unfortunately little did it help in the end. We have seen an increased demand in the beginning of Q4 and the market has come up to more healthy levels, but still not at a satisfactory level. We are now at slide 18, the VLCC fleet.

The VLCC new building deliveries continued its slippage in the order book is now approximately 20% behind the intended deliveries. We see this trend continuing into the new year. Single-hulled VLCCs are still trading and we have seen in the recent weeks when the market hits around (inaudible) [70], some charters attempted to go back to old habits and start to fix it with single-hulled ships again. Positive for the year will be a very modest fleet growth in the VLCC segment.

Suezmaxes and slide 19 -- that's about 30% slippage of new buildings being delivered and we have seen the same trend throughout the year, and we think this will continue into the next year. But the recent ordering in this segment is obviously a concern. Interesting, next year, 2011 around 15% of the double hulled Suezmax fleet will be more than 15 years old.

We are now at slide twenty. As Inger mentioned, we are happy that we managed to renegotiate our VLCC new buildings [down] to market levels. We estimate and believe that good specification VLCC new building prices are in the region of $105 million today and around $67 million to $68 million today for Suezmaxes. The three year time channel rate for VLCCs is around $36,000 to $37,000; and three years for Suezmaxes, $26,000 to $27,000. But there is not many charters out there, so this number may not be the most accurate.

Outlook, slide number twenty, on the fleet development side VLCC and Suezmax ordering is slowing down, which is positive. And other tonnage types are taking up yard space. Delivery slippage continues and as we have said before, next year is when the expensive order book is kicking in and we expect continued cancellations and slippage of deliveries going forward.

We have seen that the oil company vetting criteria has become more strict. This will need not only to increase operating cost, but also reduced utilization of the fleet which could be overall positive.

World and oil demand -- China's impressive demand is expected to continue with a further increase next year. This (inaudible) will increase imports from the Caribbean and West Africa, will lead to extra ton-mile demand. There seems to be a consensus regarding a high oil price going forward and speculation regarding [coal]. And OPEC is being mentioned again, positive for the tanker markets. Disruptions are positively normally for the market but the increased activity by the Somali pirates is of a great concern.

Frontline OE -- as mentioned in the highlights, we have made some positive charter adjustments both in and out. Two VLCCs were chartered out at high rates, and at the same time we have extended three ships at substantially lower rates. We have quite -- we have a lot of commercial waiting time in the third quarter on our double hulled VLCCs, but we still managed to generate a decent result. If more owners took the same attitude, then the supply side of charters would look quite different and this would benefit the market.

Our recent financing deal shows we can still obtain attractive financing terms whereas other owners are struggling on this field. Charter coverage -- at our Q2 presentation there was quite a lot of questions regarding our charter coverage. I would say our fixed charter coverage gives us a good downside protection which clearly the Q3 results bear witness to, and the market related coverage we [additionally] have will allow us to benefit from any market spikes. When the timing is right, we would like to expand our fixed coverage with two to three ships.

These four things I've just mentioned is making us quite well positioned for the market opportunities we believe will start to come in the new year. I think with that we're ready to take questions. Thank you.

(Operator Instructions). Johnathan Chapelle, JPMorgan.

Jens, you mentioned a couple of times increasing the charter coverage, but then you also mentioned on slide 20 that there hasn't been a lot of liquidity in the three-year time charter market. So, there's really a big question mark about what rates currently are. How are you weighing your desire to increase your time charter coverage versus the fact that the market is pretty much at the bottom right now and you may be taking a haircut on the time charter out contracts? How do you look at the timing of when you want to increase that coverage?

Well, I think we are looking at the market. But I agree with you, the timing is not right now and we're not chartering any ships out. We'd probably be more tempted to take in ships. But that's because we are following this market on, I would say, a daily basis. And if the timing is right then we'll go ahead, of course whereas charters are having a different long-term view. But we are following the market, but the timing is not right now.

And on the charter [end], you just resigned three at lower rates but you don't have the Nordic American ships anymore. How many ships are you chartering in right now and is there any availability to increase that at present levels?

Right now we have four ships, VLCCs time chartered in. And we are comfortable with that level. We could add some more ships to that, but that's what we have right now. Of course, the Nordic ships you mentioned we have them in on a floating-rate basis and that was not really a big impact on our results. Otherwise of course, our Suezmaxes are in the Gemini pool.

So just four chartered in VLCCs, three of them at $26,500. So your charter in expense should be coming down going forward, is that correct?

Yes. Those three ships are extended and the rate will commence in January next year.

And then just two more. Jens, you were in the press a lot around late August, early September talking about how floating storage may come back in the fourth quarter and help the market. It hasn't yet, but at the time I think you said you were getting some inquiries for your own vessels. Have you seen any increase in inquiries for floating storage at this point or is it completely off the table?

No, there are people willing to take ships on storage, but the rate they are willing to take in at -- I think right now you can get better on the spot market. We had the same thing during the third quarter. You had charters waiting to take in VLCCs at around $25,000. But we didn't want to do those levels. I think there's some kind of bottom level in the market where some of these storage plays are coming into play, but right now it's better to play the spot market.

And then finally just one for Inger. You mentioned that the $29 million in equity payments can be covered by the excess liquidity from the convertible. After that $29 million is spent, how much excess liquidity would still be remaining from the convertible offering earlier this year?

Well, I think we haven't really given that number to you before either. And I don't really have that on top of my head. But if you call me (inaudible) -- we can talk about it.

Justin Yagerman, Deutsche Bank.

This is Josh Katzeff on for Justin. I just want to start off on the topic you mentioned on the ton mile demand phenomenon and how that was actually shrinking. We've certainly seen that China was sourcing more oil, the pricing differences, especially in the Middle East. And then you mentioned that has changed in Q4, but rates have still remained fairly weak especially in VLCCs. What other catalysts do you see to bring up the market? Or do you see a winter rally still happening?

I think of course, we have seen that the rates in the fourth quarter have finally improved -- not at great levels, but it's improved from the third quarter. What we need to see to really [rub] the market is of course the imbalance in the rate between the Atlantic and Eastern markets, where you'll have ships [balancing] back and forth between the markets. That will give some change in the market and if you will have a high utilization of the fleet.

We had seen that when the Suezmax market started to tighten up a little bit, we saw more VLCCs being balancing in. And those are the kinds of voyages we need to have. And of course, we need to have the long legs from the Caribbean and West Africa and maybe even from Brazil. If we have those kind of combinations the market will tighten.

Understood. And at the end of Q2 you were very bullish on Chinese oil demand, and that has also remained strong, whereas the US and EU and OECD oil imports have been fairly weak and the US has been sourcing more oil from closer places such as Canada and Mexico. Do you see this as a hindrance in -- especially in the first half of next year? Or do you have any outlook on this reversing course?

I think we have seen that the oil demand has gone up. The total world oil demand has gone up. OPEC production has increased.

Of course, we're not back to the super levels we saw in 2008, but a gradual increase between 1% to 1.5% we have seen in the OPEC production. And of course, we need that to be ramped up. And traditionally that should go to the American markets and we really need the American economy to get back on track.

Are you able to speak at all on your Q4 to date earnings in the spot market? Or at least just generally how they've maybe tracked toward some of the published averages or toward the TD3 and TD5 rates you have seen so far?

We don't normally comment or guide on that, so I prefer not to.

It was worth a shot.

Sal Vitale, Sterne, Agee.

Could you give a little bit of insight into the dividend? Specifically if I look at the dividend, the $0.25 dividend that was declared as a percentage of say cash flow per share, it's something like about 33% this quarter. And in prior quarters it's been closer to about a 50% level. Is there anything in the current quarter that caused the dividend to be a little lower? Is it just the expression of caution on your end? Can you just speak to that please?

No, the way we decide what dividend to pay is not necessarily historical numbers ended 30 September, but it's more like the situation going forward -- the cash situation going forward. So it's a (inaudible) component of the excess cash flow which is available for paying dividends. So it's no specific reason.

We have a drop in earnings from the last quarter if you would like to compare to the last quarter which was $69 million, and last quarter we paid $0.75. Now we are saying we are paying $0.25. I don't think that should be unreasonable compared to the drop in earnings.

I think we had the same question also here in Norway when we did a presentation this morning. If you look at the earnings per share excluding the gain, we have made $1.89. And we will have been paying out $1.75. So we're pretty much paid out.

Okay, thank you. And then just one follow up question about your desired time charter coverage for 2011. When do you think that you'll be able to increase that level from the current level? Is it something you would want to accomplish say by -- probably not by year end at this point, but probably by the end of the first quarter or so?

Well, we don't have to cover -- I think every company makes its strategy. And we would like to cover a few more ships, but we don't have to do it. If the level we don't think is right to justify the investment, then we will not do it.

But we are following the market and maybe we'll do it first quarter next year. Hopefully the market will be better by then and it is the right timing. But there's not a specific date put on it.

Gregory Lewis, Credit Suisse.

I guess real quick, the only question I have is -- could you talk a little bit about the decision by Frontline to sell the [Navigate] 15% stake?

Well, we have been sitting on the shareholding in Navigate. And of course we had hoped when we made the investment that we could have some kind of synergy with the other activities we have in the company that had not really happened. I would guess also maybe you can say the same thing from seeing from the Navigate side, so we have agreed with them we will sell our share and nothing really dramatic with that.

Michael Webber, Wells Fargo.

Most of my questions have already been answered, but I do want to talk a little bit about acquisitions. There are some pretty large market participants in the market right now, looking to either buy into the larger asset classes or potentially sell some larger assets in the VLCC and Suezmax space. How attractive right now do you think current asset values are?

And then, I know you talked about potentially chartering in. But I mean on the asset side how attractive are asset values here? And if you don't think they are attractive here, where would they need to go on a percentage basis before you guys would really start looking at making some more [good] acquisitions?

I think the acquisitions on the corporate level will probably be more interesting than if you look at a specific asset. I think the values of ships have held up quite well and I don't see a collapse in these values. So I think there will probably be some corporate things out there which are soon starting to look interesting. Of course, we're not the only one looking at that. But I think that's probably where things will be going.

Fair enough. You mentioned earlier you look at adding charter coverage across the VLCCs and Suezmaxes. Are you noticing any discernible difference there between liquidity in the [period] markets for VLCCs and Suezmaxes? And should we expect that to be spread out pretty evenly just a couple of ships from both weeks?

Yes, it could be in those segments. Like I just mentioned before, I don't know if you didn't hear that, we don't have to charter any ships out on time charter. We would like to add one or two or maybe three more ships. It could be on the VLCC or Suezmax side. We haven't made that up.

But the timing is not right and we believe the timing -- maybe the timing will be coming in the next quarter. But there's no specific deadline when we have to do it. We may end up not doing it, so, yes.

Fair enough. On the financing end, obviously the 70% is available [because you are] securing that on your new builds. Can you guys remind us what the terms were on the new financing from a spread perspective and then a term?

No, we don't usually give out information about the spreads.

Okay. Within your conversations I guess then with lenders, I'm assuming it is a consortium of European and Asian banks. And I think you guys have spoken to that in the past. Is there or have you noticed any sort of difference between terms and either spread or link between the European and Asian banks? Or is everyone basically working off the same sheet of music?

Not really, I think; it's not a big difference. Of course, it differs between banks and the individual basis, if you can call it that, but it's not a very big spread. It is I think that's more client-wise in a way. From a bank perspective I think they are quite -- have quite common view on one specific kind [in a way or customer].

Fair enough. One more question on the dividend. I know you just mentioned it. You guys have kept it pretty flexible over the last 18 months moving around with the market, and I guess the cut from $0.75 is no different.

When you look at a more muted Q4 operating environment and your expectations for 2011, is it pretty reasonable to assume a conservative approach going forward, particularly with regards to the Q4 dividends? How should we think about that?

I don't really want to comment on the dividend itself because we have -- I think our policy is pretty much the same. But again, when people ask us end of 2008, how do you see 2009? And we said well, we are cautiously optimistic. In 2009 we made around a $100 million profit.

We got the same question last year -- how do you think about 2010? We said we are cautiously optimistic. Now we have made $173 million for the first nine months. So it has not been a bad year, historically. But if you asked me about 2011, I'm not optimistic personally by nature, so I hope it will be okay.

And I think the market could swing many ways. We believe in various factors which will play in and we will see a volatile market. But we still think we will see fairly decent VLCC rates on average for 2011.

(Operator Instructions) Fotis Giannakoulis, Morgan Stanley.

You mentioned earlier that the asset values, you don't expect they will collapse. But we have seen in the last three months some signs of a decline. Earlier this week Euronav sold a vessel at a lower price than it had sold a similar vessel three months ago. Can you explain -- why do you think there is going to be the support in asset values? What do you view the value of a VLCC right now, of a brand-new VLCC?

The ship you are referring to is of course, the Pacific Lagoon, which was sold, which is '99 built and it sold at $55 million. She will be delivered January next year. By then she will be 12 years old. I think a 12-year-old VLCC fetching $55 million, I think that's a pretty good price. If you compare it to a new building at $105 million and then you have pretty much (inaudible) $55 million after 12 years, I think that's pretty decent values.

I think (multiple speakers) another tier of buyers coming in and I think there was actually a few buyers who would have bought that ship. So we think that [port] values, I agree with you, has gone down a little bit, but we have not seen any dramatic decrease in prices.

What do you attribute this strength in asset values? What is it that keeps the asset values right now that strong?

Well, if you look at this year we are in now and average rates we have seen so far for the VLCCs is probably around $37,000, $38,000 a day. And that makes sense if you are paying $55 million for a VLCC.

Can you also explain what is the difference in the slippage, why the slippage in VLCCs is so much lower compared to Suezmaxes? And if you've seen that this is a slippage number that you have in your presentation, that 22%, it will go up or it is the nature of the two markets that makes the slippage rates that different?

The main reason for the bigger slippage in the Suezmax market is that two of the biggest producers of Suezmax new buildings are to Chinese shipyards and they have had quite a big delay to the new building program. And that's why you're seeing this big disruption on the Suezmax market. I think the Suezmax number will probably go down to around 25%, I think because these Chinese yards are having less ships to deliver.

But I think on the VLCC side I will not be surprised that these 22% will maybe go up to around 25%, because that's where we will see really the expensive prices. Next year, the average VLCC new building cost is around $135 million. And that's of course -- will take us all to make sense out of that for some owners.

Alaric Nightingale, Bloomberg.

I just wanted to ask two questions. First, did you say very decent or very fairly decent VLCC rates in 2011?

Well, I think I said fairly decent.

Fairly decent, so I couldn't quite hear you. Okay. The second question, you mentioned ton mile demand increase next year. Do you think Chinese ton mile demand would expand faster than the tonnage demand, and if so, why?

Of course, that depends a little bit about how many ships will be delivered. I think if you look at the VLCC fleet this year, and we are having very modest fleet growth. And if there's delays and disruption next year, we will have the same thing.

I think that Chinese, which you have read and probably also reported in Bloomberg, has made some (inaudible) massive investments in Brazil, many of the Caribbean countries and West Africa. So of course if all that will result in actual oil on the water, then we'll have a quite big increase in ton miles. I haven't calculated if it is going to be absorbed in the fleet, but with some disruptions here and there, hopefully we'll have a more stable market next year.

Obviously, China is increasing its refining capacity. Is there not a possibility that they'll be able to source more from the Persian Gulf given the strength of their economy? And perhaps that could even -- ton mile will go up, but not as quickly as the tonnage cargo will go up.

No, I think of course, it's a pricing issue also for China where they source there oil from and if they are importing oil just for the immediate refining or it's just stockpiling, I think it's always the big question. We don't know what exactly is happening in China. There was a buildup of strategic reserves. So I guess they will be sourcing some (inaudible) but I can't really say for 100% sure what they will do.

(Operator Instructions). As we have no further questions at this point, I'd like to hand the call back over to your host for any additional or closing remarks. Thank you.

I would just like to say, thank you, everybody for dialing in. And I would like to thank everybody in our Company for dedicated work in the third quarter. And I would like to say Thanksgiving to the people dialing in from America. Thank you.

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.