Frontline Plc (FRO) 2011 Q1 法說會逐字稿

Good morning, good afternoon, and welcome to our Q1 presentation. We will follow our usual program for this presentation with Inger going through the Q1 highlights and main transactions, financial review of the quarter, and then, after a quick update, our newbuilding program. After that I will talk about what happened market wise in the Q1 and say a few words on how we see things going forward.

So, Inger, if you could start please.

Thanks, Jens. Good morning and good afternoon, ladies and gentlemen. Moving and to slide 4 and 5, highlights and transactions. In January 2011 Frontline sold its 2006 (inaudible) from Shanghai. The sales proceeds from that sale was $91 million and after repayment of debt the sale generated $31.5 million in cash.

Frontline has in connection with that sale agreed to charter back the vessel for 2 years from the new owner and the duration is 2 years, as I said, and it's $35,000 per day. Delivery to the owners took place in January 26.

The Company recorded a gain this quarter of $7.9 million. In addition, we will record a gain of $13.8 million over of the remaining period of the time charter.

Further, in January 2011 Frontline sold all its shares in Overseas. The sale generated approximately $46.5 million in cash and the Company recorded a loss of $3.3 million in the first quarter.

In March the Company exercised its option to acquire the 2002 VLCC Front Eagle and then after sold the vessel to an unrelated third-party for $67 million. The Company has in connection with the sale agreed to charter back the vessel from the new owner and the duration of this time charter is approximately 2 years at the rate of $32,500 per day.

Delivery to the new owners and commencement of the time charter is expected to take place concurrently in the second quarter of 2011. The Company expects to record a gain of approximately $4.2 million in the second quarter and a gain of approximately $13 million over the period of the 2-year time charter period.

In February 2011, the Company agreed with Ship Finance to terminate the long-term charter party between the companies for two single hull VLCCs, the Front Highness and the Front Ace. Ship Finance in return sold these vessels to unrelated third parties.

Termination of the charters took place in February and March. Ship Finance made a compensation payment to the Company of $5.3 million for the early termination of the charters which was recorded in the first quarter of 2011.

Further in April and May 2011, we agreed with Ship Finance to terminate the long-term charter parties between the companies for the OBO carriers, Front Leader and Front Breaker, respectively, and we expect to record a loss of approximately $9.3 million and $8 million, respectively, for the two terminations in the second quarter of 2011. Finally, in March 2011 we extended the bareboat charter out contract for the single hull VLCC Front Lady until August 2013.

Then moving to slide 6, financial highlights. I will then do a quick run through the financial highlights in the first quarter of 2011. Frontline reported net income of $15.5 million equivalent to earnings per share of $0.20 in the first quarter of 2011. This is an increase compared to the fourth quarter of $27 million mainly due to a gain on sale of assets and other non-operating items and improved results from operations.

The net income includes a gain of $13.2 million relating to the gain of $7.9 million on the sale of Front (inaudible) and a gain of $5.3 million on the termination of the Front Highness and Front Ace charters. The net income also includes the non-operating gains of $8.1 million, which mainly relates to a gain of $8.8 million in Independent Tankers Corporation Ltd. arising on the termination of a funding agreement and then the amortization of a deferred gain of $3.1 million on the sale of a newbuilding contract which then was partially offset by the loss of $3.3 million on the sale of the Company's shares in OSG.

The net loss excluding then gains and losses of $6.3 million equivalent to loss per share of $0.08. And on this basis we have agreed or decided to have a dividend of $0.10 for this quarter.

Then moving to slide 7 net income, excluding gains, is about $4 million better than in the fourth quarter of 2010. And the increase can mainly be explained by the following items.

Income on the time charter basis was in line with the quarter compared to -- (inaudible) to the fourth quarter, but that was due to an increase in time charters [occurred] in price per day in the first quarter compared to the fourth quarter. But this was offset by less trading days in this quarter, as a consequence of that the first quarter had fewer days but also due to re-delivery of vessels.

Ship operating expenses decreased by $2.5 million compared to the preceding quarters, and that was mainly due to a decrease in dry docking costs of $3.1 million. Frontline drydocked 2 vessels in the first quarter and 3 vessels in the fourth quarter.

Further charter hire expenses decreased by $1 million in the first quarter compared with the previous quarter, and that was primarily due to re-delivery of [Desh Ujaala] and then also a period of off hire for one vessel (inaudible) due to a dry docking. That was offset by charter hire of the (inaudible) following the sale and time charter back of that vessel.

Finally, depreciation has decreased about $1 million due to the sale of Front Shanghai.

Then moving to slide 8, income on a time charter basis. Frontlines double hull VLCC fleet, excluding the vessels on spot index time charter, earned in the spot market approximately $28,200 per day compared with $23,300 per day in the fourth quarter. Including the vessels on spot index time charter, the vessels VLCC fleet earned $27,400 per day for doubles and $19,800 per day for the singles. [This scale in our vessel] $27,200 per day on spot earnings.

The average for the whole VLCC fleet was about $28,600 per day in the quarter. The Suezmax fleet earned in the Gemini pool at $17,700 per day in the quarter and as a consequence that some of our Suezmax vessels traded outside the pool at somewhat lower TCE rates.

We earned on average in the spot market approximately $16,000 per day and we traded no singles in the quarter. The average for the whole Suezmax fleet was about $17,300 per day in the quarter.

The OBOs earned $36,300 per day. And this quarter the TCE numbers show that Frontline has traded better than our peers which have released their numbers.

Then moving to slide 9, ship operating expenses and off-hire. As you can see from the slide, we had average OpEx for the fleet of approximately $10,200 per day in the first quarter compared to approximately $11,000 per day in the fourth quarter 2010. And the decrease is mainly due to a decrease in dry docking costs of $3.1 million in the quarter.

We drydocked two vessels in the first quarter, which is one less than in the fourth quarter, as you can see from the graph on the upper right-hand slide. Off-hire days were 221 in the first quarter compared to 168 days in the fourth quarter 2010. Off-hire days related to dry dockings were fewer this quarter but we had more unscheduled off-hire mainly relating to dry docking of a vessel [on commercial] management and repairs.

We expect to dry dock four vessels in the second quarter of 2011.

Moving then to slide 10, balance sheet. The total balance sheet is approximately $143 million lower than in the fourth quarter of 2011 -- 2010, sorry. Main items explaining the decrease are, first of all, other current assets were reduced in the first quarter following the sale of the OSG shares, the book value of the vessels have decreased with $121 million following the sale of [Frontline] (inaudible) and ordinary depreciation in the quarter.

On the liability side, short-term and long-term part of long-term debts is decreased $91 million as a consequence of repayment of debt following the sale of (inaudible) and also ordinary installments in the quarter. Obligations on the capital leases have decreased $30 million due to ordinary repayment.

[Other] sale is included in the balance sheet with a total of $399 million of debt and obligations on the capital leases. Debt related to three of (inaudible) Suezmax vessels are not consolidated in the balance sheet with $48 million.

Moving then to slide 11, cash cost breakeven rates. The average cash cost breakeven rates for the remainder of 2011 are approximately $29,700 per day for VLCCs, $24,700 per day for Suezmaxes, and $26,600 days $26,600 per day for the OBO. These rates are daily rates that our vessels must earn to cover budgeted operating costs, estimated interest expense, scheduled loan principal repayments, (inaudible) hire, and corporate overhead costs.

These cash breakeven rates do not take into account capital expenditures for loan's balloon repayments at maturity. Further more vessels on short-term TCE and vessels on bareboat out are not included in the cash cost breakeven rate.

Then moving to slide 12 and 13. As per the end of March 2011, the total number of vessels in Frontline's newbuilding program are 2 Suezmax tankers and 5 VLCCs, which constitute a total contractual cost of $650 million. As per the end of March 2011, installment of $198.5 million has been paid on the newbuilding and the remaining installments to be paid for the newbuilding amounts to $451.5 million with expected payments of approximately $107 million in 2011, $169 million in 2012, and $176 million in 2013, respectively.

In November 2010 we secured a pre- and post-delivery financing in the amount of $147 million, representing 70% of the contract price for the first 2 VLCCs to be delivered from Jinhaiwan shipyard in 2012. For the 3 remaining VLCCs and the 2 Suezmax tanker newbuildings to be delivered between late 2012 and 2013, the Company has not yet established pre- and post-delivery financing. But based on the recently secured financing for the 2 VLCCs, we are still at 70% financing of the market value for these newbuildings.

Moving then to slide 14, capital expenditures. In this graph we show the installments we paid on the newbuilding contract in the period 2011 to 2013 with a total of $451.5 million in the light blue column. In the dark blue column we show the committed financing in the period 2011 to 2013 with a total of $147 million. And in the gray column we show the assumed, uncommitted financing based on 70% of market value of the newbuilding contracts in the period 2011 to 2013 with a total of $308 million.

The committed and the uncommitted financing is in total $455 million. Based on the assumption of 70% financing, Frontline has already made the total equity investment in the newbuilding program and remaining newbuilding installments will be fully financed with bank debt. However, since we have assumed that the uncommitted financing will not be established until delivery of the vessels, we temporarily will use funds from the convertible bond offering during the period until delivery which is shown in the blue spotted column.

Then moving to slide 15 and 16, Frontline fleet. The number of vessels in the Frontline fleet, as per end of the first quarter 2011, is 76 vessels including the vessels on commercial management and ITCL. And it's compounded by 44 double hulled VLCCs, 3 single hulled VLCCs, 21 double hulled Suezmaxes, and 8 OBOs.

We had a contract coverage of 23% 2011 and 15% in 2012. In addition to this fixed rate time charter coverage, we also have an additional 16% time charter coverage on spot index charters in 2011 and 7% in 2012. The average net time charter rate of the total fleet is about $43,100 per day in 2011 and $47,100 per day in 2012.

With this I leave the word to Jens again.

Thank you, Inger. We are now on slide 17. We continue to outperform our main competitors, as Inger mentioned, which was positive, otherwise the first quarter was rather disappointing.

Some positive factors to mention, a few in the first quarter, was continued slippage to the delivery order book of VLCCs and Suezmaxes. I will go into that in more detail afterwards. Year-on-year oil demand was up, but actually down quarter-on-quarter. The situation in Libya increased a longer haul demand from mainly Saudi Arabia.

Otherwise the negative factors was as mentioned, we actually saw a drop in oil demand from the first quarter to the fourth quarter and what I call lost opportunities. That was obviously the run rate in both Egypt and Libya and I think if the sentiment had been a bit more positive in the tanker market actually the tanker owners could have managed to push out the market further. Instead we saw a steep increase in bunker prices, which obviously hurt the bottom line for mini tanker owners, including ourselves.

The disaster in Japan has had, so far, a short-term negative effect on the crude demand in Japan but we can see signs that from the second half of this year that situation will be positive for the crude demand.

The VLCC fleet on slide 18; the most positive thing about the order book is that no new VLCCs were ordered in the quarter and the delivery slippage, as we have expected, continued with around 28% slippage of the intended delivery schedule. We expect this slippage situation to continue throughout the year with no owners being in a hurry to get their ships underwater and delivered. It has now been confirmed, as mentioned in the last quarter, that 3 VLCC orders has been converted into LNG ships.

On slide 19, the Suezmax fleet. The heavy slippage we had seen to the Suezmax fleet continues with only 13 ships being delivered which is a 43% slippage. The order book is still large, but obviously the delays will dampen the fleet growth.

As mentioned also in the last presentation, we have seen healthy ordering in other segments such as container ships, LNG carriers, and offshore rigs. And that will benefit the tanker newbuilding situation going forward with much of 2013 and into 2014 being occupied by the other tonnage types.

About newbuilding prices and rates on slide 20; newbuilding prices today for a seasoned specification VLCC or Suezmax is around $100 million and $65 million, respectively. We do not see any reason why newbuilding prices for large tankers should fall much from these levels.

Positive to note, for values at least, is that 3 VLCCs were transacted at around $105 million each for delivery first half of next year. We get [VCs] at values for modern ships are keeping steady, but admittedly values for older ships are under pressure. The 3-year time charter market for VLCCs is around $35,000 and we estimate the rates for Suezmax at 3 years to be around $25,000. There is not that many out there to be quite honest.

Our little topic for this presentation -- we normally have a different topic. This one is the piracy situation on slide 21. I think everybody can see how dramatic the escalation of the incidents and hijackings in 2010 compared to 2008 has happened. And also the area of the operations for the pirates have much widened. Before it used to be just along the coast of Somalia; now it's basically the whole Indian Ocean.

Also the innovative skills of the pirates have increased. Now they are using mother ships for their operation and furthermore they are now also attacking ships in ballast, which has a large free board. Before they would only attack VLCCs laden.

This piracy problem has meant increased costs for the owners, including ourselves, and that as best we can recover 50% of this cost from the respective charterers. The other and better solution is to employ armed guards. Positive to note there is no ships with armed guards on board has been hijacked; however, not all charters except the uses of armed guards. Unfortunately, there is no uniform approach from owners or charters to the piracy situation and we think this situation will have to change.

A little bit about outlook on page 22. The oil demand is going up, but the fleet growth is outpacing this. However, the gap is somewhat narrowing. We have started discussing the single hull fleet, but we have noted that more than one-third of both the VLCC and Suezmax double hull fleet is more than 10 years old.

The Japanese disaster is expected to have positive crude demand effects from second half of this year onwards. The number of VLCC figures are clearly increasing and the fleet overhang is not as dramatic as I have seen before.

For Frontline ourselves, we have continued the sales effort of our non-core fleet, which have been the single hull VLCCs and the charter free OBOs. The two modern VLCCs Inger mentioned we have sold seems to be done at the right time and the right prices.

We are starting to see more interesting opportunities, so far mainly on the chartering-in side but we expect that also soon to happen on the asset side. So the big question is when is it time to move.

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

(Operator Instructions) Doug Mavrinac, Jefferies.

Thank you, operator. Good afternoon, Jens and Inger. I just had a few follow-up questions for you guys. One is in your earnings release there is a statement that talks about how it's hard to see a recovery in the tanker market as long as the net supply of tonnage grows faster than the total ton mile demand.

My question is how does that view change if we do, in fact, see an increase in ton mile demand later this year, whether it's because global oil demand is increasing 2 million barrels a day from 2Q to 3Q or because of Japan or what have, how does your view change if you do, say, get a 1 million barrel a day increase in OPEC production or 1.5 million in the third or fourth quarter?

Well, if we have, let's say, a healthy increase of 1 million to 1.5 million, as you mentioned, of course that would have a quite tremendous positive effect, especially if it's America that will increase in this extra oil. But that seems to be the lagging factor right now.

There is no doubt it seems like the American economy is improving, but we are not seeing the oil demand actually going up in the first quarter. It actually went down in America. So we need the American economy to go on again and, of course, we need continued delay to the order book which seems to be the case. Nobody is in a hurry right now to take deliveries.

Got you, got you. Thank you, Jens. Then actually that leads to my next two questions. First, obviously demand in America is weakened and we saw the IA reducing US oil demand last week. But my question is underlying the current weak environment are we still seeing a decent number of westbound cargoes out of the AG to replace the lost West African exports that are now being diverted to the EU?

So we are still seeing -- even though US demand is weak, are we still seeing that shift in trading patterns towards more westbound cargoes out of the AG that we have seen, say, back in April and early May? Are we still seeing some of that?

We are seeing it. We are seeing more movements from Saudi Arabia to the US Gulf, that has definitely happened. But at the same time we have seen less West Africa cargoes to the States and then we have seen actually quite a change in trading patterns for VLCCs.

Before we saw much more East-West and West-East trading. Now it seems like many VLCCs have just employed [ADEs] and a few VLCCs in the west. So we don't have these, let's say, inefficient moves where ships are going longer ballast legs so we need more activity in the Atlantic Basin.

Got you, got you. And then just final question before I turn it over and it relates to the comments that you made regarding the order book. Clearly the order book has proved somewhat fictitious over the last 12 months given the level of non-deliveries in the form of slippage that we have seen.

My question is, when you look out at deliveries for the balance of this year and next year, is there any way to know how much of that is deliveries that just aren't going to happen, i.e., they were cancellations that just never showed up and they weren't taken out of the order book? Basically is there a way to quantify what percent of next year's deliveries were ships that were supposed to be delivered and they just haven't been versus new orders?

I think -- obviously if the VLCC is $100,000 a day then everybody will expedite their ships to be delivered, but we predict that the 25% to 30% slippage in VLCCs could continue if the market stays at these levels. And we have -- there is various stories going around, actually owners with ships supposed to be delivered next year are going to the yards and asking for deferments to 2014 and 2015, if the yards can use that space instead. So those discussions are ongoing.

Okay. So it could result in rather than a peak in deliveries, as was expected in 2010 and 2011, maybe a smoothing in deliveries where there is less deliveries in the near term, but perhaps filling or backfilling the lack of orders that were otherwise going to take place in 2013, 2014?

That could be a scenario, that could be a scenario. But I think already now you are seeing more being tonnage types being ordered in 2013 and 2014. That seems to be popular delivery positions for mainly LNG and containerships right now. (multiple speakers)

Got you, got you. Okay, perfect. Great, thank you for the time.

Robert MacKenzie, FBR Capital Markets.

Good afternoon, Jens and Inger. I wanted to build on some of the prior questions and tie-in some of the comments attributed to Tor Olav yesterday there in Norway where he commented that he didn't see a recovery in the tanker market for 5 years. Yet in your release and I think consistent with our view, you talked about 2011 starting to narrow the gap a little bit in terms of the supply and demand balance for tankers.

Can you talk about your underlying assumptions for the economic growth going forward that would lead to that 5-year view before recovery? And, I guess as part of that, future orders for tankers in out years, if any?

We had the same question this morning when we did the actual presentation here in Norway before the stock exchange opened. Of course, everybody was also asking us to comment to Tor Olav's presentation yesterday, which we did not. But I think some of the points in his presentation was probably misunderstood. I think his more delivering point was not to jump in too early and start investing in the tanker market if we are going to have a prolonged slump.

I think the most positive sign now in the tanker market is that actually we see more activity. The numbers of fixtures every month is going up, the demand or the number of cargoes is going up, but there is an imbalance in the fleet. We need more oil demand; we need more things to be done to have solved that.

But I don't think -- some people they asked this morning if this is the same as we saw in the mid-'70s and that is absolutely not the same scenario.

Okay. What are the differences there now versus in the '70s?

Well, in the mid-'70s -- I had the exact same question also. I know I shouldn't have replied it like that. If you look at 1977, there was 600 VLCCs on the water, 50 of them were ULCCs. The oil production per day was 55 million barrels.

Today we have 565 VLCCs and we have the oil demand of around 90 million barrels. Back in the '70s you had a very distinct trading pattern to VLCCs. Now we have, of course, with the entry of China coming into the market a complete different dynamic VLCC market with different traits.

So I think it will be quite unfair to compare those two scenarios. I know there is a lot of gloom out there, but I think it would be wrong to compare those two markets to each other.

Okay. In terms of what you are seeing for incremental loading versus kind of the IEA forecast for oil demand growth, it seems to me like pretty much all of the incremental forecasted demand is going to come from regions that have to ship it versus pipe it. Does that seem accurate to you guys as well?

That is correct. Of course, one of the biggest and most interesting areas is, of course, what will happen to offshore Brazil with the huge investments and the various production facilities coming out there. And, of course, the Chinese oil companies, state oil companies have done already long-term contracts with the Brazilian government or Petrobras.

So that will be interesting. It will not go buy a pipeline; it will be shipped. So in the years to come and if you look at refinery expansion in China, it looks more positive going forward.

Great. Thanks, I will turn it back.

Fotis Giannakoulis, Morgan Stanley.

Good morning. I would like to follow up on your market outlook and the questions that they were previously asked. At this point, how many VLCCs do you think that we are oversupplied in the Arabian Gulf in order to say that if these VLCCs did not exist we would have a more balanced market with VLCC rates around $40,000 [a year]?

I would say it's difficult from quarter to quarter. I think the overhang out of the Persian Gulf for real, tradable VLCCs, meaning single hull ships are not tradable anymore, is probably between 20 to 25 ships. The overhang is not bigger than that.

So would that be correct to say that we are talking about a need for an incremental export from the Middle East of around 1 million barrels assuming that this oil goes to Asia? Or do you think that the demand is going to come from the US?

What is the incremental quantity of oil that we will need in order to absorb this oversupply? And including also the new supply that is coming during the rest of the year.

I think to absorb the whole order book the rest of the year you probably need around 2 million barrels to do that, but of course it depends on the trade also. If it's all US bound that will, of course, have the biggest effect. It depends on, I would say, also on the other cross-trading of the VLCCs. It's probably around that.

Then on that I have been hearing the view that potentially any Saudi export might not go with VLCCs but there is a good chance that it will go through the Red Sea via the Sumed Pipeline towards the Mediterranean market to replace the Libyan production. Do you have a view on that?

I guess that is a pricing issue and that could happen, but I think what we have seen that that has, of course, increased but we have also seen more actually VLCCs being shipped -- oil in VLCCs being shipped for the US market. So I don't think it will be through the pipeline only.

Okay. Thank you very much.

Justin Yagerman, Deutsche Bank.

Good morning, good afternoon. I don't want to harp on these comments from Tor Olav, but when I look at the quotes that came across in the US. He said we have got to go through a lot of pain before we are back into a profitable territory and we have just started on a down cycle that will be brutal. So unless there was a mistranslation, it feels as if -- there is a really inconsistent message coming here.

If that is the case and this is actually the view of the senior management, how should we expect you to proceed from a coverage standpoint, from a leverage standpoint, and from a dividend standpoint going forward? Are you guys actively seeking coverage given that he feels the market is in imminent danger?

No, I think we are quite happy with our current position. We prefer to have around two-thirds of our fleet spot. We think they are [facing] out now on the prevailing rates and you are giving away the upside. So we will not do that.

The only expansion of the coverage will be some of the OBOs coming off charter and maybe single hull ships. We just extended one, as mentioned in the highlights. No, we will not do that. It's difficult to comment on the specifics and his opinion, so that is much speculation on that. I can't really say more than that.

Okay. Then the intentions, I guess, for the newbuilding program given your market outlook. Are these ships that you are continuing to plan to take delivery of or would you be looking to sell them if you had attractive prices in the market?

Well, we think the VLCCs are, what, at $105,000 and these Suezmaxes around low $60,000s which is market prices. We need fleet renewal, so our intention is to take delivery of these ships. We have only financed 2 of them, but we have received indications for up to 70% financing of the rest. So we are quite comfortable with the order book.

With the stock down, I mean double digits on a percent basis over the last two days just on this commentary, any interest in buying shares here in the market given what is going on and given that your stock is trading at a discount?

(multiple speakers) an opportunity as well, along with other acquisition opportunities so we have to review that.

Okay. I mean, given the commentary, it feels like if you guys aren't buyers then to some extent you might be sellers. You know -- I am just curious how you feel about the market right now in more certain terms.

Well, I think we see more activity in the tanker market there is more -- I think the important thing is that the activity, the number of cargoes has moved up. There is an imbalance in the fleet but I -- what we have -- the rates obtained in the first quarter were not fantastic but at least you can tolerate that on the shorter term.

There is some signs, mainly on the activity side which is picking up, which I think is what we have to focus on right now.

Okay. And the last question and I will turn it over to somebody else. On the bank debt side you are actively, it sounds like, talking about the newbuilding financings. You guys are targeting 70% advance rates. Are those achievable right now and at what kind of margins are you looking at financings right now?

I definitely think that it's achievable right now. Yes, definitely. The margins I guess you can get in the market now. It's around, let's say, 200 basis points up to 250 basis points I guess, depending upon the transaction.

So that has come in from a height of 300. I mean is it safe to assume then that the banks are viewing a better market in terms of credit quality?

It feels like the banks are quite interested in doing business nowadays, yes. The competition, I guess, is better than it was before.

Okay. Thanks for your time. Appreciate it.

[Michael Pak], [Clarkson Capital Markets].

Good afternoon. A couple quick questions here. On your press release and your commentary you guys have indicated that you are actively evaluating a portfolio for future potential vessel sales. Given your book values of the vessels, how do you reconcile that with the prevailing market values and your eagerness to perhaps divest? If you can help explain that that would be helpful.

Well, I think that what we mentioned in the press release that we don't necessarily have to maintain the biggest crude oil tanker owner. We don't mind selling one or two ships if the price is right, which we show that on the Front Shanghai and the Front Eagle. We will not start selling the core fleet at a loss. I think there is probably more interesting buying opportunities coming than start selling at a loss.

Okay. Just expanding upon your future debt raising for the newbuild program, are you understanding that you have some time to get this done, the deliveries don't take place until late next year? Are you still concerned or is there a thought that the bank market could turn against or get worse as the tanker markets [filming] through as we go through the year?

Is there a thought that maybe securing these things ahead of time may be a more prudent move? I would just like to get your thoughts on sort of the downside scenario.

No, I don't think we are concerned about that. I think what is important is that you are among the banks, let's say, prioritized clients, the ones that they would like to do business with. I think we have always looked upon our banks as very supportive to ourselves and to the Fredrickson Group. So I don't think we have a concern about that.

Okay. Are you confident that you could secure, whether it be covenants, in terms that are sort of similar to your existing debt structure that you have in place?

Yes, we are. That is our plan and intention.

Okay. And then one last question. Can you give us a sense of your utilization rates in 1Q? Understand you took some unscheduled off-hire. Can you give us some color or percentage change on the trading base would be helpful?

Well, what we have mentioned before we don't mind waiting for the right cargo. In the low market waiting time is basically free, so we think it's more important to find the right cargoes and the right charterers when we know that we want a certain destination. It could be East-West or vice verse.

So we have normally been -- in a low market we are willing to take waiting time, and we have done that also in the first quarter. So of course, off-hire days is off-hire days that is regarding docks and repair and so on. But waiting days we also have that like we had in the other quarters. Normally in a low market we would take more waiting days.

Okay. So is it fair to say that 1Q had a lower utilization than 4Q and year-over-year?

I think throughout the tanker fleet right now you have a lower utilization. You have waiting time which owners take, and then of course also you have the low slow speed. So I guess, yes, you can say the whole utilization of the fleet is lower.

Okay, thank you for your time.

(Operator Instructions) Sal Vitale, Sterne Agee.

Good afternoon. Just a clarification on your comment earlier about your target coverage ratio. I think you said it was about two-thirds. So looking at page 16 of the presentation wherefore the rest of 2011 you have 23% and the 15% for 2012.

So just I guess first on 2011. If you don't see attractive rate levels on the time charter market, at some point do you fix anyway just to get close to that 33%, that one-third level? Or do you just play a more opportunistic approach and maintain low contract coverage?

What we have mentioned here, and also Inger mentioned, is the fixed time charter coverage. Apart from that in 2011 we actually have time charter coverage up to 39% of the fleet, so that the rest, the 15%, is basically VLCCs, Suezmax on-time charter but the rate is market related.

In 2012 it's around 25% of the fleet we have tied up in complete charter. We think our -- like I mentioned before we should have around one-third out on charter and then two-thirds spot. So you could say that we should add a little bit more in 2012, but we will not do it now at these rates. We prefer to wait, but we will be quite happy with our portfolio charter right now.

Okay. Then just one other question. Looking at European oil stocks, at what point do you think you will start to see a rebuilding in that? I think it's overdue at this point. Do you think you will start to see some rebuilding in European oil stocks in June and into the summer?

I guess everybody is looking at the oil price or the commodity price and when it's about right time to do that. I can't say, but I think the -- of course the European economy, or at least in the big countries, such as Germany, seems to be quite healthy. So I don't know what their plans are but I guess it could happen. It must be related to the oil price and, of course, I guess the strength of the US dollar as well.

Okay. And then just the last question on the use of capital side. Just following up on the question that was asked earlier about potential given where the stock is now, about the potential for stock repurchases.

Is there a level -- is there a stock price level where you think that it would be a better use of capital than continuing to pay out dividends? Just thinking ahead to if the tanker market continues to remain weak, might that be a use of capital?

So far I think that our philosophy in a way has been to pay dividends with the excess cash flow that we have instead of buying back shares. So I don't really -- we haven't really discussed this item on a detailed basis at all, so I think it's hard to answer that question.

Okay, thank you.

(Operator Instructions) We currently have no more questions in the queue at this time.

All right. I would like to say thank you to everybody for dialing in and listening to our presentation. I will thank everybody in the Company for their hard and good work in the first quarter. Thank you very much. Thank you.

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