Frontline Plc (FRO) 2011 Q2 法說會逐字稿

Good day, and welcome to the Frontline Ltd. Q2 2011 results presentation. Today's conference is being recorded. At this time, I would like to turn the conference over to Jens Martin Jensen. Please go ahead, sir.

Thank you. Good morning, good afternoon and welcome to our Q2 presentation. We will follow our usual program for this presentation with our CFO, Inger Klemp, going through the Q2 highlights and main transactions; thereafter, a financial review of the quarter; and thereafter, a short update of our new building program. After that, I will talk what happened or maybe what did not happen in the market in Q2 and say a few words on how we see things. And after that, we will take your questions and I'm sure there will be a few today.

So Inger, if you could start, 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 2011 and so far in the third quarter, together with a run-through of the new building program.

Then moving to slide four. In March 2011, the Company exercised its option to acquire the 2002-built VLCC Front Eagle, and 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 the time charter is approximately two years at the rate of $32,500 per day. Delivery to the new owners and commencement of the time charter took place concurrently on May 27, 2011 and the Company recorded a gain of $3.9 million in the second quarter. In addition, the Company expects to report a gain on approximately $13.1 million over the remaining period of the two-year time charter.

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. The Company reported losses of $9.3 million and $8.5 million, respectively, for the two terminations in the second quarter of 2011. In May 2011, the chartered VLCC Kensington was redelivered to the owners.

Our VLCC newbuilding construction program is expected to be delayed with approximately four to five months. And as a result of that, expected payments of $79.9 million and $73 million have been moved from this year into 2012 and from 2012 into 2013 since the first-quarter earnings release.

Moving to slide five. I will then do a quick run-through of the financial highlights in the second-quarter 2011.

Frontline reported a net loss of $35.2 million equivalent to a loss per share of $0.45 in the second quarter of '11, compared with net income of $15.5 million and earnings per share of $0.20 in the first quarter of 2011. The net loss includes a loss from sale of assets and amortization of deferred gains of $12 million, which comprises losses of $9.3 million and $8.5 million arising on the termination of the long-term charter parties for the OBO carriers Front Leader and Front Breaker, partially offset by gains of $3.9 million and $2 million relating to the sale of Front Eagle and Front Shanghai.

Net loss excluding gains and losses was $23.2 million, equivalent to loss per share of $0.30. Frontline announces a net loss of $19.8 million for the six months ended June 30, 2011, equivalent to a loss per share of $0.25. A net loss excluding gains and losses was $29.5 million for the six months ended June 30, 2011, equivalent to a loss per share of $0.38. And we have decided to pay a dividend of $0.02 per share for the second quarter.

Moving down to slide six. Net loss excluding gains and losses in the second quarter of 2011 is about $17 million worse than in the first quarter of 2011. The decrease can mainly be explained by, first of all, that income on time charter basis was about $20 million lower in the second quarter than in the first quarter, due to a decrease in the TCE per day in the second quarter, and less trading days in the quarter, as a consequence of sale of vessels and termination of leases.

Secondly, profit sharing to Ship Finance decreased about $2 million due to a decrease in TCE per day in the quarter. Chief operating expenses increased by $300,000 compared with the preceding quarter, primarily as a result of an increase in drydocking costs of $2.3 million, partially offset by a decrease in running costs, mainly due to recent sale and lease terminations.

Charter hire expenses increased by $900,000 in the second quarter compared with the preceding quarter, primarily due to an increase in provision for loss making voyages and charter hire for Front Shanghai and Front Eagle, partially offset by a decrease in charter hire for Hampstead due to a fire, and Kensington due to re-delivery on May 18.

Depreciation has decreased about $1 million due to the sale of Front Eagle, Front Breaker and Front Leader. And then [on large] interest and other items have decreased about $1 million in the second quarter compared to the first quarter.

Then moving to slide seven. Frontline's doublehull VLCC fleet, excluding the vessels on spot index time charter, [weren't] in the spot market approximately $25,700 per day compared with $28,200 per day in the first quarter. Including the vessels on spot index time charter, the VLCC fleet earned $23,900 per day for doubles; we treated no singles in the quarter.

The average for the whole VLCC fleet was about $26,100 per day in the quarter. The Suezmax fleet earned in the Gemini pool $16,200 per day in the quarter. As a consequence of that, some of our Suezmax vessels trade outside the pool at somewhat lower TCE rates. We earned on our [average] spot market approximately $14,500 per day. And we traded no singles in the quarter. The average for the whole Suezmax fleet was about $15,800 per day in the quarter. The OBOs earned $31,300 per day in the quarter. And again, the TCE numbers show that Frontline in this quarter has done better than our peers which have released their numbers.

Then moving to slide eight. As you can see from this slide, we had average OpEx for the fleet of approximately $10,800 per day in the second quarter compared to approximately $10,200 per day in the first quarter. The increase is mainly due to an increase in drydocking costs of $2.3 million in the quarter. We had drydocked three vessels in the second quarter, which is one more than in the first quarter, as you can see from the graph on the upper right-hand side of this slide. And as you can see from the graph on the lower right-hand side of the slide, off hire days were 211 in the second quarter compared to 221 days in the first quarter. We had [more than five] days relating to drydocking but we had less on schedule of hire. We expect that drydock increases in the third quarter of 2011.

Then moving to slide nine. The total balance sheet is approximately $129 million lower in the [first quarter than in the first quarter -- sic] of 2011. The main items explaining the decrease are that the book value of the vessels are decreased with $104 million, following the sale of Front Eagle and termination of leases of Front Breaker and Front Leader, and also the ordinary depreciation in the quarter.

The short-term and the long-term part of long-term debt is decreased with $9 million as a consequence of ordinary installments in the quarter. And obligations on the capital leases have decreased with $87.3 million due to the termination of leases on the Front Breaker, the Front Leader, and the Front Eagle and then ordinary repayment in the period.

[After] sale is not included in the balance sheet -- sorry, [after] sale is included in the balance sheet with a total of $399 million of debt and obligations on the capital lease. And debt related to three of the contracted Suezmax vessels are not consolidated in the balance sheet with $48 million.

Then moving to slide 10. The average cash cost breakeven base for the remainder of 2011 are approximately $29,800 per day for the VLCCs; $24,800 per day for the Suezmaxes; and $21,700 per day for the OBOs. And these rates are the daily rates our vessels must earn to cover budgeted operating costs, estimated interest expense, scheduled loan principal repayments, payables, hire, and corporate overhead costs.

Then moving to slides 11 and 12, as per end June 2011, the total number of vessels in Frontline's newbuilding program are two Suezmax tankers and five VLCCs, which constitute a contractual cost of about $650 million. We have not paid any newbuilding installment in the second quarter. And, as per end June 2011, we still have paid installments of $198.5 million on the newbuildings, and the remaining installments will be paid for the newbuildings amount still [to] $451.5 million.

The expected payments of $79.9 million and $73 million have been moved from this year into 2012 and from 2012 into 2013, respectively, since the first-quarter earnings release. This is a result of an expected delay of approximately four to five months in the release of the newbuilding construction program. On this basis, we expect payments of approximately $27 million in the remainder of 2011; $175.7 million in 2012; and $248.7 million in 2013, respectively.

In November 2010, we secured pre- and post-delivery financing in the amount of $147 million, representing 70% of the contract price for the first two VLCCs to be delivered from Jinhaiwan shipyard. After end June 2011, this facility is not drawn, but we expect to draw down $86 million in 2011 and $62 million in 2012.

For the three remaining VLCCs and the two Suezmax tanker newbuildings to be delivered between late 2012 and 2013, the Company has not yet established pre- and post-delivery financing. Based on the recently-secured financing for the VLCCs, however, we assume a 70% financing on market value for these newbuildings.

Moving down to slide 13, in this graph, we show the installments to be paid under the newbuilding contracts 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 of [30%] of market value on the newbuilding contracts in the period 2011 to 2013, with a total of $300 million. Committed and committed financing is, in total, $447 million. So based on the assumption of 70% financing, the remaining newbuilding installments are expected to be almost entirely financed by bank debt.

Moving down to slide 14 and 15, the number of vessels in the Frontline fleet per end of the second quarter 2011 is 74 vessels, including the vessels of commercial management and the ITC vessels, and is compounded by 44 doublehull VLCCs; three singlehull VLCCs; 21 doublehull Suezmaxes; and six OBOs. We had a contract provision of 20% in 2011 and 14% in 2012. In addition to the six [rate] time charter coverage, we also have an additional 17% TC coverage on spot index charters in 2011 and 7% in 2012. The average net TC rate for the total fleet is about $46,000 per day in 2011 and $47,700 per day in 2012.

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

Thank you, Inger. As Inger has just reported, the quarter was disappointing; but on a relative basis, we did fairly well on the chartering side in Q2, due to slow steaming and using commercial waiting days positively and taking the right voyages.

Looking at the market movers, positive factors, there was a few -- continued delivery status of the order book; no new crude orders was placed in the quarter or so far 2011; high lifting volumes from the Persian Gulf over the summer; the oil demand year-on-year was up, but down quarter-on-quarter. Negative factors in the quarter -- the oil demand was down from the first quarter due to economic stagnation; the release of the IEA strategic resource proved negative for the tanker market or the (inaudible) demand; we saw a decrease in long-haul imports to the United States. And despite a slowdown in the newbuilding day rates, supply still outweighed demand.

We are now on page 17 -- the [Ganda] VLCC fleet. As mentioned, no VLCCs was ordered in the quarters and delivery status continued, and is now around 23% of the fleet. We understand that there are many discussions taking place between owners and shipyards right now regarding possible postponement of deliveries.

Slide 18, the Suezmax fleet -- the Suezmax delivery status continued with around 30% and also, no Suezmaxes was ordered in the quarter.

If we go to slide 19, we estimate newbuilding prices to date for these specification VLCCs or Suezmax to be in the region of around $100 million for VLCCs and around $62 million to $63 million for Suezmaxes. We have seen a large increase in LNG offshore and large container ships ordering first-half 2011, and majority of the larger shipyards are now full for 2013, so we can hope for limited supply.

The TC market we estimate that the three-year TC rate for VLCCs is around $30,000 per day and around $22,000 a day for Suezmaxes, but in all the charters are not really queuing up out there right now.

Now we are on slide 20, which is a little idea we are putting out. Right now probably the only thing that can change the present tanker market positively is to do something with the fleet, i.e., take some ships out or take some supply out. About 50 VLCCs seems to be the consensus overhang on a monthly basis. With the latest fall in values, it could be possible to purchase 50 older VLCCs, doublehull VLCCs, at around $1.5 million. Scrap value of these ships are in the region of [$1 billion], so we would take the $500 million gamble, it would surely help the market if somebody did.

Page 21, outlook -- in general, the oil demand is increasing but the growth is slowing down. The wild card right now is obviously the economic development in the United States and in Europe. Slowdown in new vessel ordering will help the market regain balance, but when will it be in balance? Maybe the 50 VLCCs now as we just mentioned could jumpstart the market.

The market is active but when will we ever stop taking loss-giving orders, I think all VLCCs and Suezmax orders for that matter should stand a little bit more firm. For Frontline ourselves, we will continue the sales efforts on loss-making vessels. The ships for the sales we have so far done in 2011 seems to have been timed right. We intend to redeliver four chartered in vessels during the fourth quarter of 2011. We are exploring alternative uses of some of our older ships, and we're working on a few interesting projects at the moment, which hopefully, will come to fruition over the next months.

We have one charter default and one of the [slide] trading OBO vessels, and we will continue this claim until the bitter end. We will initiate consolidation in the market, need that; we have seen more interest or discussions going on with pools and that would surely help.

With that, I think we are ready to take the questions. Thank you.

(Operator Instructions). Greg Lewis, Credit Suisse.

In reading through the press release, you mentioned your waiting time policy for your vessels. Could you provide a little bit more color on what exactly that means?

Well, right now, the low market is basically waiting, doesn't cost you anything. So we had seen it's better to slow steam to a loading port and then wait for the right voyages, maybe there is a voyage that is better than the other. And we saw -- we opted to have around 10% voluntary waiting time in the second quarter for our doublehull VLCCs, which is the same as basically taking five of our ships out of the market. Still with that policy we managed to be, as Inger said, the others when reported their earnings. I think it's very important to wait for the right cargo. The longer you wait sometimes, there seems to be some people with charters who are a little bit pressed and they will pay up.

Okay, so this is more of a function of just the overall fleet is, I guess, sounds like it's having utilization somewhere in the high 80s, low 90s and not actually taking a couple vessels out of the market.

That's right, that's right.

Okay, great. And then could you provide a little bit more color on, I guess, the VLCCs were work delayed four to five months. Was that coming from the shipyard? Was that coming from Frontline? Could you just provide a little bit more color on that?

I think what we have seen many of their newer established shipyards have probably taken too many orders in. And as they come to crunch time, when the ship has to be delivered, there seems to be some delays in their building program. This is what we have seen here on our VLCC newbuilding yard. And this is the delay that is likely to happen. We have also deferred payments which, of course, come with the various milestones, which has not happened so far.

Okay, but it sounds like those are being actually driven by the yard and not necessarily Frontline.

Correct.

Now with that, are you able to get any concessions on price? Or does price just stick where it is?

Well, I guess the longer it goes on, of course, that if ships are delayed beyond the delivery date, then of course, you are entitled to some liquidated damages, but it's too early to speculate on that. But potentially there could be some damages which we could receive.

Okay, great. And then just one last question. It's going to be regarding Libya. When we think about the ability for Libya to come back online at a certain point, whether it's in the next quarter or the next few quarters, how should we think about that impacting the market, just given the facts of the type of oil that Libya exports? Should we view that as sort of -- I mean, how are you thinking about that? Are you thinking that's a positive? Are you thinking that's good for ton mile, bad for ton mile ? I'd just really like to get your thoughts on

Well, I think we all hoped here beginning of the summer when the Libya situation escalated, that it will be positive for the tanker market that the oil from Libya would disappear. But then at the same time, of course, we had the release of the strategic reserves. But I think when the production or the oil is coming out of Libya again, it will be positive for the tanker market. It was positive for the Suezmaxes and the Aframaxes before more [cross-made] activities and so on. So I believe it will be -- it will help the market a little bit but it's not going to jump. But it will be a positive for the market.

Okay, thank you very much for that time.

Justin Yagerman, Deutsche Bank.

This is Josh Katzeff on for Justin. Just wanted to maybe touch upon the market in your outlook. So I guess members of Frontline Ltd.'s management has been fairly outspoken about their longer-term negative expectations for the tanker market. Can you guys go into maybe your thoughts on the market in -- for the back half of 2011 and into [2012]?

Well, I think, if I speak for myself, not from what our management and the Board have said, but I think that we have seen a more active market, more listings are taking place. But of course, we need certain economies, mainly the American economy to come back on track, so we can have some more long-haul demand. But of course, the biggest factor is, of course, right now how many ships will be delivered into the market. Of course, if the full order book will be delivered on time, that will, of course, take some digesting to absorb that.

And then I think, as we have mentioned, to jumpstart the market, it would be good to take some ships out. It could be voluntary laying up or somebody is buying and laying them up, or more scrapping but I think you probably need both to really move the market.

With regard to ships being laid up and maybe put into longer-term idle, is that possible to happen before kind of the Q4? Or are owners just sitting there waiting for possibly a rally and want to keep their ships active in the market?

I think right now you're not seeing many owners putting ships into lay-ups. It's very difficult to put a VLCC into a six-month lay-up and then resume trading again or continue trading again -- you will lose various approvals and so on, so that could be quite costly to do that. But of course, you could take newbuildings straight into lay-up and that could be an alternative to look at that.

Got it. And I guess with regard to some of the asset sales. I guess, in the release, there was talk of trying to reduce your -- some of your fixed costs on loss-making vessels. What was the rationale on the sale-leaseback? I guess it was sold at a good price of $67 million, but with the charter back at $32,000 a day, that seems like it's going to be generating a loss and it's above your cash breakeven.

If we had not sold the ship, the rate would be higher. This was a ship we had on charter, on a [KG] lease with a time charter rate much higher than $32,500. So we actually got some relief there at the same time we cashed in. So we are quite happy with that transaction.

Got it. Just one quick question. Can you go to maybe some of the uses for the OBOs that you mentioned? Provide some more color on that?

Well, we are working on various projects right now. I prefer not to mention specifics, but we will take them away from trading if this happens.

Got it. Thank you for your time.

Fotis Giannakoulis, Morgan Stanley.

You mentioned earlier that we are approximately 50 VLCCs oversupplied at this point, and if you could please translate this number over vessels into incremental demand for oil or oil flows that we might need, in order to see the market and the balance of power between charters and owners being restored?

Well, the 50 ships we have put down, it seems like the consensus being talked about is the overhang. But when you look at it every month, we see various, I guess, brokers are putting out lists for next month, that there are 98 vessels available in the Persian Gulf. And everybody goes into a panic. But the fact is that [every month] about 120 cargoes have gone out of the Persian Gulf.

So with a bit of -- a little bit more of their stamina and expertise, I think we could actually be able to push the market up. And I think on a -- is it 50 ships or is it 25? Of course, if you take 50 ships out, it could be immediately filled. But at the same time, if we have a trading pattern and we have a pickup in oil demand from America, of course, then the overhang would be less. But this is just a scenario, saying this could really jumpstart the market. It is a debating point, I would say.

And is it fair we should expect some increasing the US imports, what should be [in million] of barrels per day the amount to absorb this overhang?

Yes, around 2 million.

Okay. We've seen several reports that the order book for 2011 is more than 40 VLCCs. Can you give us your expectation of how many vessels will be actually delivered during 2011? And if you have an estimate for 2012?

We have seen or the input we are using so far we have seen 33 ships being delivered versus on paper should have been 43. So we just take 33. And then again for the second half, they should be around 65 ships delivered. I think it actually will be less. I don't think that's much incentive for owners to push the shipyard to take the ships out in a $5,000 -- $10,000 market. So I think there will be less ships delivered here rest of the year. And then of course, there will be an overhang going into next year, so that's of course, more difficult to predict. But I think around 55 ships will be delivered this year and it should've been around 75, 77 ships. So that is of course quite a drop.

We have seen that during the last few months, you have very successfully postponed newbuilding payments with the consent of the shipyards and without any cost for Frontline. Is this something that can easily be done and what is the secret behind that? Why would the shipyards accept this kind of postponement? And whether this is possible for other owners, smaller owners compared to Frontline?

I guess it goes back to a bit of history, what happened when you sign the contract. I think it's always important to go into a deal where both the shipyard and the owner are happy from the start. And if you go into a deal with that mindset then I'm sure something can be done during the process.

And can you comment -- we've seen some transactions as they have been reported, especially for older VLCCs, that they were -- some had surprisingly low selling prices. Do you think that this will continue? Can you comment on the recent 10-year-old VLCC sale that the market said that it was around $36 million?

Yes, obviously, that says more about the seller than the buyer, I think.

Okay. And my last question is a little bit about modeling. You mentioned that you have no singlehull VLCC in the water. Do you still have this vessels around your fleet? Or you have terminated the charters of the three singlehull that you have?

We have changed singlehull VLCCs that was used as floating storage. We have them out on charter as floating storage. These ships are not trading and they will not trade. And as we did in the first quarter, when we had two ships coming off charter, we sold these ships. So we are not trading singlehull ships and these ships will not return to trading.

Okay, thank you very much. Appreciate it.

Michael Webber, Wells Fargo.

A couple of questions here. You mentioned re-delivering four vessels on December 1 and (inaudible). And obviously, your tax breakevens are propped up by all this charter [incident] with Ship Finance. What sort of strategic alternatives or solutions are there available right now with Ship Finance to maybe re-deliver more of those vessels ahead of time? They've talked about it briefly on their call. From your perspective, is there an opportunity going forward to maybe restructure some of those charters, to maybe bring some of the vessels off ahead of their normal roll-off date?

There is always, of course, a possibility to negotiate about things, even though this is not anyway written in the contracts. Even though that is the case, we can of course, discuss. But so far we have not discussed anything with Ship Finance on that factor. That might (multiple speakers) ultimately we'll move forward. Pardon?

(multiple speakers) I'm sorry. At what point would you guys consider being more active in doing that?

I'm saying that we just have to see how the market develops in a way. I mean, if this continues at this very low rate environment that we see now for a very long time, obviously, it might be a more mature time for discussing this.

Thank you. Okay, no, that's helpful. I guess moving to the dividend cut, and it certainly seems pretty predictable considering the state of the market. In terms of how we should think about that going forward, is it pretty fair to assume that at $0.02 per quarter is a pretty normal run rate until we see a more long-term recovery? And I guess as a secondary question, I guess, how sustainable of an improvement would we need to see before you guys would even suggest raising it again to the Board?

I think we have always paid out if there is excess cash from the operation. And I don't think we have not changed that dividend policy in that respect; so of course if there is a rapid turnaround in the market, the dividend will be different. But I think everybody is looking at the present market right now and I think concentrating on that for the time being.

Right, and that's kind of what we thought. In regards to the newbuilds you guys have pushed back, and I guess the financing that's still associated with those, what are you hearing from your lenders right now in terms of terms, really? I guess you're still using 70% leverage in your deck, and it seems to still be available. But are they talking about more aggressive amortization schedules? Have spreads kind of blown out a little bit here? Can you talk about just how you think about those financing costs moving forward?

Our impression is most of the terms in the way is worse. They haven't really been speaking about any kind of increased amortization or that sort of things. I mean, the only thing that, of course, I guess you will see going forward is the values are continuously decreasing, is that we will have less loans available. But that's -- it's not because of the percentage is decreasing; it's more because of the values are decreasing.

The margins, I think, is quite stable in a way. I guess they were a bit lower some months ago and possibly have moved up a bit again now, but quite stable. So our impression is that the terms are still quite okay out there.

Okay. So you guys -- and in terms of availability and terms basically, you'd probably say they're kind of flat sequentially and you still think that credit is available? There's really no change since the second quarter -- or the first quarter, rather?

Yes, that's how our impression is.

Okay. Fair enough. And I guess just finally, in terms of actual operating performance, you guys -- at least your [VL] number was about 15% better than most of your peers. Can you talk a little bit about what drove that? I guess, specifically, maybe how much of that was due to your waiting time and maybe was that a little bit more -- were you guys a little bit more, I guess, opportunistic than some of your peers, in terms of actually sitting vessels and waiting to find a better term?

I think we will always have that flexible attitude to waiting. Even in a high market, we have done waiting time. If we believe the market is growing upwards, it's better to wait. Then we have done that right now, of course, with the very low market. It doesn't really cost you anything to wait.

So we are taking that attitude -- it's better to definitely slow speed into a learning area, and it's important not to halfway to change your mind and then speed up, because then everything you have done you have lost. And then just be more selective when we fix them and hope for the right combinations, and work with certain channels who we know would normally put the cargo into that area where we would like to be next. So that's what we're focusing on.

Fair enough. All right, great. Thanks for your time, guys.

Justine Fisher, Goldman Sachs.

So I just wanted to doublecheck on the OBOs, because I thought that those were time chartered out by you guys at $40,000 a day or above, at least based on the comments that we've heard from Ship Finance, et cetera. So when do those time charters expire? Because you said you were looking for alternative employment for those; but it would seem that if they were out on such lucrative charters, that you wouldn't necessarily seek alternative employment.

We have had slightly recall -- we had two ships which have re-delivered or terminated the lease. Those ships were re-delivered during the quarter. So two ships has come off. And then also now, as we have mentioned, we have one charter now which is in default. And of course we had to take certain loss provisions for that, which is coming in the second quarters, which is, of course, dragging down the average earnings. Of course, that is the default charter and we are working on that to try to secure that. But that is the main reason why we have seen a lower charter in the second quarter.

And so you do still have three -- there are a total of six OBOs based on the last count that I have, so there are still three that are out on above-market time charters at the moment?

That's right.

And when do those charters expire?

The first one is coming off in -- yes, is around May/April next year, and the last one is in the autumn of 2014. So there's still some time to go.

Okay. And can you remind us of the ballpark of the rates that you're paying Ship Finance on the vessels? I think the V's are around [$26,000] a day and then the Suezmax and then the OBOs are probably between $20,000 and $21,000 a day -- is that the right average rate that you guys are paying on those vessels?

Yes, so the TCE rate in from Ship Finance is $24,700, I think, for the Vs now and [$20,700] for the Suezmax's and OBOs.

Okay. And just a question on your newbuild financing. I think that the chart that you have in your presentation shows that for 2013, you expect to raise more money from financing than you have in newbuild CapEx commitments.

Can you explain -- I think it's $300 million of assumed financing and then I think lower than that for what your CapEx is. Can you explain why the financing would be more? Is it because you've already made yard installments? Or what justifies that assumption?

The reason why it is the way that you are describing in that graph is that we actually are assuming that the financing is coming at the delivery of the vessels and not before. So those we have not established financing for. So the two that we have established financing for, we are having both pre- and post-delivery financing. And that's why you can see that we are assuming going up [86] then in 2011 and the remaining in 2012. So the others, like I said, no pre-delivery financing is assumed. Not that I'm saying that that is not possible, but that is not assumed in that graph.

Okay. And then Ship Finance announced yesterday that they actually obtained two facilities -- I believe from the Chinese, that actually allowed them also to net cash versus their newbuild deliveries. Are you guys pursuing similar deals with China -- trying to [extent] them? Or some Chinese entities that may be more willing to lend against certain vessels than, for example, European banks that are in a bit of a tougher situation now?

That might be, but we also actually have lending from [extent] today so that is not something which is [amount of], if you can call it that.

Okay. All right. Thanks very much.

Sal Vitale, Sterne, Agee.

I just have a quick question. Most of my questions have been answered. Just a question -- there's been a lot of speculation that Frontline could be a participant in some consolidation in the tanker sector, given that there are a lot of companies that are facing the stress of this current weak tanker market. Could you discuss some of the opportunities that you think are out there in the market currently?

And I guess the second part of that question would be in the event that Frontline would effectuate some consolidation, giving your low stock price, what would be -- mode of financing be? Would it be perhaps a cash infusion from some of your existing shareholders? Or how would Frontline finance any type of deal that could arise?

I think if we start off of the available deals out there, I think as we've seen the year develop so far and the market that supports it more and more interesting deal coming ahead, it may be a single ship or it may be banks coming with a portfolio of ships where the owner of those ships would like to step out. And that's, of course, also corporate opportunities. So we are looking at everything right now. I think it's too early to say how we will finance it. It, of course, depends on the structure we would be going into.

But I think -- we are looking and I am sure that some of the other vessel owners out there are doing the same thing. But I think the correct thing to say that there is more and more interesting deals floating around, that's for sure.

And just to add probably I guess, as Jens just said, the most interesting deals will probably come up from banks, I guess. And then I guess the financing question you raised, what we are thinking about or talking about there is possibly only to take on debt as a rebate and given only to the (inaudible) issues or that sort of thing.

Okay, that's helpful, thank you. And then just a follow-up question and you may have answered this earlier, I apologize if you did. Regarding the new deliveries of additional vessels, how many additional vessels do you -- assuming -- and I know, it's a big assumption -- but assuming that the market doesn't improve from current levels for, let's say, another six months or so, how many additional re-deliveries could you foresee happening?

Well, we have mentioned before, because this is four ships we specifically can re-deliver that charter is running out around the 1st of December. So, of course, if the present market continues at the levels they are now, then we will -- I wouldn't say we will definitely re-deliver; nothing is feeling definite until the last day, but we intend to re-deliver those ships. And of course, if the market continues, of course, then I think everybody is looking at the charter portfolio and trying to see if you can -- when you can re-deliver as early as possible. But I think we have mentioned those four ships because they are coming within the next two to three months.

But can you just refresh my memory and looking beyond 2011 and 2012, how many ships are coming up for expiration that you can re-deliver?

We don't have so many we can re-deliver. We have -- I guess the next one then after December will be in June next year, a VLCC.

That's one -- one VLCC?

Yes, then potentially more in the next year.

Okay. All night. Thank you very much.

Michael Pak, Clarkson Capital Markets.

Just a couple of questions here. You mentioned your chartering strategy was quite good. And looking at the numbers, it looked like you did outperform the market. Can you just get into what were some of the things you did? I know you mentioned slow steaming, but can you talk about that a little? And your confidence of repeating this kind of performance into 3Q?

Of course -- quarter by quarter, you have ships loading into a quarter so it's difficult to compare quarter-to-quarter. But I would say our strategy has been unchanged, as I mentioned before, even in a good market, we do try to be a little bit selective. And if you don't mind using the waiting time, if it's right. And then, hopefully, get a better voyage. So that's unchanged.

I think what we have agreed with ourselves is we're not going to take voyages from the Persian Gulf into the US Gulf at almost 0 return. That takes a lot of oils back out from the US Gulf to Asia at $500 a day, which we are seeing owners doing, so why should you occupy yourself 100 days and make $2000, $3000 a day? We find that [loss] really.

So if you are selective on your voyages then for those particular ships in those particular regions, then are they effectively laid up?

You can call it layout; we call it commercial waiting. We had around 10% of our spot doublehull VLCC with this commercial waiting time. That's equivalent to around five ships. So you could say we'll have basically five ships not being employed. But of course, that is not how it is. We use the time spent on our fleet and that's what we have done so far.

I see. And if you could help me understand it a little better, how long does -- can you do a commercial waiting time before it would be classified as a ship being unemployed, and you would have to do all the approvals again to get the ships back online?

Well, that is, of course, a long time. If you have intentions of doing that long time, then it is of course better to go into a straight layoff and start manning down. Of course, you can't have a trading ship with reduced manning and so on; that's not possible. So if that's your strategy, if you are uncertain what your plan are, then of course, that's a big problem first if you don't have any planning.

But I would say if you plan to have a longer-term layoff, then of course, you would do differently then you will really close down the vessel, and then do certain things to reduce operating costs. But here it is more of a commercial tool to try and find the right voyage and try and optimize your earnings -- it is not really to cut down on OpEx and go into lay-off.

So for the commercial weight purposes, would you say it's a couple of month type of wait, would you say?

We have not done that (multiple speakers) --

(multiple speakers) [Is it] three months?

We have not done it that long. Of course, if you do -- if you had two, three months waiting per ships, then you're not getting these returns. But I would say spread over a fleet, of course, we have days in places where we wait.

Okay. All right. My other question involves the market outlook, which everybody is weighing in on. Should the conditions remain weak and asset values trend downwards or stay where they are, I would think that the banks -- that the bank market would get a little more challenging, in terms of perhaps you would need to post more security, et cetera. So just can you talk about your confidence of paying 70% loan to value in your financing discussions?

I think there is no doubt you get the best deal in the best markets. I think you also have banks willing to step up to the plate in a bad market when they can see the values have gone down. So we are getting encouraging support from some of the banks we work with. And I think money is available there and I guess it's just a question of when asset value will find the bottom.

I think there's a big difference between older ships and newer ships. I think anything before 2000 build has probably been discounted and definitely anything before 1995 has been discounted even more. It seems like the modern ships values are holding up fairly well of the time being. So I think it's important to try and differentiate a little bit about the asset type and values in that middle ages and so on, and not just have a broad statement on that.

Okay. And can you also discuss, given the delays that you -- that the yards are experiencing for your newbuild program, what is your thought process in terms of obtaining financing? Are you -- has that timetable changed in your mind in terms of you have more time to wait, so to speak?

I think we have never rushed out to take finance. I think we normally commit to financing when we think the time is right and we need it. Right now, we have mentioned we have paid almost $200 million down [this ship] -- this is our own cash. So when we feel maybe we could use that cash for something else, then of course, maybe it's time to raise financing and draw down. But that's, of course, see how the market develops, what opportunities are coming. Of course, this is something we are looking at all the time. We don't have a specific time when we normally -- when we sign a newbuilding contract, we don't do a subfinancing, run out to a bank. We are quite flexible in that.

And just to add, obviously, we have said this several times before, when we have seen 70% financing, they will still assume 30% equity injection. And for these vessels which is not financed, we have not really reached that level yet. So it will be rather inefficient ourselves in a way, to establish financing today which we cannot draw on, and which we only can pay interest and expenses on. So the only winners in that situation would be the bank and not ourselves.

A fair point. And Inger, just one question for you might be -- you mentioned the drawdowns that you expected on your committed financing for the 2011/2012. Can you repeat those numbers again?

Yes, I said it's $86 million. You can find it in the CapEx slide on page 13. You can see that we have inserted $86 million in 2011 and $62 million in 2012. You'll notice this doesn't really add up to $147 million. That is because you have a rounding off to $86 million in 2011. It should be $85.5 million. But it's just two numbers there, so that's why.

Great. And did you guys discuss why your operating days for the quarter? Have you (multiple speakers) --?

(multiple speakers) No, we haven't discussed that, no.

Okay. Could you share that with us in terms of the operating period and days of the fleet?

It's probably best if you call after the conference or maybe next week, and see -- we can go through your model if you want to update that.

All right, great. I appreciate the time.

[Ers Derr, Nezzard].

Maybe it's another question I don't know if you touched on it, but why haven't we seen more scrapping with the rates as garbage as they are?

Yes, I wondered the same thing, you know? I wondered the same thing. It would surely help the market. Now that the values are coming down to almost scrap levels [again].

And that sort led me just to the next question, which is, nobody is scrapping and values are coming down, we're either going to see a lot more scrapping or there are a lot of people betting for a turnaround in demand. You probably can't share your cards, but what's your view of asset values over the next 12 months -- further significant dip or some stabilization?

I think you're right, if many of these, let's say, the older, doublehull ships which are coming close down to scrap levels, I think they're traditionally normally being held by people who also have a very low debt on the ships. So maybe you'll see these holders selling out and reinvesting something more modern, which is also becoming interesting.

So I think it will probably be a combination of that. But I think we will see more ships being scrapped or put into other uses. So there will be some reduction in the fleet and we definitely need that.

Right. And final question, and thanks for all your time today, speaking to -- there are a couple of the spot brokers that I know you know well. They are talking about Vs and Suezmaxes in particular, once they're hitting 15 years of age, they're already seeing some lack of interest from the major charterers. Are you seeing the same thing? Is there now sort of an age creep on the demand for ships hitting more 15 than 20?

I think you're right. Some of the big oil companies, oil majors, they have -- I wouldn't say it's a written rule, that they have a rule that they would like to [fix] ships younger than 15 years of age. But of course, we have seen rules being changed before when the market becomes back to normal again. But I think right now is -- of course, everybody they would like to have the most modern ships. And I think the most common age rule is the 15 years, yes.

They'll extract the most blood, yes? Okay, thanks for your time.

Michael Webber, Wells Fargo.

I know it's been a long call, but I wanted to follow-up on Justin's question on the OBOs. Can you maybe, in your mind, I guess, the phenomenal amount of charter hires that's in dispute right now. And then you mentioned you've got three that are still on time charter out past May to next year and well into 2013 to 2014. And who the counterparties are there? And if you can't disclose that, I guess, how you guys assess what the credit risk associated with those cash flows, because they are pretty significantly above market.

We believe that the charterers and those three ships, which is the same company, is a good credit risk. And of course, we hope that they will perform.

The other claim is I can't really tell you the outstanding of that. Of course, as owners, we have certain obligations to mitigate that, but of course, we're going for the full amount and we hope we can recover as much as possible.

How far along in that process are you guys right now? I mean, can you provide maybe a timeframe for resolution? Or is it too early?

It's a little bit too early.

Okay. Fair enough. And then just one quick modeling question -- the drydock days for Q4 in 2012?

We only have three drydockers left for the year and that would be in Q3 with three Suezmaxes, as Inger mentioned.

So none in Q4? And then do you guys have any visibility into 2012?

Yes, we are doing a double play now. Of coarse, that scheduled dockings coming on, but sometimes we have -- it depends, of course, on the market, also -- some quarters we move -- some ships we are moving earlier, if we believe it is a good time or the ship is in the right location. And we normally dock our ships in the Far East. So if the ship is there and if it's ahead of a quarter where it should have been docked, we'll do it then and there. But I think for the next -- for the third quarter, of course, we know what is going on -- the fourth quarter, no dockings. So it's a little bit early yet to decide what the spreadout will be next year.

Got you. Fair enough. Thanks for your time.

(Operator Instructions). Justine Fisher, Goldman Sachs.

Thanks for taking my question. Funnily enough, I have a follow-up on Mike's previous question regarding the Ship Finance charters.

Inger, I know that you said that you might consider renegotiating or asking Ship Finance to renegotiate some of those charters at a later date, depending on how the market trends. But if we take into account the various options that Frontline might have in terms of liquidity -- so, renegotiating some of your bank amortization payments, some sort of equity-related capital raise, selling vessels, and then renegotiating potentially some of the Ship Finance charters, where would approaching Ship Finance rank among your options? Is that something that would be a first option for you, because it may be easier than renegotiating with banks? Or would that be a last resort in the event that Frontline really needs to shore up liquidity?

Yes, we are sitting and smiling here. It's good we have so many options and that feels really good.

Yes. It's just that I think it's hard in a way to rank those options. I think they're all options, all possibilities. And I think it's a bit premature in a way for us to say anything more specific about that. We haven't really begun to think about this and to start the process, so it's a bit early.

Okay, thanks very much.

We have no further questions in the queue.

Thank you. I'd like to say thank you to everybody for dialing in and listening to our presentation. I'd like to thank everybody in the Company for the good work in a very difficult quarter. Thank you.

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