Frontline Plc (FRO) 2011 Q4 法說會逐字稿

Good morning and good afternoon and welcome to our Q4 presentation. As I said a few times last year during the various presentations, 2011 was a very difficult year with earnings well under our break-even levels and at times even below operating cost. This combined with our almost 50% drop in values put us in a very delicate situation. As we have announced in December, we have restructured the Company, and I believe in a satisfactory way for all parties concerned.

Since this is a Frontline Ltd. Q4 presentation, we will focus on that in this presentation and we will try and follow the usual program with Inger going through the Q4 highlights and main transactions, including the main points of the restructuring there, a financial review of the quarter and an update of our new building program. After that, I will follow up with some market comments on what we saw in Q4 and update on where we think the market is that the present. So, Inger, if you could start, please?

Good morning and good afternoon, ladies and gentlemen. As Jens said, I will guide you through the highlights and the financial review in the fourth quarter of 2011 and then -- and so far into the first quarter.

Moving on to slide 4 and 5, Frontline completed a restructuring of its business in December 2011. The restructuring included the sale of five VLCC new buildings, six more VLCCs, including one time time charter contract and four modern Suezmax tankers to Frontline 2012. We did that at fair market value of $1.1 billion.

In addition, Frontline 2012 assumed $666 million in bank debt attached to these vessels and the new building contracts and $325.5 million in remaining new building commitments. Frontline took 8.8% of the share capital of Frontline 2012.

As part of the restructuring, Frontline has obtained agreements with its major counterparts, whereby the gross charter payments commitment under existing chartering arrangements is reduced by approximately $320 million in the period 2012 to 2015. Frontline will compensate the counterparties with 100% of any difference between the renegotiated rates and the actual market rate up to the original contract rate. Some of the counterparties will also receive some additional compensation for earnings achieved above original contract rates. Then all bank debt will be eliminated following a transfer to Frontline 2012 and also the prepayment of $13 million associated with a vessel which was not part of the transaction with 2012 and the prepayment of (inaudible) $33 million bank loan.

Then, in October, November and December 2011, the Company sold its 1992 to 1996 built Suezmax tankers the Front Fighter, the Front Hunter, the Front Beta and Front Delta. These sales resulted in a total net cash flow after repayment of bank debt of approximately $5 million and an impairment loss of $121 million was recognized in the third quarter.

In October, Frontline terminated the long-term charter party for the OBO carrier Front Striver. The Company made cash compensation to Ship Finance of $8.1 million and we recorded also $9.3 million in the fourth quarter of 2011.

In December 2011 and also in January of 2012, Frontline redelivered a Suezmax tanker Front Warrior and the VLCCs Front Commander, Front Chief and Front Crown. All of these vessels had been on time charter into Company and their operating leases.

Lastly, Frontline established Orion tanker pool with Nordic American Tankers Ltd. in the fourth quarter. This specialist Suezmax pool is including 29 double-hull Suezmaxes.

Then moving to slide 6, I will then do a quick run through of the financial highlights in the fourth quarter of 2011. Frontline reported net loss excluding the losses and gains on sales of assets and amortization of deferred gains of $30.8 million. This is equivalent to loss per share of $0.40 in the fourth quarter. The net loss includes a loss of $307 million on the sale of 10 vessels and five new building contracts at fair market value (inaudible) 2012. It also includes a loss of $9.3 million on the termination of the long-term charter party for Front Striver and also deferred gains of $3.8 million relating to sales and lease-backs on Front Eagle and Front Shanghai.

The net loss including these losses on sale of assets was $343.7 million, equivalent to loss per share of $4.41. Frontline [notices] a net loss excluding losses and gains on sales of assets, amortization of deferred gains and impairment loss of $103 million (sic -- see press release) for the financial year of 2011. The net loss for the financial year 2011 including these losses on sale of assets was $529.6 million, equivalent to loss per share of $6.80. Frontline will not pay dividends for the fourth quarter.

Then moving to slide 7, net loss excluding gains and losses in the fourth quarter of 2011 is about $18 million (inaudible) in the third quarter 2011. The increase can mainly be explained by that income on time charter basis was about $11 million better in the fourth quarter than it was in the third quarter. This is due to an increase in time charter equivalents today in the fourth quarter, partly offset by a reduction in on-hire days due to recent sale and lease terminations. Further, [profit sharing] to Ship Finance increased about $1 million due to increase in time charter equivalents per day in the quarter.

Ship operating expenses decreased by $6 million compared with the preceding quarter, primarily as a result of a decrease in running costs of $5.4 million due to recent sales and lease terminations and a decrease in drydocking cost of $900,000. We have drydocked one vessel in the fourth quarter compared with three vessels in the third quarter. Further, the charter hire expenses decreased by $2 million in the fourth quarter compared with the preceding, primarily due to redelivery of vessels on the time charter and a decrease in provision for loss making voyages.

Then the depreciation is also reduced by $6 million in the fourth quarter, and this is also a consequence of the recent sale and the lease terminations as previously mentioned. Lastly, financial expenses have increased about $5 million, and that is due to write-off of deferred charges on the sale of [15 SPCs] to Frontline 2012.

Then moving to slide 8, Frontline's double-hull VLCC fleet excluding the vessels on spot index time charter earned in the spot market approximately $18,400 per day in the fourth quarter. This compares with $14,600 per day in the third quarter. Including then the vessels on this spot index time charter, the vessels earned $16,800 per day. The average for the whole fleet was about $19,100 per day in the quarter.

The Suezmax fleet earned in the Gemini pool $12,000 per day in the quarter, and as a consequence of that, some of our (inaudible) Suezmax vessels trade outside the pool at somewhat higher rates. We earned on average in the spot market approximately $12,400 per day. And the average for the whole Suezmax fleet was about $13,900 per day in the quarter. The OBOs earned $41,600 per day in the quarter.

These time charter current numbers show that sometime this quarter has traded better than our peers which have released the numbers of VLCCs, but the earnings for the Suezmaxes were disappointing.

Then moving to slide 9, as you can see from slide, we had average Opex for the fleet of approximately $9200 per day in the fourth quarter compared to approximately $9300 per day in the previous quarter. We drydocked one vessel in the fourth quarter compared to three in the third quarter, as you can see from the graph on the upper-right-hand side of the chart. And then, as you can see from the graph on the lower-right-hand side of this slide, off-hire days were 86 in the quarter compared with 159 days in the third quarter. This is mainly due to less off-hire days related to drydocking. We don't expect to drydock one VLCC in the first quarter of 2012.

Moving, then, to slide 10, the total balance sheet is approximately $1.4 billion lower than the third quarter of 2011, and the large reduction is due to the restructuring of the Company that was completed in December. The main items explained in this decrease are, first of all, the sales of Front Hunter and Front Fighter were agreed in October, and as a result of that the vessels were classified as held for sale in the third quarter. These vessels were sold in Q4. Then, longer-term restated cash decreased by $58 million. Due to that, these funds were paid to Ship Finance as part of the restructuring of the charters which it financed.

Book value vessels decreased with $1.1 billion, mainly due to the sale of vessels to Frontline 2012 but also due to the sale of Front Delta and Front Beta. Book value vessels on the capital leases decreased with $199 million, largely as a result of agreement with major counterparties to reduce charter rates. In addition, the reduction is due to the termination of the lease on Front Striver and ordinary depreciation charged in the quarter.

Long-term debt is reduced as a consequence of all bank debt is eliminated. Remaining long-term debt related to the convertible bond loan in Frontline and bond debt in (inaudible). Obligations on the capital leases have decreased with $301 million, largely as a result of an agreement with major counterparty to reduce charter rates. In addition, the reduction is due to the termination of the lease on Front Striver and ordinary repayments in the quarter.

[Our] (inaudible) is included in the balance sheet with a total of [$288] million of debt and obligations on the capital lease. This related to three of the Capex for Suezmax vessels are not consolidated in the balance sheet with $48 million.

Then moving to slide 11, following the restructuring, the estimated (inaudible) cash cost breakeven rate for 2012 are approximately $23,900 per day for the VLCCs and $16,400 per day for the Suezmaxes and $12,800 per day for the OBOs.

Moving down to slide 12 and 13, as per on December 2011, the total number of vessels in Frontline's new building program are only two Suezmax tankers which constitute a contractual cost of about $125 million. We have paid installments of about $12.5 million on the new buildings, and remaining installments to be paid amounts to $112.4 million. We expect payments of approximately $25 million in 2012 and $87 million in 2013. We have not yet established pre-and post-delivery financing for these new buildings.

Moving van to slide 14 and 15, the number of vessels in the Frontline fleet as per end of the fourth quarter of 2011 is 66 vessels, including the vessels on commercial management and the ITCL vessels and is compounded by 41 double-hull VLCCs, three single-hull VLCCs, 17 double-hull Suezmaxes and five OBOs. We have [constant] coverage of 12% in 2012 and 10% in 2013. And the average net time charter rate for the total fleet is about $48,400 per day in 2012 and $53,200 per day in 2013.

With this, I'll give the word to Jens again.

Thank you, Inger, we are now on slide 16. The market improved in the fourth quarter and I think the general feeling was it could only go up. The main positive driver was the return of the Libyan barrels who had a positive impact on the Aframax and Suezmax markets and a gradual further buildup on the tension in Iran with oil being sourced elsewhere and adding cost (inaudible) to the ton-mile balance. We saw double-hull VLCC being scrapped in the quarter as well as several Suezmaxes, and I believe a bottom was found on second-hull values for about 10-year-old vessels. The average TD3 rates of $35 is still a stark reminder on where we came from in the third quarter.

Slide 17 -- 59 VLCCs were delivered in 2011, which was about a 25% slippage of the established order book. We expect this number or percentage of slippage to continue this year. Limited ordering is positive and we hope some additional double-hull VLCCs will be scrapped this year.

The Suezmax fleet on slide 18 -- the Suezmax continued slippage with around 30% and no Suezmaxes was ordered during the quarter, again positively for the fleet development.

If we look at the new building prices, at the downward pressure in new building prices and estimated new building prices today for a decent specification VLCC or a Suezmax, it's around $90 million and $60 million, respectively. The large Korean shipyards are still successful in securing LNG and offshore orders, and the pressure on them is less than what we are seeing on the last Chinese shipyards. The estimated three-year VLCC rate is around $27,000 per day and we estimate the three-year rate on Suezmaxes to be in the range of $20,000 a day. I would like to mention that there is not many charters out there and there is quite a widening gap in older tonnage versus more modern and economical vessels.

Outlook -- there is no doubt the market has improved. Activity has increased with healthy volumes from the Persian Gulf plus positive ton-mile cargoes has increased in the eastbound cargoes from the Caribbean with Africa and North Sea markets. The big question for 2012 will be if we will see an economical recovery and increase in the oil demand. Very limited ordering in the large crude segment in 2011 and with double-hull tankers now being scrapped, we hope for a more balanced fleet development going forward.

Finally, I think it's safe to say that many owners are now starting to fill the financial squeeze from falling values, collapse in other shipping segments such as containers and bulk carrier market. No doubt great opportunities come, but how many can react to these?

Regarding our own company, Frontline, we have successfully restructured the company end of last year, and I believe we have found a good platform to work on from now. We have sold and terminated leases for 11 vessels last year from the non-core fleet (inaudible) single-hull VLCCs, charter-free OBOs and older double-hull Suezmax tankers. We have a few more units to go, and we will continue with this strategy in the first half of 2012. We redelivered expensive to the market time charter business last year, but we retained the vessels on commercial management and thus have maintained our market presence. As Inger mentioned, we outperformed our peers in 2011 on the VLCC side, whereas our Suezmax earnings were somewhat disappointing. We have made loss provisions on defaulting counterparties, but we will pursue these claims until the end.

I think with that, the presentation is over and we will now take some questions. Thank you.

(Operator instructions) Michael Webber, Wells Fargo.

I wanted to jump in and talk a little bit about, I guess first your breakeven rates and the guidance, I guess, in the deck coming in substantially higher than what was put in the restructuring release. I'm just curious as to what's driving that. I know in the restructuring release, it did not include the ITCL assets. So is that what's driving that increase, or is there some inflation there? Can you just talk to what's going on with your breakeven rates?

No. The reason why these numbers are different is because they are worked out on a different basis. The ones that you are referring to that was included in a press release in the beginning of December, I think, was based on breakeven rates after cover, after contract coverage.

So what you do, then, is in a way to subtract from the gross cash cost breakeven rates, we deduct, then, what we have in, let's say, excess earnings about our breakeven rates for the contract vessels. So that is the main difference.

So the main difference there, you are saying, was the expectation for profit sharing going back to Ship Finance and the Delta there between the --

No, no, not at all. No, you didn't understand what I said. What I said was that we have the folks which are on -- some of our vessels is on time charter route. So we have contract coverage on these vessels which is about the breakeven rates of these vessels.

Then the excess that you have above the breakeven rate for these vessels are then divided on the vessels or all the vessels and then you get a reduction in the gross cash cost breakeven rate with that amount.

Yes, no, okay. Right, yes.

That was what was, then, stated in the press release before Christmas. But now, we are talking about the gross rates.

That's helpful. You mentioned in your release and in the deck your -- some disappointing Suezmax rates. I was wondering whether you can go in and give a little color there in terms of the performance throughout the -- I guess, throughout the quarter. And then obviously you guys are in a new pool now. Can you maybe breakout the performance between the two, and then what your expectations are going forward?

Well, the Suezmax earnings -- of course, if you make VLCC earnings throughout the year of $19,000, obviously the Suezmax earnings have to be less. But when we mentioned that our Suezmax earnings was disappointing, it is of course related to what we have seen other stuff that the companies have reported in the market.

I think we were in a Suezmax pool, the Gemini pool, last year, which had almost 50 vessels in. And of course, it was disappointing that that pool, which we our self were a part of, I want to add, we were not able to positively more influence the market. So now we have decided to maybe go separate ways and have a smaller pool. And we believe that hopefully we can influence the market better positively that way.

Got you, fair enough. Of course you know, I guess, on the restructuring -- and, Inger, you talked to this is a second ago -- but in terms of -- some of your renegotiated contracts with Ship Finance, you can compensate them with 100% of any delta, I guess, between the original and the renegotiated rates. But then you go on to say that some of the counterparties received kind of an extra incentive above and beyond the original rate. Can you break that a little bit or maybe flesh that out in terms of color, in terms of how many assets we are talking about and to what degree they can earn above the original contract rate?

Yes. The 28 vessels that they have on charter from Ship Finance, all of them -- and I guess that is common knowledge -- all of them have 25% of profit sharing above the old rates. And then they have this cash-free mechanism up to the old rate from, then, the reduced rates that they have today. So $6500 which have they reduced, they will get back if we earn the money up to the old level.

And then they have four vessels which we have on charter from German [KGs] which also have basically the same structure that they have reduced the rates down to a new level, but they also get this money back if we earn the money. And then they have also the profit sharing on top of that, of 25% as well. But that is up to a certain ceiling. That's not a free ride upwards, it's up to a certain ceiling. And I guess that's the major things to talk about. The other things are short-term charterings, which are, yes, a limited --

Got you, okay, that's helpful. I guess just a macro question -- obviously a lot of kind of geopolitical risk right now, and just curious as to -- it has been in the press that you guys are no longer calling on Iranian ports. Can you talk a little bit about what you're seeing in that area, whether or not you're seeing any sort of tangible risk premium being placed on assets kind of heading into that region, and just maybe what you guys are seeing on the ground level there?

I think we have put out -- we have mentioned that we are not calling Iranian ports any longer, and some other tanker owners have done the same thing. I don't think it's an issue calling the ports if you get a higher rate. It's simply that our [P&I cover] and insurance cover no longer cover these ports. So it's not a question of if we can make the money doing it. We will not do it for that reason.

Right. I guess just as to the area in general, is there any sort of incremental risk premium being placed heading into that area in general at all, right now? I'm assuming there is not, but we have certainly seen that happen in the past when those geopolitical (multiple speakers) --

Yes, yes, there could be a part if the tensions escalates, or if the situation escalates, of course, there could be then -- a [war is risk premium] the whole Persian Gulf area. But right now, we are not seeing that.

Okay, all right, thanks a lot for the time, guys.

Justin Yagerman, Deutsche Bank.

Just following up on the Iranian question, what has really been the impact from a cargo standpoint in the marketplace? You guys, OSG, have been public with saying that you are not going to call on Iranian ports. I would imagine there are a decent amount of established players who are taking that same tack. But are you seeing others still move those cargoes, or are they occupying ships in the marketplace? Or is cargo just not coming out of those ports right now, and as a result it's constraining all overall cargo in the market?

There is still some oil being moved out from Iranian ports, so somebody is lifting the oil. What we have seen is the Iranian owned fleet, the NITC fleet is heading back to the Iranian waters and will be used as floating storage, which we saw two years ago also. Still, oil is coming out. I guess some of us are still willing to do that. But of course, the lack of oil coming out has, of course, meant that oil has been procured elsewhere and we have seen some quite nice voyages from the western atmosphere to Asia, which is of course aiding the market.

Is there a storage mentality right now in the market because of the risk of war in the region?

We have not seen the contango situation yet. I think we are moving closer to that, but that's, of course, something we can hope for again, which we saw was a very big part of the fairly healthy market we had in 2010. So I don't think we can draw a complete parallel between now and then, but we hope we will move into a more contango-related situation.

Okay. A bigger-picture requesting. Post restructuring, obviously you put a lot behind you with this change, but the market continues to show weak rates and you guys are in a below-cash breakeven situation. How do I think about that relative to any potential growth out there in the Company over the next 12 to 18 months? How do you guys think about trying to position your self for growth and potentially taking advantage of lower asset values if you see some opportunities in the marketplace?

I think there's two things to your questions. Of course the first is the reduced breakeven rates which we have managed to obtain in the restructuring, which is, of course, quite important to have a sustainable operation going forward. The rest -- the rates in the tanker market right now is very close to our breakeven rates. So of course, we can hope for a further market improvement, which will be positive for the Company. Right now, of course, we are seeing more and more interesting market deals in the market. I think that has put pressure on a lot of companies and potential values.

I think the bottom has been found in certain asset classes, but I think it would probably be wise to wait a few more months before starting to buy ships.

If something were attractive, would you guys be able to take advantage of it at this point, or are you still kind of too constrained by your balance sheet right now to use capital for growth?

I guess our log is that we have a strong shareholder base, or especially one shareholder who has potential capacity of doing something if he wanted to do that.

But inside of the Frontline Ltd. organization, that something that you think could take place?

That would probably be unlikely.

Okay. And then, in terms of asset classes, do you expect Frontline to stick to its knitting on a go-forward basis in the crude sector on the larger side? There has been a lot of discussion in the market about product tankers, and even Mr. Fredriksen looking at those asset classes. So I was curious if that's a thought within the Company as you look for more stable areas of growth in the marketplace.

Well, we are looking, of course, at -- I wouldn't say any tanker segment in the world. But we have, say, broadened our scope little bit and looking beyond what we traditionally have been in. And I think if we see opportunities in other segments which we are not in now, we could be doing something there.

All right, that's helpful, I'll stop there, thank you very much.

Jon Chappell, Evercore Partners.

Jens, I was quite surprised, actually, by your less comment about the loss on counterparty failures. It seems that most of your counterparties were very flexible with you as far as negotiating the rates down. And you had just mentioned at the very end that you have taken some loss provisions. Can you just tell us what the size of those loss provisions are and then how those negotiations stand, how many charter parties and vessels we are talking about?

I had the same question here in Oslo earlier today, somebody who was awake in the audience. I would say that -- and I mentioned what -- the loss provisions we have is some on the OBOs with the trading and dry, so this is more related to the dry cargo market where there seems to be more popular to start defaulting on charters. And of course, those claims we will pursue. It's only two vessels, and it's not a big amount. But I think it's important to mention that we will not tolerate that behavior, of course.

That's helpful. Then also, on slide 15, when you lay out your fleet, you have the double-hull VLCC fleet at 23 in 2012 and then down to 20 by the end of 2013. What is happening with those three vessels? Clearly, they are not single hull. Are those first-generation double-hull assets that you plan on scrapping over the course of the next two years?

Sorry, you're talking about the single hull? Sorry; do you mind repeating that?

No; actually -- yes, the double hulls. There's 23 double hull VLCCs for 2012, but by the end of 2013 there's only 20. Wondering what's happening with those three double hull vessels?

Yes. I think that's -- we have some ships on time charter in. We have the Hampstead, we have the double hull Eagle and the Gulf [yacht], which will be redelivered in that period.

Well, great. That will actually lead me to my next question, then. You had redelivered four charter ins, so then you have those three existing VLCCs. How many more charter ins do you have in addition to those?

That's it.

None.

That's it, just the three?

Yes.

Bigger supply picture -- obviously, there's been not much ordering over the last couple of years. The order book is coming down to what appears to be potentially manageable levels 2013, especially 2014. But there seems to be this big push now for fuel-efficient vessels and even someone very close to you has been talking about investing in VLCCs because of the fuel efficiencies by the end of the year. How concerned are you that shipyard cut-rate prices and then the fuel efficiency benefits may lead to a lot more ordering and kind of delay an eventual recovery of the tanker market?

Well, I think in our business right, now 70% of our cost is bunkers, so of course, if you want to expand, you will have to look at vessels which are able to operate at lower consumption levels. And I think there's very few ships on the water which you can actually buy. So I think the natural progression if you want to expand the Company is to go for new buildings.

Of course, it's a concern that if everybody has the same idea will do that. But can everybody really do that? I think that's the more -- the question. Of course, and how far now can the prices go? There is, of course, a cutoff point when the shipyards would stop building, but then I think that if you want to expand the company, you probably have to look for more fuel-efficient vessels. And then, of course, the question is how many players are actually out there who can do that? I think that's probably more important to think about.

Just one last one for me. Next quarter, we will probably have the first quarter of Frontline 2012 results. Can you just give us an update on what the management structure looks like there? Are you and Inger involved in Frontline 2012? And then what are the benefits, other than the 8.8% ownership to Frontline limited by being involved in Frontline 2012? Are there any rights or anything like that, or is it just your ownership stake?

With respect to the management structure of Frontline 2012, it will be managed by Frontline Ltd. So that would be -- we announced that some time ago, that we will have management for the Company. But at the latest point in time, the intention is to build up its own management company. That's the intention. (multiple speakers) Or (inaudible) in Frontline 2012, it's only the 8.8% that Frontline Ltd. has.

All right, no other benefits or --

No other benefits.

Okay, perfect. Thanks Inger, thanks Jens.

Michael Pak, Clarkson Capital Markets.

Just had a couple questions on the -- with the moving parts that you guys all announced, the various transactions and impairments, can you just help us understand a little bit in terms of the charter hire and the operating expense per day, if you can give us some visibility on sort of per-day rates or however metric you want to express it in, in terms of going forward? Are these the run rates that we should sort of assume more or less? If you could help us with that, it would be great. And I believe depreciation has come down as well, given vessels sales as well as impairments. If you can help us understand sort of the moving parts to the P&L, that would be great.

Yes. If you are thinking about the operating expense that we have been announcing for the fourth quarter, of the $9200 per day, I believe, for the whole fleet, I would expect that to be in that level going forward, of course ranging a bit of volatility around that number because you do -- you will see differences when you do drydockings, and that depends from a quarter to quarter.

Then, with respect to depreciation, the depreciation amount that you see in the fourth quarter numbers are, of course, based on also the vessels that have been sold in (inaudible) 2012. So you obviously have to make adjustments for that going forward. With respect to charter hire expenses, I would say that of course these expenses will eventually decrease when we deliver back the vessels from the time charter in. So that should also be decreasing over time.

Okay, and as we look at the fleet and look at the expiration of these charter ins, should we assume that they will just be redelivered at this point?

Yes. They will be delivered when the respective charter parties are running out, yes.

Okay, very good. All right, and just one other question. That was very helpful. In terms of the geopolitical and the Middle East, you pointed out sort of the eastbound activity increasing. Is there any other scenarios that you guys have thought about in terms of a potential delay in the Hormuz, or anything like that that you guys have prepared yourselves in terms of ballasting your ships to another region, etc.? If you could share that with us, it would be helpful.

There's a lot of talk about, of course, closure of the Hormuz Strait. And of course, if that happened, that would be very detrimental to the tanker market and many markets. So I think that's a very unlikely scenario, personally. Of course, if that happens, then the tanker market will have a big problem. And there's not many other markets you can go to or at least the whole fleet can go to. So I think we will -- I find it very unlikely that the Hormuz Strait or the Persian Gulf will close down.

Great, thanks for your time, guys.

[G.] Giannakoulis, Morgan Stanley.

I want to follow up on an earlier question. You mentioned that you have a very strong so-called shareholding base and that potentially in the future start looking at additional opportunities. Would these opportunities be new buildings? Would these be secondhand vessels? Do you think that the asset values, particularly for the new buildings, they have declined sufficiently? And I'm talking about mainly for VLCCs, or there is a further way to go down?

I think there could be a further way to go down on VLCCs. I can't really say what level it is, but I think that there's some downward pressure on the prices. Of course, it depends on what happens in other segments. The L&D segment is very strong, the offshore markets are very strong -- if there will be a rebound in the container markets, which some people believe could happen later in the year, maybe you will see more container ordering. It's, of course, depending on the other shipping markets. But I think there's a somewhat downward pressure on the new building prices. So we can see that. And of course, if that happens, then that will have a spillover effect also on the secondhand values.

I think we have -- for the 10-year, around the 10-year-old ships, I think that has probably found a level which will not go any further. Anything older than 10 years will be scrapped related, and I think the very modern ships will probably try and more follow the new building trends. And so it could be some pressure on prices.

Given the fact that you have already restructured your debt -- can we eliminate right now, at least given how the market looks, any additional equity offerings, except, of course, if it is related to any new building acquisitions or secondhand acquisitions?

I think I would point you to the press release on the strategy and outlook. I think we have made a sentence saying there that we will remain cautious and focus our resources on the present activities until we can see a clearer sign of recovery in the tanker market. So I don't think you can expect much, let's say, acquisitions and growth and, you know, equity raising in Frontline Ltd. at the current (technical difficulty) market.

And in relation to Frontline 2012, are there any potential thoughts on the future of combining the two companies, or these are going to be two businesses that they will stay totally unrelated even in the future?

I don't think there is -- no specific plans on that. I think we can't really comment on that. No specific plan.

Okay, thank you very much, gentlemen, I appreciate it.

Gregory Lewis, Credit Suisse.

Could you talk a little bit about the two new buildings, the Suezmaxes that you decided to keep? It looks like the new build cost was about $62 million. It looks like new building prices are already below that. You have about 10% down payments on those vessels. Are those two vessels that we could potentially see either Frontline cancel those contracts or simply try to sell them or unload them to a third party, taking a discount? Is that something we could see, or is it -- there has been a lot of talk about how we are going to -- or how Frontline is going to push the Fleet going forward. And I just -- could you provide some color on that?

Well, normally, we don't like to walk away from a deal to leave money behind. So we have, at present, no plans to walk away from these contracts. And we will follow the building as it comes along. And that is, I think, the only thing I can say about that.

Okay, great. And then just real quick, on the vessels of the existing fleet, it seems like in 2011 Frontline was fairly aggressive in unloading all their tonnage and looking to get out of vessel contracts. Should we expect more of that, specifically as it relates to the contracts that Frontline has with Ship Finance? Or, this point, post the restructuring, you are fairly comfortable with the Fleet as it stands today?

Yes. We still have a few more ships in the Fleet, which is non-core, one or two older Suezmaxes, or maybe one or two of the OBOs. It depends, of course, on where the dry cargo market is going. If there's a rebound in the Capesize market, it will, of course, be profitable or workable to trade these OBOs. But if the bulk market remains depressed, then of course it's better to bite the bullet and sell out instead of trading. Maybe one or two of the older VLCCs, but nothing concrete. It depends on, of course, prices. But there's a few ships that could be sold during the year, but I think we have done our main part of clearing out last year. And we are quite satisfied with that.

Okay, great. And then just real quick, you touched on it earlier. The OBOs -- and clearly, there has been some issues with charters wanting to walk away from contracts. The question regarding the OBOs -- is that for the OBOs that are on contract? Are you having difficulties getting paid for the OBOs that are on the spot market?

Well, we've got five ships left. Three of them are on a good long-term time charter; we have no problem with that. Two are trading in the spot market on relatively short-term time charter. There's no problem in that. But, unfortunately, they used to be on long-term time charters who defaulted. And that's, of course, why we have them in the spot market. So it's more of events that happened in the first half of last year. And those claims, outstandings, of course, we are pursuing right now.

Okay, thank you for the time.

Isaac Arnsdorf, Bloomberg.

I just wanted to verify that those defaults occurred in dry bulk, that the (multiple speakers) dry bulk, not oil tankers. Have there been any charter party issues with tankers?

No, none.

Okay. Who chartered those OBOs at the time?

I can't really say that.

Do you expect more?

I hope not, but you never know.

Okay. And also, I just want it clarified, there have been some questions about future sales or acquisitions of your fleet. Is there a time frame for either buying more VLCCs as John Fredriksen has alluded to, or for selling more of Frontline Ltd.'s vessels?

We just had the same question. There is probably one or two, maybe three more ships in the fleet that potentially will be sold off, which is older ships. There's no time line for that. If we see the right opportunity, we will sell it here during the next six months. Acquisition-wise, I think we have just come out of a restructuring and we are trying to find our feet a little bit. So, there's no immediate plans of further acquisitions.

Okay. And you mentioned and the beginning of the call that second-hand prices had bottomed; that was for 10-year-old VLCCs.

Yes. I think what we are seeing is the VLCCs around 2002 built, 10 years old. I think there's potentially more buyers than sellers, and that's normally a sign that the values are bottoming out. That's how we see it.

Does that mean that your asset values would start to appreciate?

Well, I guess everybody's values will go up. It's not so much why I said it, but I think it's more that the -- I think we have seen very steep value falls last year, but for some asset classes (inaudible) seen it stopping, and people are believing this is getting interesting (inaudible). And I'm not saying that they will shoot up again, values, but it's always nice to, when you've found a base and we work from there.

Great, thank you.

(Operator instructions). As there are no further questions in the queue, I would now like to hand the call back to your hosts today for any additional or closing remarks.

I would like to say thank you all for dialing in, and I would like to thank everybody in the Company for their work and efforts last year in a year which turns out to be very difficult. Thank you very much.