Frontline Plc (FRO) 2015 Q4 法說會逐字稿

Good and welcome to the quarter four 2015 Frontline Limited earnings conference call. Today's conference is being recorded.

At this time I would like to turn the conference over to Robert Macleod. Please go ahead, sir.

Thank you very much. Good morning and good afternoon. Thank you for calling in to Frontline's earnings called for the fourth quarter of 2015.

It was a very exciting quarter for us both in terms of Company events through the merger with Frontline 2012. But it was also another quarter of strong earnings.

I will start this call going through the highlights of the quarter. Then we will look at the new Frontline post-merger. Following that Inger will run us through the financials for the quarter. After that I will guide you on Q1 earnings.

Moving on we'll look at our time charter cover, the order book and we're also look at the market outlook and go through the risk and bullish factors affecting the tanker markets. We will conclude the call with taking your questions.

Let's get started on slide 1 please, Company highlights in the quarter. We completed the merger with Frontline 2012 on November 30, 2015. The new Frontline achieved a net income of $58.6 million in the fourth quarter.

Today we announced a cash dividend of $0.35 per share for the quarter. As Inger will explain in more detail later, we have reduced our cash breakeven rates further. It leaves us in a great position to produce solid returns on our ships as well as leaving us well-placed to face downturns in the markets.

Please move to slide 2 and we will look at the new Frontline. Post-merger, we reached a significant scale with 62 vessels on the water and another 26 to be delivered.

We are present in the key tanker markets: VLCC, Suezmax, Aframax and MRs. In each of the segments we have achieved critical mass as can be seen on the top right chart.

In the Aframax segment we have chosen Aframaxes with coated tanks called LR2s which gives us the optionality to trade both crude and clean petroleum products. Our relationships in the tanker markets, many going back decades, remain very strong and it's an important contributor to Frontline's success.

In the very important VLCC segment, the segment that gives the highest returns during strong markets, we are very pleased with the VLCC chartering, the marketing corporation we formed with Tankers International back in 2014. Currently about 65 VLCCs are operating in VLCC chartering.

Our chartering strategy is optimistic. I will touch on our TCR activities later in the presentation where we have also chartered in vessels. We constantly look at how our charters are priced, assess the risk reward and then decide how to approach it.

The new Frontline has a great earnings potential and a high payout model. We have a positive outlook on the tanker market which creates a very promising cash generation outlook for the Company as more of our newbuildings deliver.

There is no doubt that Frontline has what it takes to consolidate the tanker market and we believe the tanker market can benefit from consolidation. We will pursue opportunities if we find them in the interest of the Company.

Being invested in Frontline is investing alongside our majority shareholder and chairman John Fredriksen. And it goes without saying that we are fully aligned with our majority shareholder.

With that I will hand the call over to Inger who will give us a financial review of the quarter.

Thanks, Robert, and good morning and good afternoon ladies and gentlemen. Then I would like you to move to slide number 3, financial highlights.

While the Company was the legal acquirer in this merger in accordance with the provisions of the ASC 805 Frontline 2012 was elected as the acquirer for accounting purposes. And the merger has been accounted for as a reverse acquisition. Consequently, the results of the Company for the fourth quarter comprise the results of Frontline 2012 for October and November and those of the merged Company for the month of December.

The results of the Company for the year ended December 31, 2015 comprise the results of Frontline 2012 for the period from January through November and those of the merged Company for the month of December. Thus Frontline reports net income of $58.6 million equivalent to earnings per share of $0.37 in the fourth quarter. After adjusting for gains, losses, impairment loss on shares, mark-to-market and minority interest we show a net income from operations of $56.3 million in the fourth quarter, equivalent to $0.36 per share.

For the financial year 2015 Frontline reports net income from continuing operations of $255.4 million, equivalent to earnings per share of $1.63. And after adjusting for gains and losses, impairment, loss of shares, mark-to-market and minority interest we show a net income from operations of $163.8 million in the financial year 2015 which is equivalent to $1.05.

On this basis Frontline has in line with its policy declared a dividend of $0.35 per share for the quarter. This represents more than 97% of adjusted earnings for the fourth quarter.

The [FRO] share price closed at $9.02 on February 26 and the Company's market cap is $1.4 billion. The dividend represents a yield of 15.5%.

Then moving to slide 4 income statement, in the income statement slide we show -- we have shown on the left-hand side the US GAAP figures based on the results of Frontline 2012 for October and November and those of the merged Company for the month of December. And at the right hand side we have included a combined result of Frontline and Frontline 2012 based on the summary of the results of each Company, which does not reflect the impact of the merger.

In the following I will explain the change in results in the fourth quarter compared with the third quarter based on the combined results of Frontline and Frontline 2012 not reflecting the impact of the merger. The combined results of Frontline and Frontline 2012 in the fourth quarter show net income of $62.7 million against $79.3 million in the third quarter.

After adjusting for gains and losses, impairment loss on shares, mark-to-market and minority interest, we show a net income from operation of $60.7 million in the fourth quarter compared with $41.8 million in the third quarter. The increase in the results from operation in the fourth quarter of $18.9 million is mainly explained by an increase in [the resulting] time charter basis of $22.8 million, an increase in contingent rental expense by $9.2 million including profit share expense of $20.6 million to Japan and $11.6 million to German limited partnerships, a decrease in running expense of $4.2 million and an increase in drydocking costs of $1.5 million, and lastly a decrease in other expenses by $2.6 million.

The combined results of Frontline and Frontline 2012 in the financial year of 2015 show net income from continuing operations of $325.4 million. After adjusting for gains and losses, impairment loss on shares, mark-to-market and minority interest we show a net income from operation of $213.4 million in the financial year in 2015.

Moving then to slide 5, average daily time charter rates. Frontline spot VLCC fleet earned $62,700 per day this quarter compared with $49,600 per day in the third quarter. And the average for the whole VLCC fleet including the time charter out was about $57,700 per day compared with $44,300 per day in the previous quarter.

The Suezmax spot fleet earned $42,000 per day this quarter compared with $32,600 per day in the third quarter. And the average for the whole Suezmax fleet including the time charter out was about $38,400 per day compared with $28,400 per day in the third quarter.

Frontline's spot LR2 tanker fleet earned $32,600 per day this quarter compared with $42,700 per day in the third quarter. And the average for the whole LR2 fleet including the time charter out was about $25,500 per day this quarter compared with $27,000 per day in the previous quarters.

The MR spot fleet earned $19,700 per day this quarter compared with $25,700 in the third quarter. And then the average for the whole MR fleet including the time charter out was about $19,300 per day this quarter compared with $25,700 per day in the third quarter.

Moving then to slide 6, cash cost breakeven on operating expenses. In December 2015 we entered into a new $500 million term loan facility with a number of banks which matures in December 2020 and carries an interest rate of LIBOR plus 119 basis points. The proceeds of this new facility were used to refinance four existing bank facilities (inaudible) facilities with an outstanding balance of approximately $378 million in aggregate and to repay outstanding amounts owed to Ship Finance of approximately $113 million.

This facility is secured by six VLCCs and six Suezmax tankers. In addition, the margin of the $466.5 million term loan facility financing 16 product tankers was reduced to 190 basis points as well. The refinancing and amendments have reduced the average daily cash cost breakeven time charter rates on the current operating fleet by approximately $1,400 per vessel per day in 2016.

On this basis the estimated average cash cost breakeven rate for 2016 are approximately $22,500 per day for VLCC, $17,600 per day for Suezmaxes, $15,000 per day for LR2 tankers and $13,900 per day for the MR tankers. These rates are the daily rates our vessels must earn to cover budgeted operating costs and drydock, estimated interest expense, bareboat hire, installments on loans and G&A expenses. And we believe the breakeven rates are highly competitive.

The average OpEx for the fleet in the fourth quarter was approximately $10,200 per day compared to approximately $10,000 per day in the third quarter. And we have one scheduled drydocking in the first quarter of 2016.

Moving then to slide 7, the balance sheet. Changes to the balance sheet in December 31 from end of September 30 are explained by the merger of the Company and Frontline 2012 is accounted for as a business combination. Using the acquisition method of accounting and the provisions of ASC 805 with Frontline 2012 selective asset comes acquirer for accounting purpose under this guidance.

The total estimated purchase price consideration was calculated to $558.6 [billion] based on 77,594 Frontline 2012 shares that would be issued to maintain combined company shareholdings and a closing Frontline 2012 share price on November 30 of $7.18. Goodwill in the amount of 225 million has been recorded as the difference between the estimated purchase price of integration and the fair value of Frontline's net assets acquired and liabilities assumed of $333 million.

Then I would like you to move to slide 8, the newbuilding program. Frontline's newbuilding program as per the end of 2015 is on track and it consists of 28 vessels where 11 vessels are scheduled to be delivered during 2016 and 17 during 2017 which you can see in more detail on the graph on the upper right-hand side of the slide.

In January 2016 the Company [fixed] delivery of two LR2 tanker newbuildings, the Front Ocelot and the Front Cheetah and the Front [Tiger] and the Front Lynx is scheduled for delivery in March 2016. The remaining CapEx as per the end of 2015 was about $1.45 billion. As of the end of 2015 we have obtained commitments for $198 million of debt financing for six other vessels and we intend to obtain commitments of debt financing for the other vessels closer to delivery of these vessels.

We intend to finance the remaining 22 newbuilding vessels with a combination of proceeds from debt and cash off balance sheet. And we are confident that we will finance the full newbuilding program well ahead of vessel deliveries.

There is an increasing cash generation potential as newbuildings deliver. For every 5,000 about breakeven levels to the newbuilding program will increase the cash generation potential when fully delivered with approximately $50 million equivalent to approximately $0.30 per share. This you can see from the graph on the right-hand side in the lower right-hand side of the slide.

And with this I leave the word to Robert again.

Thank you very much Inger. Please turn to slide 9. I would like to guide you on our spot earnings in Q1.

The year started off very strongly especially on the VLCCs. We saw this as a good opportunity to fix our ships forward.

In other words, we took long voyages rather than short. This has proved to be the right strategy and we have locked in 88% of our VLCC trading days at $73,100 per day.

On the Suezmaxes we have done about 62% at $36,700 per day. On the LR2s we have few trading days in the quarter due to the number of vessels TCE-ed out but the number is $26,500 and 72% is covered.

The MRs have had a decent start to the year, 88% done at $21,000 per day. However, the tanker markets have corrected downwards over the recent weeks and mild winter and refinery maintenance or contributive factors but overall demand for tankers remains good. The market will be volatile like it was in 2015 but we believe that the fundamental outlook of both the crude and product markets are good and we expect the markets to perform well going forward.

Let's look at Frontline's time charter cover please on slide 10. The period from 2010 through to the second half of 2014 was a period with oversupply of tankers and this led to slow earnings.

As world oil supply increased significantly heading into 2015, the tanker rates slowed. The world oil supply has remained high and we are in an environment now with strong earnings. Although we are positive to the tanker market outlook we find it prudent to capture some of this market strength and secure time charter cover forward.

At the present 35% of our fleet is chartered out. The six VLCCs we have concluded are done at an average of $46,000 per day and there was on average 10 months left on the charters as of January 1.

In addition, six Suezmaxes have been chartered out at just below $29,000 per day. It is important here to note that three of them have agreements in place that give us 50% of the profit above the base rate. We do not participate in any losses below the base rate in any of these deals.

We have also concluded five LR2s on two-year deals. Re-delivery is due in the first half of 2018.

With the deals concluded as of today the time charter coverage falls to about 20% on January 1, 2017 and as of January 1, 2018 we will be down to about 10%. We will continue to capture market strength and secure forward cash flow through time charters if we believe it's in the interest of the Company.

Please move to slide 11 and let's have a look at the order book. The expected newbuilding deliveries are accelerating this year, particularly in the second half of 2016 and heading into 2017. Between today and through 2017, there are almost 100 ships delivering in both the VLCC and Suezmax segments.

During the same period about 50 ships in each segment will turn 20 years. Ships over 20 years are virtually impossible to trade in the spot markets and we expect them to go into permanent storage contracts or conversion projects. Normally they would be scrapped, though we expect scrapping to be at a very minimum due to the weak scrap prices achievable in the markets.

What we find is that our customers increasingly prefer ships less than 15 years old. We see this trend continuing and creating a further two-tier market between modern ships under 15 and the older tonnage above 15 years.

Challenging capital market conditions and the difficult financing environment for shipowners is likely to restrain fleet growth. There is plenty of yard capacity in Asia 2018 onwards.

At the same time a number of secondhand tankers are for sale. We believe prospective buyers will have a preference for those rather than ordering forward delivering newbuildings as they will give immediate earnings.

These factors will also keep values and hence net asset values under pressure. We are therefore currently experiencing a disconnect between asset values and earnings in the industry.

Moving on to the final slide, let me give you a brief rundown on the market outlook through presenting both the bullish factors and the risk factors. The tanker markets improvement over the last five quarters was driven by the jump in daily oil supply from about 93 million barrels to almost 97 million barrels per day.

At the same time the low oil price continues to support demand the opening for US crude exports is creating an interesting dynamic. The US basis today's production short about 7 million barrels per day, so for every barrel exported a barrel needs to be imported. We are expecting a trend where exports of light crude go to Latin America and Europe and is substituted by heavy grades from the Middle East.

The high volume of crude in the market keeps congestion and delays high imports and places around the world and creates what we call forced storage. As for contango-driven storage, contango being the difference between today's oil price and the future price, we have not seen much being done lately due to the strong freight markets.

With the recent fall in the spot markets we expect more inquiries. The current breakeven rate for a VLCC to store crude is around $35,000 per day and it is quite volatile.

Let's go through the risk factors. A decrease in oil demand is an obvious risk as is a further order book build up. With what is happening in other shipping sectors, the yard capacity in Asia, 2018 onwards is virtually unlimited.

An OPEC cut in production would have an immediate effect on the demand for tankers. And a change in trade lanes, although unlikely in our opinion, could decrease ton miles which in turn will hit the demand for tankers.

Another factor would be inventory drawdowns. The world inventories are at high levels and although many aren't categorized as strategic it is a factor to watch.

At the end of the day the higher the fleet is utilized the higher the rates will be. The above factors can challenge same.

With that I would like to conclude this presentation and move to your questions.

(Operator Instructions) Fotis Giannakoulis, Morgan Stanley.

Yes, hi Robert and congratulations for the good quarter. I want to ask you what is going on in this quarter?

We have seen rates coming down compared to the peak levels of the fourth quarter of 2015. Of course they are still quite profitable but this decline has created some concerns, especially last week we saw the activity in the Middle East being weak.

We saw some of the vessels as they were close to entering into floating storage. These deals did not happen. What is happening right now and what is your outlook for the rest of this quarter?

To look at it as I mentioned earlier, the winter is milder and also we have a number of refineries doing maintenance. So these are factors. But I do expect as I said earlier you'll always have volatility in a strong market and this one is more difficult for me to explain this one than what it was in August, September where you had cut in Saudi and less out of Iraq.

To us it looks like the volumes are still high and in quiet periods when activity is low some older ships are being fixed and you have you get some pressure on the rates. Last week we saw very, very few modern ships being fixed out of the Middle East. It was mostly old ships.

People get nervous, fix and it falls quickly. And from my experience what we've seen in the last couple of weeks in a normal scenario because I can't see the volumes there and normally in this scenario you'd see the market come back pretty quickly. That's what I expect.

And from what we read from brokers there haven't been many charters for loading in the middle or after the middle of March which is approaching, it's right around the corner. Are there any countries that they are withholding the cargoes in hope of a higher oil prices, in hope of lower charter rates?

Is it Kuwait? Is it Iraqi, Saudi Arabia? Can you pinpoint where the problem of the last week is exactly?

No, I mean the cargoes have been sold or been scheduled to the various customers, so I think a recent here is what many of the charters are holding back the volumes. I expect there to be quite a number of cargoes left here and over the next couple of weeks it will be more active. And there is a simple strategy of holding back cargoes makes the market nervous, rates fall but at some point you will have to fix the ship to cover your inquiry and thus I expect more activity going forward.

So just in summary I don't think that you see any supply cut from the Middle East or any reason to be bearish on tankers or bullish on crude prices? Can you explain to us the relationship? How crude prices can impact oil tanker market?

The crude price is an important factor when looking at oil demand. But in the present price environment and I think the price of oil can move up quite a bit before it gets threatened.

Thank you, Robert. And my last question is about your stock price and your capital allocation process.

You have a dividend policy of giving effectively all your net income into dividends. However, your stock is trading below its liquidation value and at quite a steep discount. Is there anything that you can do there potentially allocating some of your capital either through debt or from retained earnings if possible in order to buy back your stock?

No, I think we will stick to our policy which we have stated with respect to dividend payments and we have no plans of changing that. So that's what we are going to do going forward.

That's very helpful. Thank you Inger.

Gregory Lewis, Credit Suisse.

Yes, thank you and good afternoon. In the prepared comments in the presentation it was touched briefly about the financings of the newbuilds. Clearly given the dividend policy the balance sheet is going to be the primary source of funding the remaining 26 newbuilds.

Just as we think about that if you could give us an update on generally speaking just looking at the Norwegian banks and even over in Asia, it seems like liquidity is becoming harder to get harder to access and how comfortable are you? It seems like hey, we're willing to wait and see how the market develops and go get our financing closer to delivery, but is there any benefit from just hey, the market's open right now, the banks are willing to lend you money, maybe it's a little bit more expensive today than it might be just carrying that on the balance sheet? But could that be the prudent thing to do just in case six to 12 months from now the financings aren't available?

I would say that so you are referring to that it might be that it's a bit more constrained, the capital that you could get from banks now. But so far at least we haven't seen anything to this and we have a great support from our banks both here in Europe and in Asia.

And so we don't see let's say any rush in doing this. But at the same time I think that we have already been thinking about and preparing for putting this in place. So I probably believe that we will do it a bit earlier than we usually had done before then, but we are confident that we will get it in place so this is no concern that we have.

Okay great. Then just one follow-up from me.

We mentioned in the presentation about discrimination for 20-year-old vessels and I understand that that does happen. But it seems generally in strong market, which is what seems to be your team's base case I feel like during the last cycle we saw single-hull VLCCs coming into the US Gulf of Mexico.

And it seems like when rates are good do these certain discriminatory thresholds sort of get pushed aside? And so I'm just curious as you view 20-year-old VLCCs you view your base case is that there really is no market for VLCCs once they come over 20 years old and they just have to go on storage?

It is virtually impossible to trade and give your customers the options they require. In a very small number of instances you can go from a named port to a named port, I.E. the dealers from a load port to a discharge port. But it's very difficult to trade and as we see it they will mostly go on to permanent storage or be converted for other projects.

As I've said earlier, when it comes to the class, 15 it's also important to look at how rules and regulations are affected to that statement. The oil companies are getting stricter and stricter and we are for example if we have a ship east of Suez to take that ship west if she's over 15 we really have we really think about it long and hard because in the West especially and going back east a 15-plus ship will not be preferred. So these age I think the aging of the fleet and the requirements and rules and regulations from our customers is a very important factor when looking at the order book and the development of the fleet.

Okay great. So just one follow-up for me on that.

So as we think about VLCCs or I guess any tanker at this point, historically they've been depreciated at around 25 years. Based on your comments it sounds like that's come in to around 15 to 20 years. Is that the right way to think about it?

With respect to the accounting depreciation on these vessels I don't think that will change. That has been a policy for all the tanker companies for a very long time and even though the vessels probably move out of trading and move into let's say permanent storage it's still a live vessel. So it will still be depreciated after that.

Okay perfect. Thank you guys very much. Have a great day.

Peter Testa, One Investments.

I just wanted to explore your point about there being a disconnect between asset values and earnings in the short term as a potential opportunity versus a significant supply as a potential threat. And just think about how you think about opportunities in the market to behave corporately with those two contrasting statements.

Can you repeat that, please?

Sure. You made the point that there is a disconnect between asset values and earnings i.e., asset values are not reflecting the earnings base and you also talked about significant supply. I'm just trying to think -- see if you could help us understand strategically how you take advantage of what you can do to take advantage of opportunities in that market either with regards to your fleet, with regards to other corporate entities, just thinking about how you marry those two issues together when thinking about your strategic and corporate ambitions.

Yes, sure. So with the fall in asset prices there the returns that you can obtain in the market have improved a lot over the last year or so. So what we're saying here is that it could create opportunities that you can buy assets out there and get a good return.

At the same time the charter link you can obtain is longer than what it's been so you can look in your earnings. So it's something that we're watching to see when the opportunity is right. For the time being the length of ships for sale is increasing and prices have kept coming off, so it's all about timing it and we're watching this closely.

But are there any particular thresholds? Or for example do you want to see how the market trades through the higher supply later this year before taking any action? How do you figure that out?

In an ideal scenario you want the time charter market to move, the lengths to move to three and five years and the asset prices to keep falling and then lock in a cheap ship against a long charter. So it's all about timing here but it depends on how the markets develop over the summer.

Okay, thank you.

Jonathan Staubo, Fearnley.

Hi guys. I was just wondering about your LR2 fleet with the rate which was very high for the fourth quarter. Was that trading primarily in the dirty markets and how do you look on this going forward?

It was as we are in Q1 and the guide, it's on two vessel days. I think overall we're talking 120, 130 days, so a ship and a half and the ships were trading clean only.

The market was strong where you took gas oil and jet fuel from Asia to Europe and then you'd bring naphtha back. So you'd have a laden leg both ways and things were -- it was a strong market.

And what we did during the strong market was to secure employment forward. The strong market gave an opportunity to do two-year charters and we did just that.

Perfect. Thanks a lot. That's it for me.

Mike Webber, Wells Fargo.

Hey, good morning guys, how are you? Robert, a lot of this has already been touched on but I do want to touch on storage and I guess first on asset values.

And we saw a print I guess it was a day or two ago with a five-year-old V going for around $75 million and that disconnect between earnings and asset values. Actually this continues, it's actually widening still which is a bit surprising at least at some level.

I'm just curious I guess when you think about strategic options here and platforms across the space and your ability to continue consolidating the tankers space, do you see some of the value proposition that might be presented by platforms trading below street NAV? Do you see that getting eroded right now?

Or do you have -- when you guys look across platforms right now and things that are trading at 0.5 or 0.6 times NAV how much -- I guess given the disconnect how much certainty do you put into that price NAV multiple in terms of where the true value will actually end up landing? I'm just curious how you think about that specifically within this kind of environment.

Now I think with the ships as you said $75 million just done and there is pressure but overall I think the focus will go from NAV and over to looking at earnings as well. What's happened over the last six months is that the number of ships for sale have increased.

The prices in other parts of the industry which has led to this and people want to sell out of a good market to use that cash elsewhere. So it keeps putting pressure on -- but I when it comes to the pricing here I think the pricings in general and how the platforms are priced I think after all we've seen so far this year I wouldn't be surprised if that takes back some of what's lost.

Sure. And maybe just coming out that a different way when I think about the current asset curve, like how close to a clearing point do you think we are for all those vessels that are for sale here? I mean with assets coming down now well below mid cycle levels, well below mid-cycle levels at this point, how close do you think we are to the that market actually finding a clearing mechanism?

I am surprised we're as low as we are now and at the same time there are incredibly few buyers out there. So I'm not going to say that we've reached a floor but I don't think we're far from it. But it's been -- it's very, very tough call because to be very frank I didn't expect us to come down to this level given the strength of the market and the strong outlook.

Got you. Okay, that's helpful. I wanted to touch on floating storage.

I think you already kind of have highlighted the crude already and it certainly seems like the pipeline attacks kind of narrowed the Brent time spread a bit. And so I guess when you think about that do you think that's one, has that materially hurt the potential for floating storage at least through the end of March when they can get that fixed?

And then I guess maybe on the flipside when we think about products we're already seeing record inventory levels but the crack spread certainly can support continued storage on the product side. I'm just curious as to whether the focus should really be on floating storage for product as opposed to crude at this point?

I think on the products what we're seeing is that, well, why basically we're seeing that gasoline has extremely good demand whilst diesel is the product that's suffering. And when you refine a barrel then around 38% to 40% is diesel whilst looking at gasoline, looking at China for example where you have very high demand of 7% expected this year.

So diesel I would expect there could be some storage but it's difficult to call this of course because the forward pricing changes all the time and looking at crude for example the change in the contango is every day we're moving. So it's flattening out in a very low oil price environment. So all this as I said I think I'm not an oil trader and even if I was it would be a difficult one to call going forward.

Right. Fair enough. Just one more for me and I will turn it over, but Inger you mentioned in an earlier answer that you thought the financing markets are still there for you guys in terms of the order book.

I'm just curious if you have had any preliminary conversations whether you're seeing any sort of change in advance ratios or terms? If there's any kind of nuanced detail you can give us just to give us a sense of how that market is evolving if it's not shut at this point?

The one comment I can give is that based on the discussions we have had lately my impression is that we are not in a situation that we are looking at any kind of let's say worse terms than we have already done. So I'm positive with respect to that going forward. No problem at all.

Okay, that's helpful. All right, guys, thanks for the time.

Amit Mehrotra, Deutsche Bank.

Yes, thank you very much. Good afternoon everybody. So I just had a follow-up on the previous commentary.

Everyone I guess, including us, have been talking about the disconnect between public equity values and net asset values and it's sort of been the drumbeat for over a year now. But the question is what do you think the chances are that the market actually maybe has it right and we are wrong? And obviously it's all related to spot and time charter rates over time, and Michael noted the VLCC secondhand deal that was done at a slightly lower level than maybe we would have thought even a week prior.

So the question is really that at the end of the day is there increased concern or fear out there for crude tanker ship owners? And if so could we actually see maybe a small leg down in asset values from where we are today in time charter rates and just maybe an overall re-rating of the market based on where owners' sentiment is at this point?

I think these various markets are all connected. So you have the spot market, you have the time charter market and then you have the asset values. And the asset values are then disconnected from the two others for reasons we talked about earlier.

So what I think the place to start if you're looking forward and what owners think about the market for us we have a strong outlook view on the market. We will remain in a high supply environment of crude oil i.e., high demand of tankers.

We will have the delays will be high as they are now and even increasing because we don't think that investing in the infrastructure on imports around the world is going to happen overnight. So we think we are heading into a much better period than what we had in the previous tide.

We think the Asian in terms of the yards obviously there's unlimited capacity. But with a number of ships for sale here and the values where they are now and under the terms available that this gives, we expect the secondhand market will have to have much more transactions and activity before we start ordering more ships.

This means that if you look at the graph I presented earlier on the order book then this could make 2018 and 2019 quite interesting with the number of ships that hit the 20-year mark then. And suddenly the whole situation in terms of oversupply of tonnage which is what everybody is concerned about of course the outlook is not that bad. So in short that's where we are and we are optimistic here going forward.

Okay. And just in your previous comment when you said that there are very few buyers out there, I just want to get a little more color on that because the market is obviously very fragmented and I think obviously you guys have a better view on it in terms of what the individual owner is thinking.

And are there no buyers because or few buyers because owners don't want to essentially put equity capital at risk in the current environment for several different reasons? Or is it that they can't find a partner unless you're sort of this really well-capitalized player to actually sort of give you some financing to be a player, a bigger player in the market?

I think all you mentioned there are important factors and there was also you're looking at a market here that's been coming off every month for the last 15, 16 months and there's a downward trend. And what could well be the case is that suddenly we start seeing a flaw and then the activity comes back. But it depends how much capital is available to go in and what people's belief is going forward.

Okay. One last question for me and I appreciated your remarks on the market. I thought they were pretty fair and balanced with respect to your comments about 100 ships or actually a little less than 100 new VLCCs and Suezmaxes that are hitting the water by the end of next year.

It seems like most companies and investors are still very bullish on the market and that sort of bullishness is I guess underpinned by the demand side of the equation. I just wanted to ask you more about that because last year was I guess for the demand side sort of a Goldilocks period, particularly given the pull from the refineries vis-a-vis margins and what those look like last year and what they look like now.

So to be able to absorb all that incremental supply starting in the back half of this year I've got to assume the demand, the thesis is that the demand stays stronger or even gets stays stronger or gets even stronger as we progress of this year. And is that sort of the view that you think you have to take in order to be more positive on the market relative to sort of last year's very, very strong demand environment?

I think demand will keep performing. Back to what I said on gasoline earlier a strong driver and EA had a projection of 1.2 million barrels for this year.

We think it will be the best and that we think will be about 1.5 million. And this obviously is an important factor and it's one of the main reasons why we think the market will be good going forward.

Okay, thanks a lot. I appreciate it.

Charles Rupinski, Seaport Global.

Good morning and thank you for taking my question. I just wanted to ask, and I appreciate all the color on the macro, I just had one follow-up call on the macro on storage and potentially vessel speeds. I'm wondering what you're seeing in terms of vessel speeds and whether they've been speeding up much lately or not in terms of the fact that we've had a bit of a glut and it has sort of been a headwind as far as not having vessel speeds move faster.

The second question is are you seeing any inquiries for storage or at least some rumblings about storage in the US Gulf either for contango which is WTI contango or potentially just because there's an overflow of land -- sorry, less land storage available in the US and what logistical issues would be there? That's the main question. Thanks.

To take the speed first, the speed of the fleet went down had been down. Since August, September, 2015 it went down but it was quickly put up and we stayed at normal speeds since then. I think there might be some slowing down coming up but we haven't done it yet.

The recent fall is very recent and as you can see from our fixtures in Q1 we're fixed forward here. So we're performing voyages at an agreed price, at agreed speeds. So no change there but that could come up.

One comment about speed which I think is worth mentioning is that as we get the newbuildings delivered, the newbuildings (technical difficulty) that we get on service here are ships with eco-engines which also will have slightly lower speed capacity. So as the fleet now renews you will see that the flexibility and the average speed is dropping. But it's only slight, but I will make the comment.

When it comes to storage I haven't seen any specific in terms of US Gulf more inquiries. So I can't give you a good answer there. But what I can say is that when it comes to storing that and going into ports it's more difficult on the bigger ships.

It's a big market for the Aframaxes in terms of lightering and bringing cargoes in or out. So that's where that is.

Great. Very helpful and thanks for the color and thank you very much.

Peter Testa, One Investment.

Hi, thank you. I just had two follow-ups on the demand-side just to get your view on two maybe slightly more esoteric subjects. First is on Iran, and as the Iranian transport mix works its way into the market, how you feel that matures as for example they look to transport oil to Amsterdam and so on, how you think that matures as a source of tanker demand from the initial appearance in the market?

And the second is following your comment on the two-way flow, you and the market expect to develop out of the US. Just some sort of context that you see that building as a demand source through the year based upon your analysis?

Yes take a run first. In terms of the volumes pre-sanctions being lifted, they had a production of about 2.8 million barrels a day. Their domestic refineries consume about 1.8 million, so there's 1 million barrels left to export which they did on their own ships.

Now post-sanctions the volume available in 2016 looks to be somewhere between, to us at least somewhere between 1.5 million to 2 million barrels. When it comes to Frontline we've not listed anything yet.

There are still in terms of insurance and payments there are still some outstandings. And we expect that to be in place within two to three months which is again that could change.

But two to three months is our estimate. And what we think is that if this falls in place we think with their fleet with a number of ships they have on storage, which they will have to remain on storage because they don't have the land facilities, we expect the chartering requirements from Iran to then increase and for them to fix international tonnage in and then in other words take out capacity from the tanker fleet.

When it comes to the US, it's more difficult in terms of volumes. As I said earlier they're net short, so any exports would then need to be replaced by an import. And we're seeing the light crude going out.

Europe has been a destination along with Latin America. And as we saw in the summer of 2015 where which held the VLCC market at good levels, the imports from the Middle East are high. And I think that could be the replacement barrel.

Okay. But when you put together your own view on tanker demand do have a thought you can add in terms of how you think that US mix development will help it or a range that you get of scenarios that you're working with?

All we're looking at is the ton mile effect and this is obviously a positive factor.

Sure. Okay, but nothing to quantify in your view?

I can't give you a percentage because it's early days and these volumes because of how the oil trading world works things change and it's difficult to quantify it.

Of course. Okay, thank you.

There is no further question.

Okay. Thank you very much.

We appreciate the high number of callers on this earnings call. Thank you very much for calling in.

And I will also like to take the opportunity to thank everyone at Frontline for their great effort. Thank you very much everyone.

Thank you, that will conclude today's conference call. Thank you for your participation. You may now disconnect.