Frontline Plc (FRO) 2024 Q4 法說會逐字稿

Thank you very much, dear all, and thank you for dialing into Frontline's quarterly earnings call. Being in the tanker industry, one is used to evolving and ever changing markets, largely affected by geopolitical events, but it's becoming a little bit exhausting having potential seismic shifts by the hour. At Frontline, we managed to stay calm, trade our ships and wait for the facts or actual outcomes instead of attempting to analyze every statement out there.

A red line in all the action is focused on sanctions enforcement and a widening scope within that area, which we welcome. Before I give the word to Inger, I'll run through the TCE numbers on slide 3 in the deck. In the fourth quarter of 2024, Frontline achieved $35,900 per day on our VLCC fleet, $33,400 per day on our Suezmax fleet and $26,100 per day on our LR2/Aframax fleet. So far in the third quarter, 80% of our VLCC days are booked at $43,700 per day, 77% of our Suezmax days are booked at $35,400 per day and 64% of our LR2/Aframax days are booked at $29,700 per day. Again, all these numbers in the table are on a load-to-discharge basis with the implications of ballast days at the end of the quarter, this incurs.

With that, I'll give the word to Inger, and we move to Page 3 in the deck.

Yeah. Thank you, Lars, and good morning and good afternoon, ladies and gentlemen. We are now on Slide 4, profit statement. We report profit of $66.7 million this quarter or $0.30 per share and adjusted profit of $45.1 million or $0.20 per share. The adjusted profit in this quarter decreased by about $30 million compared with the previous quarter, and that was mainly due to a decrease in our TCE earnings.

But it was partly offset by a reduction of interest expenses as well. Then we can move to slide 5, balance sheet. The balance sheet movements in this quarter are related to sale of a vessel, repayments of debt and also refinancing in addition to ordinary items. Frontline has a solid balance sheet and strong liquidity of $693 million in cash and cash equivalents. That's including the undrawn amount of the senior unsecured revolving credit facility, marketable securities and minimum cash requirements as per December 31, '24.

In the first quarter of '25, we have further strengthened our strong liquidity with revolver capacity of up to $91.9 million. We have no newbuilding commitments and no meaningful debt maturities until 2028.

Then you can move to Slide 6. Our fleet consists of 41 VLCCs, 22 Suezmax tankers and 18 LR2 tankers, has an average age of 6.6 years and consists of 99% ECO vessels whereof 56% scrubber fitted. We estimate average cash cost breakeven rates for 2025 of approximately $29,200 per day for VLCCs $24,000 per day for Suezmax tankers and $22,200 per day for LR2 tankers, with a fleet average estimate of about $26,200 per day. This includes dry dock of 2 VLCCs and 1 Suezmax tanker in 2025. We recorded OpEx expenses dry dock in the fourth quarter of $7,600 per day for VLCCs, $9,100 per day for Suezmax tankers and $7,600 per day for LR2 tankers.

This includes dry dock of 1 VLCC and 1 Suezmax tanker. The Q4 '24 fleet average OpEx, excluding dry dock, was $7,400 per day. Then we can move to slide 7, cash generation. With 30,000 -- about 30,000 earnings days annually, Frontline has a substantial cash generation potential. As you can see from the graph on the right-hand side of this slide, the cash generation potential at current fleet and spot market earnings from Clarkson Research as of February 28, '25 is $447 million or $2.01 per share.

And a 30% increase from current spot market will increase the potential cash generation with about 80%.

With this, I leave the word to Lars.

Thank you very much, Inger. Let's move to slide 8. We've done the presentation a little bit different this time, basically kind of trying to focus a little bit on what we regard the normal market which is basically everything kind of besides what's going on in the media and around tariffs, sanctions, war and whatnot.

So global oil consumption averaged 103.4 million barrels in Q4. That's a fairly good number, up 1 million barrels per day year-on-year. This is expected to reach 104.5 million barrels by year-end. In a normal market, this will be looked upon as a very kind of firm development within calendar year. Global supply was up 600 barrels per day.

OPEC maintained their production cuts in December '24. And we actually are expecting inventory to start building in 2025, at least according to IEA -- sorry, EIA and supply to reach 105.5 million barrels in Q4 '25.

For Q4, and this kind of, to a large degree, explains some of the disappointments we've seen in rates. Global oil exports were actually down 700,000 barrels per day compared to Q4 '23. Dec alone was down 1.5 million barrels per day. This can be explained partially by what is expected to be seen as inventory draws during the period. You also need to remember that we saw, in particular, Iran hiking their exports in October, making basically the Asian markets quite well supplied with molecules into Q4.

This is obviously material, not benefiting the compliant tanker fleet. We continue to see and we continue to see in Q4 muted new ordering, but we also saw that the delivery window for any kind of asset you want to build moved firmly into 2028, maintaining the 3-year lead time in order to get the vessel on water. The average fleet age for tankers is at this day, 13.7 years. This is the highest since 2001, the regulatory framework compliant ship owners are actually facing.

If you look at the asset classes frontline operate in, we also see Suezmax and LR2 Aframax 46% of the vessels are over 15 years now, meaning that they will be up for replacement over the next five years. And as we speak, 20% are above 20 years. And this then kind of shows us that an order book of 15% is manageable kind of in this scenario. Basically, what we're trying to argue that if you see beyond the noisy tariff and sanctions narrative and all the unrest around us, which we don't expect to hurt demand materially the only effect we may see is that trade efficiency will be reduced and will basically have kind of a more or even an increased inefficiency in how the ships sail and then longer trade lanes.

The backdrop remains quite good for tankers. I think it was a good reminder of our listeners that kind of beyond everything else, there is actually normal market functioning. So we're also going to spend an entire slide on talking about sanctions and tariffs. These are questions that we receive every day from various investors, journalists, whatnot, basically on all the headlines that are coming out as we speak. So let's first have a look at tariffs on Mexico, Canada, China and EU.

Depending on the outcomes, and this is always a big question, what will actually be kind of come to effect in the end.

These tariffs also incur a material energy exposure. US import around 4 million barrels of crude oil from Canada every day. China only imports a very modest volume from US, which may come as a surprise to some. This is around 200,000 barrels per day.

Mexico export in total 800,000 barrels per day, half goes to US, so around 400,000 barrels per day. Then again, US export to Mexico, 600,000 barrels per day. So meaning that if oil and energy gets weaponized in this tariff discussion between these countries, it can actually become quite interesting to see how that plays out for the tanker industry.

Then we have the more recent US trade representative or USTR $1.5 million fee on Chinese built tonnage. So 22% of global tanker fleets is built in China. Frontline are exposed on Suez, LR2 and Afra, but all our VLCCs are built either in Korea or Japan, and we have no vessels on order in China. This is yet kind of out being heard.

It's not been put in law or no legislation has been created yet. It will be interesting to watch. But again, it's kind of the only outcome here would be for altering trade lanes and more inefficiency on how ships trade.

Then you have maximum pressure on Iran or a solution on Iran. So let's look at those two scenarios here. The first one, maximum pressure would potentially remove oil from Iranian oil's access to the market. This means that this oil needs to be replaced and likely potentially from OPEC, but that would be compliant oil that needs compliant ships. And again, beneficial for us that operate in the compliant market.

If a solution is found and suddenly Iranian barrels stops to be sanctioned, that will -- well, sorry, the previous one would also incur floating storage needs as Iranian oil would back up.

Look at the other side of this, the removal of sanctions altogether would even be potentially more bullish for tankers or for compliant tankers as Iranian oil would become compliant and compliant oil needs compliant tankers. Then you have Russian sanctions, whether if they're increased or the pressure is heightened or the other side of it, if it's removed. So the increased sanction pressure, I think we're already seeing the beginning or the results of that. We see not on the export side because we actually see the barrels still move.

But on the import side, we already see in the statistics that not only Russian, but also Iranian and to some degree, Venezuela oil imports globally are falling. So basically, floating storage must be building. But anyway, an increased sanction pressure further makes kind of the trade around those barrels more complicated, and it's tying up more tonnage, basically taking tonnage out of the compliant market into the gray or the dark market. If you turn that around and say that you remove all the sanctions overnight, you also have to bear in mind then that it's very easy to remove sanctions on oil.

That could probably be done by the stroke of the pen, but removing all the sanctions vessels from OFAC and EU lists is potentially a bit more complicated. But even if that could happen, bear in mind, and we've indicated that on the chart on the bottom right-hand corner, more than or close to 50% of the Russian trading fleet is above 20 years. And if you remove sanctions, that does not change the policy charters have on this 20-year cap. And as we've previously stated, that's probably to remain firm until the market becomes so expensive that or freight becomes so expensive that the charters are incentivized to ask their vetting departments to move beyond the 20-year age cap..

Also, a very important part in kind of this narrative is our US. Treasury OFAC and EU going to be aligned if sanctions are lifted or sought lifted on Russia. Then we have also recently Venezuela exemptions. So US seems to be having a new position on Venezuela and the exemptions given for lifting Venezuelan crude.

This is poised to put pressure on production expansions and exports from Venezuela. Venezuela has actually maybe to as a surprise to some, grown their exports from 550,000 barrels to 800,000 barrels year-on-year.

And actually, on preliminary tracking data, they were able to churn out 1 million barrels per day in December. But then we have another part here, which is this Shandong Port Authority basically aligning themselves with OFAC and not allowing OFAC listed vessels to discharge in that province. This might change. This happened also almost simultaneously as OFAC expanded their list of sanctioned vessels by close to 160 tankers. And obviously, any expansion on that OFAC list will hit this directly.

But it is a game changer because it's -- when you can't actually enforce sanctions, the only hope is that somebody will self-sanction.

And this is effectively what the Shandong province and a very important import hub in China has done. Further to that, India has at least so far seemingly follow suit and also kind of preventing OFAC listed vessels to discharge in their ports. One small side comment there for China, this might have an alternative motive. China has an interest in evening the playground between state and private owned refineries, teapots, which are very present in this province and which, to a large degree, have taken advantage of cheap feedstock coming from Iran.

And then lastly, in this kind of fairly extensive list of moving parts that we as the tanker owners are exposed to, we have the Red Sea, Israel and Hamas situation and of course, in relation to the Houthis and their actions in the Red Sea. We believe the risk continues. It ebb and flow with the developments in Gaza, but it's still so that as a tanker owner, we're not necessarily incentivized to go through. We don't mind taking the long way around. And also, we don't see currently any massive pressure from charters to move through the region either.

And the situation is still high risk, we would argue, not necessarily because ships have been attacked in the Red Sea, which they haven't, but something might go wrong in the peace process and in the cease fire and then things can escalate extremely quickly. And I also wanted to make a note on this or kind of focus here on this slide and look at the top right-hand chart.

The blue line is how the fleet development actually has been. The orange line is if we lived in a normal world where ships did not trade sanctioned oil and ships got recycled on or around their 20-year anniversary. Looking at this, the conventional tanker fleet, if you look at the VLCC, Suezmax and Aframax, actually stopped growing in 2022. Have we done that exercise for VLCC alone, it stopped growing in September, October 2021.

So we actually had negative fleet growth in the compliant or below 20-year market for close to three years now. Keep that in mind. Let's move to slide 10. And this basically is to show how much is in this how much is exposed to all these political moves and what's going on in the world around us. So let's move back to pre-Russian Invasion and go back to 2019.

Europe imported around 10 million barrels per day of oil. Then the war broke out and Europe lost 1 million barrels of Russian oil.

They lost a little bit from MED, but the Atlantic Basin like U.S., Brazil, West Africa and so forth, increased its supply into Europe by 1.2 million barrels. 388 incremental barrels were sourced from the North Sea and others amounted to 208 000 barrels per day. At the end or in 2024, Europe has consumed 10.8 million barrels per day. This is not like a massive growth. It's a small incremental growth.

But if you look at the volume changes here, they're quite remarkable. And for a shipper, we don't necessarily want Europe to source it oil from the Atlantic Basin.

That oil, we want to move east. And that oil has traditionally moved east. But obviously, as Russia has taken market share in the Eastern market, Atlantic Basin has been locked inside the Atlantic Basin. Then move to Asia. Pre-Invasion, Asia had 21.7 million barrels per oil of imports.

The war broke out. They lost 600,000 barrels from the Atlantic Basin. They further loss almost all that went into or stayed in Europe, 300,000 barrels from the North Sea. They lost 170,000 barrels from the MED. In came 1.4 million barrels per day from Russia.

Iran managed to increase their exports by almost 0.5 million barrels and Middle East contributed with 0.5 million barrels.

And as we came into or finish off 2024, Asia is importing 23 million barrels. And it's interesting to see that, that growth in that two-year period has predominantly come from Russia and Iran. And this is obviously oil that is not available to a compliant shipowner to the frontline fleet or to and it's basically benefited the growth of this dark trade. A reversal of this trading pattern would be hugely beneficial for the markets we operate in and would further change the trade lanes back to the more normal, Russian stays local where it's supposed to go and Atlantic Basin replaces the lack of Russian oil going long east.

So let's move to Page 11 and look at the order books. We have actually added a column here, which we call OFAC. And it's quite interesting. So basically just so you get a measure of how many ships are actually on the OFAC list. And I tell you, it people say kind of casually where this ship is on an OFAC list or this company is on OFAC list.

Well, you don't want to be on an OFAC list. It basically gives the US free card to go and grab your money. If you have the US dominated accounts, they can just go and take it and people don't necessarily want to have that hanging over them.

So basically, the VLCC fleet now is estimated to be around 884 vessels, 40% of that is above 15 years and 18% is above 20 years. Order book stands at 9.8 of the percentage of the existing fleet. And there's 100 or very close to 100 ships on OFAC list. Suezmax, again, the fleet is 614 vessels, 44.3% of those vessels are above 15. This is why I previously mentioned that the overall average age of the fleet is 13.7, which starts to kind of make sense.

You've got 21.2% of that fleet above 20 years currently and order book stands at 97 or 15.8%. And then we have the LR2 and the Aframax.

On the LR2 side, as we mentioned before, the order book looks very chunky. But then again, with the modest Aframax order book and the way these kind of interact and the way they trade or switch between clean and dirty, we're not about that order book either. It's quite interesting to see that 60% of the Aframax fleet is about 15 years and 30% is about 20 years currently. That kind of puts some perspective into that on first glance, looking quite a chunky order book.

So let's move to 12 -- slide 12 and see if we can sum it up. I put a headline up here called pending bull market. I know that investors and ourselves, of course, would like kind of any action happening out on a headline or in a political world to quickly translate into $100,000 per day on VLCCs. Regretfully, that's not always the way it happens. It kind of takes a bit of time.

Oil supply and demand, we argue, remain stable, but trade patterns are being challenged. We see that demand for compliant tonnage is growing. We see key Asian importers seeking other supply predominantly then West Africa and Brazil and to some extent, US. The effective tanker fleet growth will remain muted also for 2025, especially if you consider the aging of the fleet. Right now, policy changes creates more questions and answers and outcomes are difficult to analyze.

We admit that. World oil trade, and this is an interesting kind of discussion to have, but the world oil trade is now serviced by the oldest fleet in more than two decades. Frontline, we retain -- we mean we retain our material upside with our modern, spot exposed fleet.

And with that, we open up for questions.

(Operator Instructions)

Jonathan Chappell, Evercore ISI.

Thank you. Good afternoon. Lars, I hate to ask a somewhat open-ended question. I understand that there's a lot of moving parts, and no one really knows the outcomes, which you said at the start, and then you gave us a super thorough different set of all the different moving parts geopolitically.

But instead of kind of speculating on what could happen, maybe you can just kind of catch us up on what has happened. All of these events are out, some of them are headlines, some of them are real as far as sanctions are concerned. We saw a spike in the market as soon as the Chinese sanctions were announced.

It seems to have pulled back since then. Has there been a real change in chartering? Have you seen a reluctance to use ships that may be on sanctions list that you feel that some of these moves have real teeth to them and could be sustainable in the market?

Yes. I think it's the short answer. kind of with the game changer was the Shandong province kind of message. That creates the huge spike in Aframaxes that we're willing to lift Russian barrels out of and we're not OFAC listed to lift oil out of the crude coming out kind of northeast of Russia. For those vessels that we're willing to do that trade, they saw rates north of $0.5 million per day for a short period of time.

We have seen Iranian crude backing up. So basically, Iranian crude is now being exported to Malaysia and staying there instead of being rebranded and going elsewhere. So I actually don't have the number right here with me, but we've seen this is 30 million barrels per day of Iranian we last saw 25 million to 30 million barrels of Iranian oil sitting on ships in that area, which is normally the region for this material.

We've also seen a very kind of big move, particularly around the Middle East trade, where or also West Africa, of course, where charters, that charter in vessels, but it's basically for selling compliant oil into the Asian refiners. And this has been a complete step move or a step change. But then again, like it is in our industry, this moves in waves.

We've seen rates appreciate, then pull back and appreciate again, pulling back. We hope that we are in some sort of pattern that will kind of grind northbound gradually. I think kind of the overall complex is too big and also the market has become a bit more efficient over the years with everybody and their model having an, their ability to track and whatnot.

So basically, you well, regretfully for us, you avoid these panic moves where rates moved to $100,000 per day in an instant, and it's more like kind of a steady grind until sentiment and the realization of the change kind of comes into play. But I would say, yes, that we have seen material changes. And also mind you, we also sense a much larger interest from Russian or Russian trade enablers to buy older tonnage, particularly so on Aframax side.

Okay. That's very helpful. Second question is just two areas of clarification for Inger. On the PowerPoint presentation and the breakevens, you said two dry docks for VLCCs and one for Suezmax. Is that it for the year, just three ships? And then the other thing is

That's the only thing for '25. Yes.

Okay. Great. And then the other one is the administrative expenses. Obviously, it was kind of inflated, it looks like in '23 and the first half of '24 took a step down in 3Q, took a massive step down in 4Q, $1.7 million. I think that's the lowest quarterly number in history. Can you just give us a sense for what administrative expenses may look like on a more normalized basis for '25 and going forward?

Yeah. For this quarter, you saw that the admin expenses was $1.7 million reported. And the reason for that was that we recorded a gain on our synthetic option program as the kind of revaluation gain that you have to do every in the balance sheet, which we then adjusted away from the results this quarter due to that the program has fully invested during the quarter. So, and that's the cost was about $8 million. So if you add that back to the $1.7 billion, you will come to about close to $10 million. So normalized G&A going forward will be about $9 million to $10 million a quarter.

Great. Thanks, Inger. Thanks, Lars.

Omar Nokta, Jefferies.

Thank you. Lars and Inger, I appreciate the comments. And as John said, there's a nice thorough kind of deep dive into kind of the macro landscape, and it seems that the floodgate at some point are there to be opened. Did have maybe just a couple of maybe Frontline specific questions. Maybe just first, so we as we look at the 1Q figures, they're decent and above what the final 4Q numbers were.

We know the discharge accounting, as you were saying earlier in the call, maybe overstated a bit due to the end quarter balance days. But I guess just on later than final portion, you have 80% of the VLCCs booked, 77 of the Suezs, 64% for the LR2s. Just on that, what portion can we assume for the remainder of the quarter is going to be basically balanced in nonearning?

Well, I think it's difficult in a way to be absolutely precise on what will be the remaining part of the quarter. We don't really know in a way, so sorry to say. But I guess what you can do in a way, is that if you look at the pattern, historic pattern of what we come in at as actual compared to what we guided for the quarter, that can be a rule of thumb in a way for this quarter as well, if you get what I mean?

Okay. Yes. So, it seems perhaps then that maybe the final portion of the VLCCs are probably all zero, but then there's a bit more on the Suezmax and LR2s?

Yes. Because if you look at, let's say, usually, what we have at actual rates compared to what we guide for that quarter for the VLCCs for instance, it's probably around 80% to 85% on the guiding in a way. That's more or less where we end in a way. It can vary a bit. That's why I say it's 85 depending upon how large portion are covered in the guidance that they're giving in a way.

Because the guidance that we give now is for 80% covered, while we, for the previous quarter, I think we had 70-something. So it really matters in a way how many days you have covered in your guidance. Then obviously, the reduction is less for the rest of the quarter in a way if you have a high percentage coverage in a way, if you can see what I mean?

Well, also, Omar, to make it further complicated, it does actually get affected by the trading patterns at the time. Some quarters, we do a lot of long voyages on particularly. And then obviously, there since we account for low to discharge and for those listening in not understanding that is that we can only account for income being generated after the ship has loaded.

So it means that the ballast leg will virtually be zero. And if you put a large portion of your fleet into kind of China, the US Gulf trading, then suddenly these ballast lakes become quite material and for the Suezmaxes as well, those trading patterns changed quite a lot from month to month. LR2/Afra are predominantly shorter voyages. So that has a tendency to be more stable.

Yes.

Okay. And I appreciate you explaining it. No, that's helpful. And then just second question, just following up. We noticed a bit of a widespread between the Frontline ships and the vessels, it was over $11,000 per day this quarter they had converged to a much closer levels in the prior two quarters. What drove that separation?

Well, it's, we try to trade our vessels kind of the best way we think they're going to move. What happened was, in Q4, we were just as bullish as investors and around us, expecting a spike towards the end of the quarter. Then in order to commit to these long voyages, Brazil East, US Gulf East, North East, you'd rather do that on an scrubber-fitted vessel and gives you the best bang for the buck for these long voyages and then you keep the Non scrubber vessels in the Middle East for this 42 to 46 day voyages, where you can capture a lot more of a spike. This obviously proved wrong, but this explains a large part of that spread.

I think it's also important to note that there is a limited amount of cargoes you can take out of the US Gulf Frontline is probably one of the largest listers of US crude. We're also amongst the top tiers on Brazilian crude, but with million fleet 41-vessel fleet on the VLCC, where we're actually taking out kind of probably as big market share as we can get. So but what I said initially is why this spread widen. We basically try to keep the powder dry for an upswing towards the end of the quarter. This never came about.

Got it. Thank you. I appreciate that Las and Inger. Thank you.

Thank you, Omar.

(Operator instructions)

Sherif Elmaghrabi, BTIG.

Hi, Joining late, so I apologize if this has been asked before, but you built up a pretty substantial amount of dry powder. But a chunk of the fleet is aging out, meanwhile, the order book or newbuild deliveries are happening kind of at a slow rate, which, combined, you might say, speaks to an increasing scarcity of sale and purchase activity. So are there any other ways you see that you can deploy capital if opportunities for on-the-water tonnage dry up?

Not really at this moment, to be quite honest. We still want this conviction. Why our order book is empty is basically because we want to see the proof in the pudding. We have conviction, but we haven't seen the proof in the pudding yet. Resale and newbuilding prices have not really corrected in any kind of way.

Kind of the capacity that's out there has been engaged by container orders and other asset classes, particularly accelerating in second half last year. So, facing a $125 million ticket for a new VLCC, we need consistently $50,000 to $55,000 per day for 20 years in order to have any sensible return.

And we'd rather see $50,000-plus before we get the confidence to make that investment. So that's why we decided to basically handle the little money. We have or not little actually. We do churn out a fair bit on dividends, hand it to you as an investor and then you could choose to reinvest and deploy it either in Frontline or elsewhere.

And then because you touched on it, when it comes to newbuild ordering, if and when that happens, does blacklisting and sanction activity by the US on Chinese yards do anything to constrain where you consider new builds or not really?

I think it's a bit too early to if you read the headlines, I would obviously not even consider ordering a Chinese vessel right now, not that we are, but so I think kind of for the market in general, it probably puts everything a bit on the weight until we get some clarity on what the outcome will eventually be. We do question whether this is at all possible. So kind of building capacity is an issue for the globe.

The amount of goods and material and energy that transports or the sails on the seven seas is a material part of a global economy. And we know that Japan is kind of losing its ability to effectively or efficiently build ships. Korea has become like a high-cost building country. China are the only ones that offer kind of capacity. So it's going to be interesting to see how this plays out, but and so we're basically sit and watch move.

Laura, thanks for taking my questions.

Thank you.

[Devin Sangui], [Tech Investment].

Hi Lars, Lars, I just want to ask you, as the environment becomes very volatile, what's the strategy you use to do forward booking or what's the strategy? Because you mentioned that you expected something in Q4 and the market deal completely differently.

Yes. No, it's this is the challenge you have as a ship owner is that the market we move in is not efficient, you could say. So it's not you don't have whole information in front of you when you make decisions. Why we had the belief that you would get the spur of activity towards the end of Q4 is basically years of seasonality patterns, and it has to do with kind of the cold season normally in Northern Hemisphere where most people live. So but there is no kind of specific strategy I could mention to you.

The ability we have is to try and tilt our fleet from doing very long distances to short distances. So we'll obviously want to do the long distances in a high-paying market. And in a struggling or a market that's challenged, we would rather just go the shortest way to have the opportunity to refix at a higher level. So but there's nothing there's no more science behind it by that. What we are not engaging in, so this is actually a very good question is taking time charter cover here.

We believe that we're better off keeping our vessels in the spot market in the current market environment. We would increase our time charter to recover materially if we came to a situation where the market was willing to pay us kind of what we feel is reasonable return on equity. We don't think that is the case right now. So it's in that strategy discussion. One is what how we conduct our spot business, which was the question I answered earlier on Q4. The other one is obviously how we act in taking cover?

Lars, the second thing is how the US preceding is supporting Russia? If there is a truce between them and the sanctions on Russia lift, does that mean that more oil can flow through, or I would say, the black ships will be taking tonnage reduction?

Yes. If I got your question correctly. So if sanctions are listed on Russia, we think we would reverse --

Does that mean that the compliance yes, compliance fleet will have a higher market share?

Yes. Well, kind of what we envisioned is that about half of the fleet currently servicing in the Russian market will probably become compliant and still be there. But the market dynamics with that Russian oil would stay local. Russian oil, it's natural home is in Europe. And that will come of alter or reversing the trading patterns to Russia oil going into Europe and some to the US

and Latin America. And then the rest of the Atlantic Basin oils would revert to going into the east and that's long-term mark. So we think it could be a temporarily negative for Aframax and Suezmax. But you need to look at the age profile of this fleet. But for the VLCCs, it's natural to think that it will be beneficial.

Okay. And in the Trump 1.0, he made sure that the Iran export was reduced to close to like one, less than 1 million-barrel or one lakh tonnes per day. If that has to go through again in Trump 2.0, then how does it impact the demand for VLCCs, or how does it change the dynamics?

You're saying if Iranian oil is sanctioned or if the export is just reduced?

No. So the export is reduced because I think in Trump 1.0, they made sure that there's no export more or less, hardly anything.

Yes. No. So kind of second half last year, Iran represented about 10% to 15% of the Chinese oil imports. So China would then need to replace that crude and that would likely be compliant crude, I would assume from OPEC or Middle East, but that oil would have to be transported on compliant vessels. So it will actually be an incremental demand for somewhere between 30 and 45 VLCCs on an annual basis. So that would be a very benefit dominantly for VLCCs, I would assume.

But you have seen that happening? Or is it still in the transit?

We've seen it happening to some degree. But basically, the interesting thing to watch is that you see Iranian and Russian and Menzel and export hasn't really tapered off quickly here. But if you look at the other side of the equation and look at the imports of Iranian Russian and hence in crude, that has fallen quite dramatically, actually.

Okay. Thanks, Lars, pleasure talking to you.

Thank you.

There are no further questions for today. I would now like to hand the conference over to your speaker, Lars Barstad, for any closing remarks.

Yes. Thank you very much, and thank you very much for calling in. Well, it's extremely exciting times. I'd like to reiterate that at Frontline, we continue to fix ships every day. It's actually quite well functioning some market out there despite all the noise. And we're obviously excited to see how these outcomes play out, but it's extremely difficult to analyze and put a lot of value in it. Thank you.