Frontline plc reports a net income of $187.6 million By Investing.com

Frontline plc (NYSE:), a leading international shipping company, reported a profitable second quarter of 2024, with a net income of $187.6 million, or $0.84 per share, despite facing headwinds from geopolitical tensions and market disruptions. CEO Lars Barstad highlighted the company’s strong liquidity position, with $567 million in cash and cash equivalents, and the lack of significant debt maturities until 2027.

Frontline’s fleet, consisting of eco-friendly and scrubber-fitted vessels, positions the company to benefit from potential upsides in the compliant market, especially with low inventories and a muted tanker order book.

Key Takeaways

• Frontline’s Q2 profit stood at $187.6 million, or $0.84 per share.
• The company has strong liquidity with $567 million in cash and cash equivalents.
• No newbuilding commitments and no major debt maturities until 2027.
• Fleet consists of 41 VLCCs, 23 Suezmax tankers, and 8 LR2 tankers, with an average age of six years.
• The company expects scrapping of older vessels and sees potential in the compliant market due to low inventories and seasonal trends.
• The geopolitical risks in key regions like the Middle East could impact tanker routes and market dynamics.

Company Outlook

• Frontline is optimistic about the future, expecting money-making days going into the winter.
• The company has completed re-leveraging and divesting of older vessels, with no major refinancings until 2027.
• They anticipate a normal seasonal pattern to begin, which could benefit the tanker market.

Bearish Highlights

• The second quarter ended on a softer note due to war risks in the Middle East and tightening sanctions against Russia.
• The shrinking efficient fleet and potential oversupply in the illicit market as the fleet ages are concerns.
• Disruptions in the Suez Canal and Red Sea have affected crude trade, particularly for Aframaxes.
• The loss of Libyan crude exports could affect tanker demand, although replenishment from other regions is possible.

Bullish Highlights

• Frontline sees a growing divide between compliant and non-compliant markets, with potential upside in the compliant market.
• Low inventories within OECD, China, and India could lead to increased tanker demand.
• Frontline’s fleet is well-positioned with 99% ECO vessels and 56% scrubber-fitted vessels.
• The company’s efficient fleet could compensate for any decrease in global oil demand.

Misses

• The company reports on a load-to-discharge basis, which affects the timing of income recognition.
• The spread between high and low sulfur has been narrow, reducing the benefits of scrubbers.

Q&A Highlights

• Frontline is focused on paying dividends to investors unless better investment opportunities arise.
• The company will consider asset acquisitions only if market rates increase.
• They are cautious about the current market and will wait for confirmation before making new investments.

In summary, Frontline plc remains resilient in a challenging market environment, with a strong financial position and a modern, efficient fleet. While the company navigates geopolitical risks and market disruptions, it continues to focus on delivering value to its shareholders and preparing for potential market improvements in the near future.

InvestingPro Insights

As Frontline plc (NYSE:FRO) demonstrates resilience in a volatile market, recent data from InvestingPro offers deeper insights into the company’s financial health and performance. With a market capitalization of $5.37 billion, Frontline showcases robust fundamentals that may interest investors.

InvestingPro Data reveals a Price/Earnings (P/E) Ratio of 8.37, indicating that the company is potentially undervalued compared to industry peers. This is further supported by an adjusted P/E Ratio for the last twelve months as of Q1 2024 of 9.5, which still suggests a favorable valuation. Additionally, the company’s Gross Profit Margin in the same period stands at an impressive 54.36%, reflecting its ability to maintain profitability in challenging conditions.

An InvestingPro Tip that stands out is Frontline’s significant dividend yield of 10.63%, which is particularly attractive to income-focused investors. This generous dividend is backed by the company’s strong gross profit margins, as highlighted by another InvestingPro Tip.

For investors seeking further insights and analysis, InvestingPro offers additional tips on Frontline plc, which can be accessed by visiting https://www.investing.com/pro/FRO. These tips include observations on the company’s debt burden, cash burn rate, and valuation multiples, all of which are crucial for making informed investment decisions. Currently, there are nine more InvestingPro Tips available that delve into various aspects of Frontline’s business and financial status.

In light of Frontline’s Q2 performance and its strategic positioning, these InvestingPro Insights add a layer of depth to the company’s outlook, helping investors to better understand the potential risks and rewards associated with the stock.

Full transcript – Frontline Ltd (FRO) Q2 2024:

Operator: Good day and thank you for standing by. Welcome to the Second Quarter 2024 Frontline plc Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation there will be a question-and-answer session. (Operator Instructions) Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Lars Barstad, CEO of Frontline Management AS. Please go ahead.

Lars Barstad: Thank you very much for that introduction. Dear all, thank you for dialing in to Frontline’s Quarterly Earnings Call. The second quarter of 2024 ended up very much in-line with the first with volatility, but ending up on softer notes, as we entered the seasonal summer lull. Complications around war risk in the Middle East and tightening sanctions against Russia has regretfully become the norm. And I will be touching on that later in the call. It’s important to remember though that we are at the seasonal lows and I would like to say that all shareholders have a very exciting fall ahead, as Frontline has not had this number of potential money making days going into the winter for decades. Before I give the word to Inger, I’ll run through our TCE numbers on Slide 3 in the deck. In the second quarter of 2024, Frontline achieved $49,600 per day on our VLCC fleet, $45,600 per day on our Suezmax fleet, and $53,100 per day on our LR2 / Aframax fleet. So far in the third quarter, 79% of our VLCC days are booked at $47,400, 85% of our Suezmax days are booked at ($49,900) (ph) and 65% of our LR2 / Aframax days are booked at $50,100 per day. Again, all these numbers are on the load-to-discharge basis, meaning they will be affected by the amount of ballast days we end up having at the end of the third quarter. Although Q3 bookings came in somewhat short of market expectations, please do keep in mind the binary characteristics of our market, especially as we come out of the seasonal lows. And then I’ll let Inger take you through the financial highlights.

Inger Klemp: Thanks, Lars, and good morning and good afternoon, ladies and gentlemen. Let’s then turn to Slide 4 and look at profit statement and highlights. We report profit of $187.6 million or $0.84 per share this quarter and adjusted profit of $138.2 million or $0.62 per share. The adjusted profit in the second quarter was comparable to the first quarter, as you can see from the slide, and the decrease in our TCE earnings with $12.4 million, as a result of the disposal of two VLCC fleetsand two Suezmax tankers was offset by a decrease in ship operating expenses, administrative expenses, depreciation and finance expense, as well as an increase in interest income of $12.6 million making up the $0.2 million increase in the quarter. Let’s then move to Slide 5 and look at the balance sheet. The balance sheet movements in this quarter are mainly related to sale of four vessels in the second of which one VLCC was held for sale in the first quarter. And also to re-leveraging part of the existing fleet used to repay debt drawn to partly finance the acquisition of the 24 VLCCs from Euronav (NYSE:). Frontline has strong liquidity of $567 million in cash and cash equivalents, including undrawn amount of the senior unsecured revolving credit facility, the marketable securities and minimum cash requirements to the bank as (per June 30, 2024) (ph). We have no remaining newbuilding commitments, and we have no meaningful debt maturities until 2027. Then we can look at slide 6. In the second and the third quarters of 2024, we completed our strategy of freeing up capital by deleveraging part of the existing fleet and also divesting older vessels, which enabled us to repay an aggregate of $395 million, which was strong under the Hemen shareholder loan and also under our revolving credit facility with an affiliate of Hemen to partly finance the acquisition of the 24 VLCCs from Euronav earlier. From this slide, we have made up here, we can see that this has involved optimizing the capital structure through refinancing of 36 vessels and divesting eight older vessels. Total recent and ongoing refinancing in a total amount of $1.55 billion, have secured long-term financing at highly attractive terms with a maturity of about eight years and had improved debt margins with about 30 basis points on a weighted average basis. The net expected cash proceeds from the refinancings is $548 million, sorry, and $311 million from divesting older vessels. Let’s then look at Slide 7. Our fleet consists of 41 VLCCs, 23 Suezmax tankers and 8 LR2 tankers. It has an average age of six years and consists of 99% ECO vessels and were 56% is scrubber-fitted. We estimate average cash breakeven rates for the next 12 months of approximately $29,600 per day for VLCC, $22,300 per day for Suezmax tankers and $21,200 per day for the LR2 tankers, with a fleet average estimate of about $25,700 per day. It is slightly down from previous quarter, mainly as a result of the financings and refinancings loans. The fleet average estimate includes dry dock of two Suezmax tankers and four VLCCs in the next 12 months. whereof two VLCCs in the third quarter of ’24, one VLCC in the fourth quarter of ’24, one Suezmax in the first quarter of 2025 and one VLCC and one Suezmax in the second quarter of 2025. We recorded OpEx expenses, including dry dock in the second quarter of $8,600 per day for VLCC, $9,300 per day for Suezmax tankers and $7,600 per day for LR2 tankers. This includes startup of two Suezmax tankers and two VLCCs in the quarter. The Q2 ’24 fleet average OpEx including excluding dry dock was $7,600 per day. Then let’s move to Slide 8. And look at cash generation potential. Frontline has about 30 earnings days annually. We have about 28,000 are spot days. Even in this week spot market that we experienced now, the cash generation potential at current fleet and spot market earnings from Clarksons Research as of August 29 over $33,500 per day for VLCC, $36,600 for Suezmax tankers and $28,700 for LR2 tankers is $242 million or $1.09 per share. The sensitivity is high from this spot market levels that you see now and 30% decrease from current spot market will increase the potential cash generation with about 116%. Note that the spot market earnings at the 30% increase is only $43,600 for VLCCs, $47,500 for Suezmax and $37,300 for LR2 tankers. And the upside potential should be much higher going forward when the party begins. With this, I leave the word to Lars again.

Lars Barstad: Thank you very much, Inger. Let’s then go to Slide 9 and start the discussion on the current market narrative. You will notice that there is a new theme we’re focusing on at Frontline as we’ve been trying to kind of explain the developments in the current market. We all sit on more or less the same (S&D) (ph) models known – the unknown is basically how oil trades. There is a development of a 2-tier market between what we would refer to as a compliant and non-compliant market. And this divide has grown over the last 12 months to 18 months. Currently, and this is quite surprising to some, I would assume, 23% of the global fleet is expected to be or involved in sanction trade. And in these numbers, it’s not necessarily a ship that has lifted Russian crude because the molecule is still not sanctioned, but it is vessels that have adverse activities surrounding their trade, whether if it’s with Russian crude or other sanctioned crudes. And so basically, what these numbers tell you is that 17% of the VLCC fleet is currently under some service scrutiny, either by OFAC, UANI or they have red flags attached to their activities. And likewise, if you move to the Suezmaxes, you have 21% of the fleet is under the same kind of — in the same kind of situation. And we have 28% of the Afra / LR2 fleet having the same characteristics. This is obviously related to the rise in sanction scrutiny and also the volumes trading, and I’ll come back to that later in the following slide. Geopolitical risk linked to the Middle East is ever increasing. It is also quite surprising to us to see the somewhat moderate oil movements of volatility, considering this explosive backdrop. Chinese imports are in question after soft July. But as far as we can see it, August tracking imply an increase of 1.2 million barrels month-over-month to China. So although that doesn’t really make this story fantastic is at least you should not base China on the July observation. Global oil demand is on track, at least looking at the numbers we see. Oil in transit, is in a rising trend. World inventories are at historical lows. And there is a limited cushion for adverse events, which also could be related to weather. The order book expansion in our industry is slowing the available delivery window for tankers has moved into 2028 for any substantial order that is and other asset classes are starting to take the center stage. Let’s move to Slide 10 and discuss a little bit more of the sanctions exposed trade growth. So there has been, over the last months an increased scrutiny on the Russian trade, basically exposing more and more vessels to being sanctioned by either G7 or EU in their operations surrounding the Russian trade. We’ve also seen a steep growth in Iranian exports, which basically has increased the need for tonnage for transportation. What we’ve ended up seeing is that we have a two tire-market, which is kind of developing in front of our eyes. We have what we would refer to as a compliant market, which involves 80% of the tanker fleets or thereabouts. And then you have the dark or grey fleet, which involves 20% of the tanker fleet or even up to 23% of the tanker fleet. The interesting part here is that you’re not building vessels to enter the dark or grey fleets. So basically, they get their fleet supply from the compliant fleet. So the compliance fleet is shrinking whilst this kind of dark or gray fleet is growing. It’s supplied by the aging of the overall tanker fleet basically. And over 20-year old vessels still do not trade in what we regard the conventional market. It creates an interesting dynamic because unless non-conventional trade continues to grow. The illicit market will soon be oversupplied as the fleet aging accelerates. So basically, vessels moving from the compliant market due to age and basically because we have zero scrapping, will, at some point here, start to overcrowd the dark or grey fleet and one should expect scrapping to start to happen in the end. The parallel oil trade carries an increasing risk to any reversal of sanctions as well, and that needs to be kept close to mine. Kind of implication here, and we can question where is sanctions enforcement in this picture. And also where is IMO in respect of safety and reducing emissions, et cetera. I can assure you this fleet is not spending too much CapEx on reducing their carbon footprint. At the bottom right-hand side of this slide, you will see kind of how this development is and the red arrows basically indicate this divide. So basically, the overall feed continues to grow, as basically no ships are being recycled, but the compliant fleet vessels under 20 years of age is gradually shrinking as we proceed. This includes the new buildings coming into the market. So with that harsh message, I’m going to move to Slide 11, and let’s look at the upside potential here in the compliant market. We have tanker seasonality, and it’s extremely pronounced. 90% of the global population lives in the Northern Hemisphere, basically where most of us on this call live, and EIA does expect the oil consumption to increase by 1.5 million barrels by December, basically due to temperatures turning. On average, looking back the winter market sees an increase of consumption by 1.5 million to 2 million barrels in the period from August to December. This is a long-term pattern, and we see it both in oil in transit and then obviously in freight earnings. If you look at the bottom right-hand slide chart, that’s — we were basically just taking the last 34 years and looked at the seasonal trend. And we are basically in the weeks where this market starts to come to action. It’s also quite encouraging to see oil in transit, actually dipping out of the long-term trend. And to top it we have to keep in mind that the inventories within OECD and we added China and India as well to this, is at historical lows. And again, I would like to emphasize, it offers a very limited cushion in the event of an unexpected events. OPEC is still supposed to be — to increase supply from October. The question is whether if they will do it where oil is currently trading, but 2.2 million barrels is said to be returned between October and the end of 2025. And again, as from the previous slide, the shrinking compliant tanker fleet capacity to serve conventional oil demand growth makes this a very interesting picture. And also, I think we need to keep in mind that although the market is sluggish currently, the balance is fairly thin. Only 2 weeks ago, we had VLCC rates moving up 25%. And it doesn’t take much to move the needle. Let’s then have a look at the order books. And the overarching theme here is that the ordering we saw in the beginning or the first half of the year has been muted over the last month, 1.5 months. Basically, virtually zero tankers have been ordered in the last 1.5 months and basically, at the same time, we’ve seen other asset classes move in to contract vessels and in particular, we’ve seen big orders being placed on the container side for 2028 delivery. We think that for VLCC and Suezmax, the order book looks — still looks low. Very low for VLCC, medium low for Suezmax and high for LR2. But with LR2s, as I mentioned before, we need to consider that there are virtually no Aframaxes on order, so if you take that percentage and apply it — or sorry, take that number of ships on order, apply it to the overall LR2/Aframax fleet, we come in at 13%, which is still not alarming. We also need to keep in mind that we’re heading into a generation of ships that came post ’28 — sorry, 2008 for VLCC and Suezmax post 2007 for LR2s, which are sizable generations of vessels, which will come to age in 2027, 2028 and onwards. So to sum this up before we open up for questions. Frontline has decades high earnings capacity as we move into second half. We have a strong balance sheet with sensible leverage on our modern fleet. There is, as mentioned, a growing divide between the compliant and the sanction trade, which can create interesting volatility going forward. The security situation in Red Sea, Gulf of Aden and Middle East is ever increasing, as delivery slots for new building moves into 2028. We have seen that container ordering has accelerated again. Short and medium term oil demand looks on track, but China is, of course, a question. The seasonal play is on. And I know a few people below this, let us say it again, winter is coming. So with that, we will open up for questions.

Operator: Thank you. (Operator Instructions) We will now take our first question. And the first question comes from the line of Jonathan Chappell from Evercore ISI. Please go ahead, your line is now open.

Jonathan Chappell: Thank you, good afternoon. Inger first question is for you. Slide six, says you’ve completed the re-leveraging and the divesting of older vessels. So I just want to be clear, there is no more big refinancings that we should expect before 2027 and the divestiture of the older vessels is mainly complete at this point?

Inger Klemp: Your first question was that there were no more refinancings until 2027. Was that correct?

Jonathan Chappell: Correct.

Inger Klemp: Well, not any material ones. We have a few smaller ones, which will come in 2025. Apart from — yes. And then your next question or your second question was, sorry?

Jonathan Chappell: Was around the divesting of the older vessels. Is that process completed as well?

Inger Klemp: Yes, that is also completed, yeah.

Jonathan Chappell: Okay. Good. And then just a follow-up question on this latest refinancing with the sale and leaseback. It is interesting sale and leasebacks were kind of a thing of the prior tanker markets where rates were weak and maybe financing wasn’t as available or attractive. And you’ve done most of your refinancing through traditional credit facilities. What was the thought process of doing another sale and leaseback at this point in the cycle to refinance that prior one?

Inger Klemp: Well, actually, it’s — this new sale leaseback arrangement is refinancing a current sale leaseback arrangement. So we are not actually doing more. That’s the same type 10 vessels that we have today, which we just are replacing and it’s not a standard sale-leaseback arrangement in a way, you can look upon it more like a kind of bank facility because it’s a leverage is only 60% loan-to-value and the terms are like a bank facility in a way. So that’s why — yes.

Jonathan Chappell: Okay. That’s very helpful. Thank you for that, Inger. And then, Lars, just one for you. I mean I think the seasonality slide is pretty clear and many of us who’ve been around understand this very well. I guess there is some concern about China, you noted in your prepared remarks, let us not extrapolate July. But is there any way to take that inventory slide that you did for Slide 11, and isolate China? And is there a reason that China may be a lot more aggressive in the back half of the year? Or is it more of an OECD depleted inventory and maybe China doesn’t have that type of panic going into their winter season where they need to be more aggressive on the imports.

Lars Barstad: It’s a very good point. And if we did that chart with China isolated, although it is implied inventory builds because the strategic part of their inventories is not public. It would look a bit different, whereas China has been more or less stable, running a fairly high level of inventory ever since we came out of COVID and as you might remember, they used that period with extremely weak oil prices to replenish their inventories. But with regards to China, it’s not a mystery, but it is apparent that China is not going at the speed that we would like to see. However, if you just look at our neighbors in this building being in the dry bulk market, there is somewhat a different story. So I think it’s just very important to — or it’s very difficult to kind of read China right now. We also need to keep in mind that of the imports China do, they take close to 20% of their supply is coming from either Iran, Venezuela or Russia. So it is kind of difficult to monitor these flows accurately. So also, we know that they are taking more crude coming from Russia in the north. So I would say, China is the dark course. And right now, it doesn’t look too good to be fair. But there are other countries in the region that are historically hired consumers during the winter. And the most notable one is, in fact, India. So — but I actually think that — I don’t believe we’ll have a (mute) (ph) China into Q4 or towards Q1 that I doubt whether if we are going to have a year-on-year growth, that’s more questionable. But I still think that with the rest of the situation, the rest of the countries that normally grow their demand during winter, I think we should still be okay.

Jonathan Chappell: Okay, great. Thank you very much Lars, thanks Inger.

Operator: Thank you. (Operator Instructions) The next question comes from the line of Omar Nokta from Jefferies. Please go ahead, your line is now open.

Omar Nokta: Thank you. Hi Lars and Inger. Good afternoon. Just — I’ve got a couple of questions on the market, but I also wanted to touch about — touch on the VLCC performance you’ve booked thus far into the third quarter. You’ve got 79% of 3Q booked at just over $47,000, which obviously a little bit down from the first half, but still, I would say, quite impressive when we look at what the market has averaged since the start of — say, June, whether you take into account ECO and Scrubber premium. So I just wanted to ask what’s driven that perhaps outperformance in your view?

Lars Barstad: Well, first of all, Omar you need to keep in mind the fact that we report on a load-to-discharge basis. So that has to be highlighted. It’s not all our peers and it’s not always clear how our peers report. So you should not expect us to be able to book too much towards the end of the quarter here, basically because we can’t account for income until the vessels actually load the cargo. But what has happened to Q1 is that we received a fairly big new fleet from Euronav, almost all delivered in the Middle East. What we’ve done over the quarter has been able to kind of put this fleet into the trade reflecting the rest of the Frontline fleet, whereas we try to keep — limit our exposure to — or to kind of to try and avoid having too much exposure to one particular base. And more recently, it is been the Middle East that is (Technical Difficulty) soft spot, is kind of ironic that the VLCC benchmark or S&P 500 or is based on (Technical Difficulty) into the trade in Atlantic Basin, West Africa, US Gulf, Brazil, regretfully a lot of short hauling because oil hasn’t really gone far during — well, the latter part of Q2 and into Q3. This is also explain some of the weakness in this segment in particular, and also how it’s been cannibalizing on Suezmaxes and to some extent –. But I’d say that there is no magic portion here is probably the word yes. But also keep in mind that this performance is we’re quite okay or proud of it, considering also the fact that we’ve reduced our scrubber penetration in the fleet. Having said that, you probably also noticed that the spread between high and low sulfur has been fairly narrow. So you could say that the scrubber benefits in the more recent months has not been as pronounced.

Omar Nokta: Okay. Thanks Lars, appreciate that. And just a quick follow-up just on that point or just generally on the (Vs.) (ph) Have you played into the whole product cargo lifting in your fleet?

Lars Barstad: Not on the VLCCs, but on the Suezmaxes, yes. So basically cannibalizing our own LR2s.

Omar Nokta: Okay. And then just kind of more on the market here. One, we’ve seen the recent pullback in Libyan exports or at least production volumes. It seems like they’re may be still able to export from inventory. But if this is prolonged and that volume is away from the market, how do you think that affects the different dynamics within the crude trade at this point. Obviously, Aframax has seemed more exposed to that. But how do you think the VLCCs and Suezmax react in that type of environment?

Lars Barstad: Had you asked me before the disruption started in the Suez Canal or Red Sea Gulf of Hayden. I would have said that this is kind of material. But basically, what’s happened kind of since those events started to occur, Libyan used to go east by way of either Suez or well, actually rarely all the way around, but at least through Suez. And with the disruptions in Suez, we’ve seen that oil trade local. So you’re right that it affects the Aframaxes. It might have a limited impact on to Suezmaxes, but I would say, virtually no impact on the VLCCs. And it’s actually again then that if you take one crude out of the equation, another one comes up.

Omar Nokta: And I guess in that situation, the — if you lose that crude from Libya and that gets made up potentially from the Middle East, does that become a VLCC trade?

Lars Barstad: Potentially, but it could also be replenished from Latin America or US Gulf or West Africa. Because Libyan is now then predominantly going into Europe and not to this to basically due to the disruptions in Suez.

Omar Nokta: Okay. Got it. And then one more for you. Just on — you talked about the sanctions and the dark fleet, the grey fleet. I wanted to ask in terms of what’s going on with Iran, how would you — how do you think the market would move forward in a situation where I say there’s more scrutiny on Iranian crude exports and those fall back to where they were a few years ago. I guess you — that grey, dark fleet perhaps maybe makes its way back to the “clean” or not clean but the market fleet. How do you kind of think about that versus needing to make up those barrels?

Lars Barstad: No. I think this development has been going on for far longer than at least I anticipated or we anticipated. But it’s basically kind of making it less and less likely that the vessels servicing this market is ever going to be able to return to a compliant market. So it means that any change, however, unlikely to the sanction regime against Iran, will be even a more positive effect on the compliant market. How this — and this is an ongoing — or a discussion come quite often. From our side of the equation, we struggle to understand why this trade can even go on. But obviously, if you come from a crude short nation who needs to refine petrol for your inhabitants, then you will obviously take an opportunity for any barrels that you can get hold of. So regretfully, I don’t think we can necessarily do much with this trade. What I am saying though is that as the compliant fleet is aging, it supplies into this fleet and this aging is accelerating as we move forward here. So actually, unless you see Iran able to produce significant more oil or same goes for Russia, of course, Venezuela, all three which is unlikely. Will actually start to have an overcrowded kind of oversupplied sanctioned market. So I think that’s — because I lost all faith in enforcing sanctions. I lost all faith in kind of — to regulate one out of this. We had a tanker that blew out outside Singapore recently and nobody really put too much attention to that. So we have a Suezmax burning in the Red Sea as we speak. Nobody really — it doesn’t really make that much of a headline if you’re outside of shipping. So I kind of lost that faith. But what I do believe is that we will see that fleet just continue to grow because the source of oil — or the alternative for a ship turning 20 is still — it makes a lot of sense to go into that market. But once the margins in that market are destroyed, we’ll actually start to see recycling. If that makes sense. Sorry, it’s a very, very long answer to your question.

Omar Nokta: No, no, it did very interesting. I appreciate that perspective, somewhat sobering. But yes, Thanks, Lars. I’ll turn it over.

Lars Barstad: Thank you Omar.

Operator: Thank you. (Operator Instructions) And the next question comes from the line of Deven Sangoi from (TEJ) (ph) Investments. Please go ahead, your line is now open.

Unidentified Analyst: Yes, Lars, I just want to ask you a question that you mentioned about the oil spillage in Red Sea, which happened, and there were several other instances. How do you see this dark fleet insurance getting covered because that’s, again, the amount of crude is moving on and you don’t have a global insurance companies who are willing to underwrite.

Lars Barstad: It’s an extremely good question. And when we did the — basically we’ve done an exercise prior to this on (supplying) (ph) — to gauge how many ships and how many vessels are operating in the sanction trade or kind of operating illicitly in the Russian trade because there are owners that are able to trade Russian barrels within other by way of getting at the station on the price cap or other means that they actually managed to trade Russian crude without raising any flags. But in order to gauge how much of that oil is actually on the sanction, one of the studies we did was basically to see how many of these vessels are actually not insured by any recognizable P&I club. And that is basically the foundation for saying that we assume 75% of the Russian volumes are under sanction or sanctions exposed. So — and that paints a horrendous picture if something happens. So the Suezmax in question that is currently burning in Gulf of Aden, that has insurance I understand, from a P&I club, that’s recognized. But the tanker that blew up outside Singapore, I might be mistaken, but I still think, they’re trying to figure out you actually own the vessel in the end. So I think this paints a very, very bleak picture if we get more events like this.

Unidentified Analyst: Okay. Thanks. And the second question is on — if you see the way soft landing has been questioned about there is always a doubt about US economy going into a (soft) (ph) recession, if not soft lending. And you have a Chinese economy not recovering. So next year, do you see if both these don’t recover, then there will be a lower oil demand globally?

Lars Barstad: I don’t think we’ll have lower global oil demand globally, but the expected oil demand growth will be limited. So — but if you couple that with the fact that the fleet — the tanker fleet is presumably shrinking at least the efficient fleet is shrinking we’re not too worried about that from a tanker demand perspective.

Unidentified Analyst: And any other factor, which can affect the ton mile because we’ve seen a significant change in ton miles over the last 12 months. So do you see any other factor which affects mile positively or negatively?

Lars Barstad: No, there is nothing really that comes to mind. We are moving into a weather exposed period of the year, which partly explains the volatility we normally see towards winter. So that could obviously change things up. But — and obviously, sudden supply changes like Libya was mentioned, where we’re losing 6.5 — sorry, 660 million barrels per day or thereabouts. That is actually enough to trigger certain changes. But there is nothing kind of apparent I see. We see the TMX pipeline, which is the new flow out of Canada on the US West Coast. That is kind of developing, but it doesn’t seem to have altered trading lanes materially. But again, one thing to watch is, of course, production growth in Guyana in Brazil and then in US Gulf, there is not so much export growth expected out to US Gulf for next year, but everybody has been wrong every year in quite a long time. And there is also an election over there, so — which might affect the willingness to invest in production, which will hit on exports. So I think, there are numerous kind of interesting spots to look at but nothing kind of material that I think will happen very, very soon.

Unidentified Analyst: Okay. And as you’ve seen, you’ve been paying out hands-on dividend, but if you’re call on the bull market goes right, you will be flushed with so much cash. What do you do with the cash?

Lars Barstad: We pay to our dear investors, then you can decide what to do. Now that is — that was kind of jokingly said, but that’s basically how we operate unless we see an investment opportunity that we think will yield our investors a better return on equity. We will pay it all out.

Unidentified Analyst: Okay. So you don’t see any — see you’ve done pretty — we were the first one to take out all the ships from the yard, half completed VLCC and now you’ll leverage your balance sheet. So you have a financial leverage operating leverage. Do you still see any good asset acquiring opportunity? Or are we done with it?

Lars Barstad: I think and I hope that we are in-line with the rest of the markets that — we need to see a confirmation in the rates in our markets before we have the conviction to do anything on the asset side. So basically, right now, we are content with the fleet composition we have. But if the market is going to continue to only pay us $40,000 to $45,000 per day, there is — makes no sense to either buy or order a ship at these price levels.

Unidentified Analyst: Thank you Lars, and all the best.

Lars Barstad: Thank you very much.

Operator: Thank you. (Operator Instructions) As there are no further questions, I would like to hand back to Lars Barstad for any closing remarks.

Lars Barstad: Thank you, and thank you for listening in. Thank you for roll off very, very good questions. And we’ll just keep our fingers crossed for the normal season pattern to start to contemplate. Thank you.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.

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