Ladies and gentlemen, thank you for standing by and welcome to the Frontline 2020 Q1 Limited Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advice you the conference is being recorded today, Wednesday, 20th of May, 2020. I would now like to hand the conference over to your speaker today, Robert Macleod. Thank you and please go ahead sir.

Thank you very much. Good morning and good afternoon everyone. First of all, apologies for the delay in starting the call which was due to some technical difficulties. So, first, to kick off the call, I would like to express gratitude towards our shore staff and our crew members for their extraordinary efforts and dedication. They are clearly critical factors to our strong results. Frontline's performance in the first quarter of 2020 was the strongest since 2008 and we have made solid bookings for the second quarter. There has been an extraordinary quite a rollercoaster ride, but tanker earnings have been very strong amidst an unprecedented world situation. Let's kick-off moving to slide three please and quickly look at the highlights from Q1. Net income of $165.3 million or $0.84 per share, certainly a solid quarter. Adjusted for non-cash items, the net income was $179.3 million; the $7.1 million profit related to the higher profits at Suezmaxes are not included in these figures. Frontline declared a $0.70 dividend. The last dividend paid was $0.40 for Q4 of 2019. The VLCCs made around $75,000 in Q1, and we have booked 75% at $92,500 for Q2. Suezmaxes made $57,800 in Q1 and we have booked just over 60% of Q2, just shy of $72,000. LR2s made just over $30,000 in Q1 and are just over 50% done of Q2 at around $50,000. On the finance side, we closed the $544 million ICBC facility for the 10 Suezmaxes. Then before discussing the tanker markets, I would like to hand the call over to Inger, please take us through the financials.

Thanks Robert, and good morning and good afternoon ladies and gentlemen. Let's then turn to slide four and take a look at the income statement. We achieved total operating revenues net of voyage expenses of $289 million and EBITDA adjusted for certain non-cash items of $234 million in the first quarter. Frontline reported net income of $165.3 million, equivalent to $0.84 per share and a net income adjusted for certain non-cash items of $179.3 million, equivalent to $0.91 per share in the first quarter. The net income in the first quarter excludes the $7.1 million of net cash received and accrued profit share in relation to the five charter-in and charter-out agreements with Trafigura that have been treated as a reduction of acquisition cost of the vessels instead. The non-cash items this quarter was net $14 million in total and consisted of $5.4 million unrealized loss on marketable securities, a $15.8 million loss on derivatives, a $1.2 million gain related to our equity method investments, a $1.8 million on settlement of claim, and a $4.2 million gain on termination of the lease from Front Takata [ph]. The first quarter shows an increase compared to the fourth quarter of 2019 of $17 million against adjusted EBITDA and an increase of $72 million against adjusted net income. And the increase in net income in the first quarter of $72 million is mainly explained by the increase in result on time charter basis due to the higher reported TCE rates in the first quarter compared to the previous quarter. Then let us take a look at the balance sheet on slide five. Changes to the balance sheet as of the end of March 2020 compared to December 31st, 2019 mainly relate to an increase in cash and cash equivalents of $54 million, which…

Perfect. Thank you very much, Inger. Let's move to slide seven please. The first quarter was certainly a volatile one. As the COVID-19 pandemic spread across the globe, traditional drivers like ton miles and refinery runs were disregarded as a new powerful dynamic emerged. As crude oil imports to China began to decrease, the market turned sharply upwards as expected production cuts did not materialize and instead Saudi Arabia, Russia, and the UAE increased upwards. In the freight markets, we witnessed the busiest chartering period I've seen in my career, as charters were scrambling for tonnage. With a rapid decline in global oil consumption, due to lockdown across the globe, oil production was soon well in excess of demand. Under the normal circumstances, a drop in demand might lead to lower freight rates, this time it led to a surge for places to store on ships was one solution. These were not normal circumstances and the speed and the severity of the drop had an opposite impact on tanker rates as a record increase in oil and water saw freight rates firm significantly. In the chart on the slide, we see how demand has retracted faster than production cuts, employing inventories being built at an unprecedented rate, both on land and water. These moves in the global oil trade have happen very quickly. Trade developments going forward is linked to how fast demand recovers and to what degree and how quickly production turns. This is obviously very hard to predict. I'll get back to this in the final slide, but let's first look at the global fleet capacity. So, to slide eight please. The global fleet capacity growth is slowing. Global tanker fleet growth is a key driver of long-term earnings and order book is at a level not seen…

Thank you, sir. [Operator Instructions] Thank you. Your first question comes from the line of Jon Chappell of Evercore. Please ask your question.

Thank you. Good morning Rob -- or good afternoon and good afternoon Inger. Three questions for you today. Hopefully, they will all be relatively quick. Rob, you guys did a great job explaining the accounting on the quarter-to-date and kind of how that plays out. So, the 75% that you've done it over $90,000 a day, can you just kind of help us frame what we should be thinking about in the next 25%? Obviously, the markets come down, but there is always these ballast days. And if you look at 1Q and we took what you had to-date and then we're back into the $74,800, it looks like it was actually negative for the last 17% of the days. So, I'm not asking for guidance or the exact number, but is it closer to what's key to this today, is it closer to zero, is it somewhere in between, just so we can frame how the second quarter will kind of shape out?

Obviously, it is difficult to predict, but it will be some ballast days at the end of the quarter, which will take it down. It will also be taken down a bit by -- but the current rates are weaker than what so far for the 25% has contracted. So -- but to give you a precise number or anything that's difficult or very, very -- that's not possible in a way, so sorry about that.

That's okay. Maybe another way to ask is that the ballast days that you foresee for the rest of 2Q, would it be similar to a normal end of quarter, are there more, are there less, just maybe--?

It does vary. The number of ballast days will vary between the quarters. But for this quarter, it was quite high actually. It was 319 ballast days for the VLCCs, as an example and that was up from the previous quarter.

Okay, that's helpful. Rob, on the fleet side, obviously something that we're watching very closely and very hopeful to set the next real sustainable recovery, not just the blips. I heard earlier this week that the Korean yards are becoming the desperate. Now, we are hopeful that they would be filled up with LNG carriers from Qatar. But we're hearing that's becoming a bit more desperate with the VLCC front, can you confirm or deny whether you're hearing from the yards? And then also Frontline and your largest shareholder specifically have been kind of early on ordering at attractive prices. So, what's your appetite to order ships today if the Koreans are really becoming aggressive on pricing?

Now, at the yards, however time had been, I would say, desperate, but the price has come down and we've seen there's virtually been no ordering lately. When it comes to Frontline and our interest, we have a constructive view of the tanker markets in 2020 and 2021. So, all our interest in the further out 2022 when there are resource available and other opportunities, then I think that I would say take the main focus and ordering newbuildings here is not on our radar.

Okay. Thanks. And then just the last one. I don't think anybody is worried about Frontline's ability to get credit facilities, given your relationship with European banks. The $310 million is a pretty big chunk at a time where the world is pretty uncertain right now and things are under pressure. What should we think about as far as the timing of that refinancing ahead of December 2020? How do you put the discussions? And that the $100 million ATM that you put in the press release, obviously, you said you were new to today's prices. But is that something you're thinking about putting in place just in case the financing market becomes very difficult in this uncertain time?

I think it's very easy to -- in terms of backing the company, and Mr. Fredriksen and the access to finance, we have absolutely full confidence and the ATM is not linked to this in no shape or form. The ATM is sort of housekeeping, it's a tool that we had in the past and it's -- as we clearly stated, it's not something we would even think about using at the current share price.

No, but to answer to your question also, I mean as I referred to, we did recent, we did a couple of financings in the market, we did the refinancing of this Nordea facility. So, we don't really have any concern about not being able to refinance the $500 million facility either. So, it's only a matter of trying to the say maximize or improve the terms that's best if it's possible in a way. But the financing is there, so no problem.

Great. Thank you, Inger. Thanks Rob.

Thank you. And our next question comes from the line of Randy Randall Giveans of Jefferies. Please ask your question.

Howdy, Rob and Inger. How are you?

We're Fine. What about you?

Doing well, doing well. Yes, two quick questions here. So, for the fourth quarter, you announced a dividend of $0.40 based on a $0.60 EPS, so about 66% of that. First quarter announced a dividend of $0.70 on EPS of let's call it $0.91 around 75% there. Do you have a defined kind of dividend policy going forward? Just trying to think about 2Q and beyond?

Our dividend policy has not changed in a way. So, we do have a statement on our website, which says that we are, in a way, there to pay broadly the excess cash flow, or equal to or close to. And we also, of course -- or the Board also, of course, also have the possibilities to decide to lower risk in a way and what we have taken into account is of course the CapEx program that we have going on at any point in time, and any other adjustments, which needs to be taken into consideration, non-cash items. So, I guess that's more -- that's how it is.

For 2Q 2020, should we expect similar at least 50%, 60% of kind of EPS there?

Sorry, I didn't really get your question there.

For the second quarter, is it fair to expect another 50% or higher -- 60% of EPS?

I think for the second quarter, Randy, we will see what the Board comes up and decides in August. Looking at the history of the company, we are now well above $6 billion paid out since the U.S. listing and I think the company and the Board has no intention to change this history and track record. We want to keep building on it and looking at the company and looking at where we are in our cash breakevens Looking at how we've done on the time charters recently, and also with our constructive view of the markets, and with the fleet of an average age, just over four years. I think we've got every possibility here to perform well going forward. And looking at track record, I think it is the best way to answer your question.

Okay. And then looking at your Aframax, LR2s, for most of the first quarter, Aframax crude tanker rates outperformed LR2s. But in April, the crude rates kind of fell off, but LR2s hit all-time highs. So, currently, kind of how many of your LR2 product tankers are operating in the crude or dirty trade? And if you can kind of talk to that market a little bit what has caused that rate spike and then subsequent kind of rate decline back to maybe $40,000 a day?

That's a very good and relevant question. And what you're stating was actually also the case of the second half of 2019. The Aframaxes were outperforming the LR2s and there were definitely times when I was kicking myself for not having gone dirty on more LR2s. However, between the two segments, obviously we have 18 LR2s in total. We are trading 11 clean and seven dirty, which fortunately now in recent months, the LR2s have sort of clawed back in terms of the earnings, nor we looked at the exact numbers, but there probably going to be not far off being on par with what's happened recently. The LR2 market, I find it very difficult to even comment on how it has been going over the last couple of months. It's been -- I've never seen anything like it. I would describe the LR2 spike to be more extreme in relative terms than what the VLCC spike was. There's a lot of delays in our segments. In terms of number of LR2s, the fleet size is only 23%, 24% of the VLCC in terms of numbers. So, as soon as you have a lot of ships delayed or held up on storage or full storage, then you get these mega spikes. So, I think the very, very high rates as we had on the VLCCs as well, only happen on a handful of fixtures. But over the last month or two, it's been extraordinary. So, it's now stabilizing, but still it is at a very healthy level. But it's very, very difficult to predict how this is going to carry on. But it looks like although there are signs of, as I was saying earlier that the demand is coming back, especially in the -- in Asia then Europe and U.S. will still be struggling. So, you will have sort of being forced to store for quiet sometime.

Sure. And what's your split there for your Aframaxes, LR2s in terms of crude versus clean?

11 LR2, seven Afra.

11 LR2, seven Afra. Excellent. And then last quick question for the Hemen facility, it looks like you paid down half of that from $120 million down to maybe $60 million, is the plan to repay the remainder during the second quarter?

Yes, so that's been -- we'll be going from $120 million to $60 million, further down payments have not been decided, but we will revert on that when that comes up.

Thank you, sir. Does that answer your question?

Yes, that's it for me. Thank you so much.

Thank you. And your next question comes from the line of Greg Lewis of BTIG. Please ask your question.

Yes, thank you and good morning, good afternoon, everybody. Rob, just you mentioned some of the vessels at shipyards that are under construction. Clearly, some of those are obviously owned by stronger hands, some of those are owned the weaker hands. It's been an interesting picture adjective to describe the first thus far of 2020. What is kind of the appetite and from potential sellers of tonnage? How has that changed or has that changed over the last few weeks as kind of, it looks like now we've kind of settled into just a firm solid market with these around $50,000 a day. We're not seeing those headline $200,000 rates, but still an attractive market. Has that kind of loosened up or caused any more interest or pickup in maybe not actual physical deals closing, but activity or inquiries interest in the S&P market?

I think you touched on something very interesting, Greg. So, I've not seen anything like this. When it comes to S&P, what's happened so far this year has actually amazed me. And the simple example is that normally when the freight market goes to levels where you can write down purchase with more than $10 million, so even $15 million or $20 million in a short span of time. They were periods, say where one-year charters would write down a vessel by more than $20 million. Even at that point, we didn't see many transactions. There were ships offered for sale. We did have a look at a few, but it's been a very, very strange market with very few things of transactions happening. And with the rate correction, indeed, which also corrects the write down potential in the front, then we're now at very healthy levels still as you described. But we are seeing very little activity and I'm also of the opinion that even if the yard price will fall then, the number of deals will be low there as well, because we mustn't forget that access to finance, as we discussed in the earlier question and I think Frontline's access is superior and it's never sort of problem or challenge for us. But as an industry, this is more difficult and this affects it. So, -- and also as you are saying, quite a few strong hand sitting and probably happy to sit if they share the same constructive view as we do.

Okay, great. And then just one more from me. You kind of -- and I believe it was in the prepared remarks, it might have been the Jonathan's -- one of his questions, but you talked about vessels going a little bit slower, and that's part of the reason why you decided to delay some of these scrubber installations. Just kind of curious how we should be thinking about that? I mean clearly fuel prices are low. So, it's not higher fuel prices that are driving slow steaming. I mean rates are firms, so just kind of -- just any kind of color you could give us around why we are still seeing slow steaming and maybe what's driving that?

I think slow steaming congestion and general delays. It's all if you at look and then some is contango driven, some is driven by lack of space onshore and all these factors they build together and they create this oil on water stat, which is, it's up almost 20% for this year and in terms of how much oil is on the world tanker fleet. So, going into to each individual, I think it's very difficult to sort of see how they affected the overall market, but this oil on water which gathers all the factors are, I find quite useful. When it comes to the scrubber, then in actual fact, all we've done is that we've decided to leave the scrubber at our factory only prepare -- during dry dock only prepare the ship underwater. So, a small investment of less than $100,000. And then when or if the fuel spread then returns, then we can go along side, and put the scrubber on, and then start using it. So, this spread is obviously very much correlated to the crude flat price and when it comes up, then the spread will also increase. So, time will show, but we thought it was prudent given where rates were when we decided, because this also means that the dry dock time decreases by two weeks. So, we thought it was the right decision. We can reverse it, but it looks to be the right -- as you are saying, we're still at pretty good level in terms of earnings.

Okay, great. And just really quick following up on that, do we have any sense and realize it's a moving target. I'm not sure how you -- how Frontline tracks on the average speed of its fleet. But I don't know if we look at it on a month-over-month, week, daily, is there any sense for how this average speed of the fleet has been trending over however you think about it?

Generally, the fleet speed has come down since we started with the eco speed. So, that's the speed at which -- the speed flexibility of the fleets come down due to the more economic engine with less power. The latent speed, i.e., the speed that we are contracted to perform voyages at has not changed much. So, it's the ballast speed that is changing. And then, generally it's very simple. It's market slow, you slow down to save some fuel and when it's high, like it's been recently, then you rev up the engine to get to load ports as fast as you can. But in actual fact, over a year, it doesn't make that big a difference. It's a knot or two, but then you look at how many in ballast. And then you look at how many days the ship is laid and/or in port. So, it's an important factor, but it's not a huge factor.

Okay, great. Thanks Inger. Thanks Rob for your time.

Thank you. And your next question comes from the line of Omar Nokta of Clarksons. Please ask your question.

Thank you. Hi, Robert and Inger. Robert, toward the end of your opening remarks, you mentioned floating storage and how some of the Aframaxes have come off that storage, but VLCCs will likely stay a bit longer. From a market color perspective, presumably some of the VLCC charters you entered into had options for floating storage. Can you give a sense of the shift that you have on charter whether they are in floating storage at the moment or if the charters have exercised options to do so.

So, it's good question. Thanks, Omar. And then firstly, the Aframaxes, we've seen about 35 million barrels at the peak in Europe. Some of that's been unwound -- unwinded -- and on the VLCCs, then we've done charter, we don't five or six between six months and 12 months and these are time charters. So, it's not a -- the charters are free to trade the ships as they wish and they're not pure storage charters. So, at the moment, we actually -- I think we've got -- we got one Suez that has gone storage, and we've got one beat us about to start storing, but that's it. And then we've got quite a few ships that are more than sort of forced storage where there is lack of origin and so forth. But we'll see how it develops here, but what we are hearing is that some Aframaxes come three, but on the VLCCs then there are some cargoes here that that are like to store through Q2 and Q3. And remember that also the traders are in terms of risk -- flat price risk is not something they normally take. What's been happening here is that some cargos have been sold at such heavy discounts and the container has been so strong that I would guess, that some of them have hedged out the front of the curves for the next two, three months, and there might be people believing in demand really coming back in the Brent recovering here. So you could see people waiting and -- for this call to strength forward because some of the timings on crude purchases were historic in recent weeks.

Well, that's interesting. So it's a good point. So, you're talking about the discounts from the Saudi's and whatnot. And so it's not just simply looking at the front end of the curve and the back end of or the six months, there is also the $5 or $10 discount upfront as well.

Yes, exactly. And that was where you should really realize how tight the freight market was. So, it was -- there were distressed cargoes and then suddenly someone go to ship, they could make the dates in West Africa within the next five days or so, and then discounts of say, $5 to $10 a barrel, we're off it. So -- and then you put the recent jump in the flat price into it, then you can see that there are people that have oil floating here which is deep, deep in the money. And there might be some of them that are willing to take the risk to move even deeper.

Yes. Okay. And then just how does it work for instance, if for some reason the contango really does switch and they want to go shorter? If they want to unwind the floating storage, is there any impact at all on the charter that you have with them?

No, they would still have an obligation to keep the vessel on higher and pay us higher until the earliest redelivery dates. So, what you'd see in that sort of circumstance is that they will then try to trade the ship in the spot market. But many of the guys that have put ships on storage are very familiar with the spot market having ships themselves. So, they would then go from being on storage to being normal spot players.

Okay.

But as I mentioned earlier in the presentation, then we thought the peak, it will take us -- pull back a month, we thought the peak in the storage of oil on ships is going to be at a much higher level. What we're hearing now is that we might be close to it at 200 million barrels floating. So, the -- sort of the negative of that is that we are not enjoying the prolonged freight spike that we expected. We expect the crude price to be low and the contango to be strong for longer than what it was. But on the flip side of that, it means that the crude inventory draw which everybody has been talking about for the last month or two, being the sort of big animal that would sort of destroy the whole market. That volume will then be less. So, this is a flip side to the recent drop. And then by that being less than that means that our return to a more sort of normal freight market will be shorter.

Yes. Thanks. Thanks for that color, Robert. One other question I have is just on the -- you referenced earlier the LR2s, 11 are trading clean, seven are dirty. How are you thinking about the mix going forward? There was a lot of pressure last year to switch to dirty and then there is a lot of talk about potentially dirtied LR2s going back to clean. How do you think about those ships from here as we think about the next six months for instance?

Its early, it depends on how the market develops. But generally what we'll do on the dirty ships then when we have opportunities to clean up in a cheap way that will be by doing condensate cargos and so forth. Then we're likely to take those opportunities. So, I don't think there's going to be much change. 11/7 split we've done for quite some time. And if I was to guess, then I think it's more likely that we will go clean on one and we'll go dirty on one. But that's -- it's all down to how the market develops. And the developments in the market so far this year, it's been a true roller coaster ride and there's some mechanics here that are truly remarkable. And this 35 million barrels floating on -- in the North Sea or the continent, on Afras, and end up being unwound. So, we just have to pay very close attention and then we don't have any problems in taking quick decisions on the chartering strategy.

Got it. All right. Very good. Thanks Robert for that. Appreciate it.

Thanks.

Thank you. And your next question comes from the line of George Burmann of CL Securities. Please ask your question.

Good afternoon. Thanks for taking my call and congratulations to a great quarter.

Thanks.

I've got a couple of quick questions on your joint ventures. You have one with Clean Marine, and then recently in January, you did one in concert with Golden Ocean in Trafigura on I guess fuel supplies. It looks like each one of those added about $600,000 as your share of the gains. What are your plans for these two investments for the company? Are any of them looking to go public or are you -- what kind of profits do you get out of those?

Thanks for the question. If you take the first one on the Clean Marine, we own about one-sixth of the company. It's a scrubber manufacturer and scrubbers are not being sold at the moment. And that's why we've put our own on -- at the factory and not taking on the ship, so that all depends on the fuel spread. So, the company is looking into alternatives and we have a brand new factory that can produce many variable things. So, that's being looked at. It's a very small investment for Frontline, and we are passive shareholder. So, no sort of immediate plans there. The JV with Trafigura is a fuel JV which has started off very successfully. It's securing fuel at the right price and the right quality and the right timing to our ships and also ships in the industry. So, there has been tremendous growth in our company. And I would say, that's the best sort of IMO 2020 decision we made was certainly joining forces with Trafigura and Golden Ocean to form that company. So, we have high hopes for that and it could be exciting times ahead for our company, I think what's important for the company and us is that we keep focusing on delivering. And then as growth comes on, we can put further plans. But there is nothing in the pipeline on either of these two investments.

Okay. Then referring to your current valuation in the stock market, it looks like a lot of the crude transportation companies, shipping companies, tanker companies are sort of afforded extremely low valuation rather than acquiring newbuildings or existing ships in the market, do you see any opportunities maybe for a combination with other companies that are even less attractively valued that yours? I know you--

We certainly look to the opportunities, I think if there is any company that can consolidate, it's Frontline. So, we'll see what opportunities come up, but for us, the most important thing is to keep working hard with our modern fleet. We have the big size and you can see from the Q1 results that we return pretty hefty returns to our shareholders here and I think that's going to maintain our focus and Q2 we made solid bookings. So, I think we're in a very good standing. But generally, I agree with you. If you look at the tanker companies, in general, it's not being valued as linked to the earnings it seems.

Yes, it seems like we need to figure out a way to transport the oil via the cloud.

Exactly, right.

Okay. Thanks very much and look forward to your future.

Thank you.

Thank you. [Operator Instructions] And your next question comes from the line of John Reardon. He’s a private investor. Please ask your question.

Good afternoon, Robert and Inger. I was wondering the recent uptick in demand from China and now India, did that surprise you? Do you think that maybe they were playing catch-up on lower inventories or do you think at their current appetite is something that's going to happen going forward?

John thanks. This is very, very good question. It is extremely relevant. And unfortunately, I don't have the answer to it, but I'll make a guess. My guess is that the demand structures described was not as steep as the analysts were projecting. And I think the return is coming quick. So, it could be -- also the data here is the U.S. data is normally more accurate. But it's a trend and we're getting in from various places. And it looks like Asia is coming back quickly and the Chinese sale on gasoline is encouraging. So, it could mean that the fall in demand was not as low and the pickup is indeed a V, but let's say, the oil market has certainly been difficult to predict here lately.

Okay. And in closing, Inger, I detected in your comments that you have a sore throat. And may I suggest a little hot tea with lemon. I think that will help you recover. We need a healthy Inger out here.

Thank you very much.

Thank you. There are no further questions at this time. Please continue.

Thank you, Irma. I mean with that last comment, I think, you say, it is a great way to round off and also to apologize again for the delay in start, again you might also notice that the quality of the sound on the call here was not as it usually is. So, we'll make sure that doesn't happen next time. Thank you everyone for calling in. All the very best.

Thank you. Ladies and gentlemen, that does conclude the conference for today. Thank you for participating. You may now disconnect.