Frontline: Tanker Market Strategy And Ongoing Disruptions (Podcast Transcript)

seekingalpha09-17

Value Investor's Edge Live returns with the latest episode focused on the crude oil shipping sector.Frontline is the largest US-listed crude tanker owner with a roughly $5B market capitalization. CEO ...

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CEO ...</p>\n\n<a href=\"https://seekingalpha.com/article/4721367-frontline-tanker-market-strategy-and-ongoing-disruptions-podcast-transcript\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"NMM","symbol_name":"Navios Maritime Partners","start_time":0,"source_url":"https://seekingalpha.com/article/4721367-frontline-tanker-market-strategy-and-ongoing-disruptions-podcast-transcript","article_id":"2468352622","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1285019703/image_1285019703.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2468352622","pubTimestamp":1726578000,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Value Investor's Edge Live returns with the latest episode focused on the crude oil shipping sector.Frontline is the largest US-listed crude tanker owner with a roughly $5B market capitalization. CEO Lars Barstad joined us in early September to share current strategy and market insights.We reviewed the current tanker market conditions, disruptions in the Red Sea, and ongoing Russian sanctions, along with weaker Chinese demand.Despite ongoing seasonal weakness, Frontline is optimistic about long-term market balances and the potential for higher rates driven by low order books and supply constraints and aims to return roughly 80%.An audio recording with time stamps is included below, along with a full-length transcript.    shaunl/E+ via Getty Images","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"NMM":"Navios Maritime Partners","BK4144":"石油与天然气的储存和运输","BK4124":"机动车零配件与设备","NAT":"Nordic American Tanker","HAFN":"Hafnia Ltd.","STNG":"Scorpio Tankers","CMBT":"Euronav NV","ECO":"Okeanis Eco Tankers","FRO":"FRONTLINE PLC","TEN":"Tsakos Energy Navigation Ltd","BK4585":"ETF&股票定投概念","DHT":"DHT控股","BK4588":"碎股","ASC":"Ardmore Shipping Corporation","TRMD":"Torm PLC","BK4021":"海运","INSW":"International Seaways Inc","TNK":"Teekay Tankers"},"translate_title":"前线：油轮市场战略和持续的破坏（播客文字记录）","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"FRO":1,"TRMD":1,"TNK":1,"TEN":1,"STNG":1,"NMM":1,"NAT":1,"INSW":1,"HAFN":1,"ASC":1,"ECO":1,"DHT":1,"CMBT":1},"content_text":"Value Investor's Edge Live returns with the latest episode focused on the crude oil shipping sector.Frontline is the largest US-listed crude tanker owner with a roughly $5B market capitalization. CEO Lars Barstad joined us in early September to share current strategy and market insights.We reviewed the current tanker market conditions, disruptions in the Red Sea, and ongoing Russian sanctions, along with weaker Chinese demand.Despite ongoing seasonal weakness, Frontline is optimistic about long-term market balances and the potential for higher rates driven by low order books and supply constraints and aims to return roughly 80%.An audio recording with time stamps is included below, along with a full-length transcript.    shaunl/E+ via Getty Images\n\n\n\n\n\n\n\n\nListen and subscribe to the Marketplace Roundtable on these podcast platforms:  iTunes/Apple Podcasts Spotify Stitcher Seeking Alpha  Frontline (NYSE:FRO) CEO Lars Barstad joined Value Investor's Edge Live on Sept. 3, 2024, to discuss the crude tanker markets and ongoing company prospects. FRO has significantly expanded their fleet and reduced balance sheet leverage over the past two years and boasts the largest publicly trade crude tanker fleet with a roughly $5B market capitalization. Frontline has strong operating leverage to expected rate upside and plans to return roughly 80% of future earnings as dividends. Despite strong company performance, weaker global sentiment has recently weighed against the entire tanker sector and Q3 is normally the weakest period for spot market rates. We believe the tanker market is in the midst of a multi-year bull cycle. Frontline is the clear market leader in crude tankers, and discussing the markets with their management is a clear requirement for any serious investor in this segment. Additionally, this interview and discussion is relevant for anyone with crude or product tanker investments, including Ardmore Shipping (ASC), DHT Holdings (DHT), Euronav (CMBT), International Seaways (INSW), Hafnia Limited (HAFN), Navios Maritime Partners (NMM), Nordic American Tankers (NAT), Okeanis Eco Tankers (ECO), Scorpio Tankers (STNG), Teekay Tankers (TNK), TORM Plc (TRMD), and Tsakos Energy Navigation (TEN). Topics Covered   (0:00) Introduction  (1:45) Update on tanker markets, seasonal stagnation?  (4:45) When might rates firm up this season?  (7:45) How are the Red Sea disruptions playing out?  (10:30) Any updates on Libya disruption?  (11:30) Ongoing impacts from Russian sanctions?  (14:45) Other risk factors to consider for tanker markets?  (17:15) Thoughts on OPEC+ winding down cuts?  (19:00) Product tanker market commentary.  (23:00) Why are rates so soft? Any concerning factors?  (30:30) Target balance sheet leverage?  (33:15) Any divestiture candidates?  (34:30) Any M&A potential given strong share pricing?  (37:00) Interest in adding more vessels/scale?  (41:30) Dividend payout plans? 100% EPS? (Expect about 80%)  (44:45) Why should investors pick FRO over other tanker firms?  Full Transcript J Mintzmyer: Welcome back to Value Investor’s Edge Live. We're recording on September 3rd, 2024 at about 10 a.m. Eastern Time. We're hosting Lars Barstad, the CEO of Frontline, stock symbol (FRO), one of the largest tanker companies traded on the U.S. Stock Exchange. We're here to talk about the overall tanker markets as well as Frontline specific strategies and capital allocation plans in this market. As a reminder, nothing on the call today constitutes investment advice, or official company guidance. Good morning, Lars. Thanks for joining. Lars Barstad: Well, thank you for having me. JM: Yeah, absolutely. It's always good to hear from you. And with one of the largest fleets in the world and in tankers, you definitely have a lot of insights to add. We'll start off big picture, talking about the overall tanker market. It's been a very strong two, two and a half years, but sentiment seems to have kind of stagnated over the summer. We were just talking about the last couple of weeks, we've seen a lot more volatility in some of the shares. The VLCC rates, of course, are a little bit weaker. Some of that is probably seasonality, but things have definitely calmed down a little bit in the markets. Can you talk a little bit big picture about the current supply demand balance and what you're seeing out there in the market? LB: Well, there are a few things in your question there. So first of all, fundamentally kind of strong markets, or gradually growing stronger and stronger for the last two and a half years. We have seen seasonality, also the previous summer was pretty kind of -- yeah, was a tough -- not a tough, but it was a weak period, I would say, for tankers, particularly the big ones. I think – and this is probably the time of the year where you as a shipowner, or an investor normally kind of shouldn't make up your opinion of where this market is going because we are historically at the bottom. This is obviously due to, as I mentioned on my call on or on our call on Friday is, as long as most of the oil consuming world lives in the Northern Hemisphere, we have a tendency to follow the summer winter pattern experience on kind of this side of the globe. There are a few things that I think creates the increased volatility we've seen in the last few months. There are a lot of expectations, including our own, into this market. I've said before and a few times on these calls, this is a more supply-driven story rather than a demand-driven one. The tanker supply is extremely low into our markets for this year and next year. Whilst the oil demand seems to be failure resilient, basically in all basins and all parts of the globe. And I think kind of people's expectancy then was that this market was going to be ripping where we are now. And I think the fact that you actually get normal seasonality and the fact that some of the segments are developing weaker than expected, that's creating uncertainty and by that volatility. JM: Yeah, we're certainly seeing the uncertainty in the stock prices, right? There's definitely been a pullback. I think there's a lot more optimism in sort of May and June and stagnation over the summer. And then the last couple of weeks, we've certainly seen those price just pull back. I think folks are looking at the weaker rates and maybe not factoring seasonality as much. Can you talk a little bit about that seasonality and when you expect the market to firm up a little bit? LB: Well, historically, and then it's almost become like a thing in the market analyzing the history. And so, historically, it's the week around 9th of September. That's only accounting for the last 34 years, though. But around that time is when this market starts to show some sort of promise. There is a natural reason for that. We have refinery maintenance that's supposed to end in the east. And then at the same time, we have the U.S. who has become a fairly big exporter over the years that is kind of coming out of its kind of big demand season, which is around summer and driving. And you also then normally will see people start to build inventory to prepare for a winter. So there's nothing that really says that this year will be different, but I think we have a big X factor, which just some people may be a little bit worried about. And that's obviously what's happening in China. China has been the single most, or largest, contributor to demand growth globally for the last decades. And the fact that Chinese demand has seemingly -- we also had a very, very weak July import month for China. And we all know that there are issues in China around the property markets, rising unemployment amongst youth and so forth, which is making people raise the question, is this going to be the thing that kind of stops the tanker party from starting? On that, I think it's a little bit early to say, China has a tendency to being extremely price sensitive. Just looking over at our kind of neighboring dry bulk market, the fact that iron ore prices are coming off has at least historically been positive for dry bulk and particularly the larger vessels carrying the iron ore, basically because China will use the opportunity to build inventories. Similarly, we've actually seen already in tracking for August, that China is up a million barrels per day month-on-month. So the numbers we're looking at for August, which will be kind of public statistics in a week's time. It’s actually looking promising. And then it's basically down to what will we see on the ground in respect of fixing activity to get the sense of the very kind of short-term strength, or weakness in this market? JM: Talk a little bit about the Red Sea disruptions that we've seen throughout 2024. Has there been any change to that market? I know about 50% to 60% of the tankers have been diverted. How is that specifically impacting tankers? LB: It's impacting it from a flow perspective quite severely, I would say. So, consider -- historically, people have been pointing to the fact that the last time kind of Suez was closed to this extent was when Aristotle Onassis, kind of created his shipping fortune because basically tanker aids went to the moon for a long period of time. This has not happened this time around, even though it is a big disruption in our trading patterns, and it seems to be that oil has been able, or found the ability to trade more local. So it means that oil, particularly crude oil, that used to go for say, Eastern Med down through the Suez Canal into the Middle East, Middle Eastern crudes that used to go through Suez and into European refineries, they’ve actually found other sources of feedstock. So basically, this has had the kind of adverse effect of reducing ton-miles rather than increasing ton-miles. Yes, 50% of the oil that is going, is going around the Cape of Good Hope and then obviously having extended trading lanes. But the overall volume of trading between East and West has actually come off. We see that Med refiners are being then kind of supplied either from Brazil, or US Gulf, also to some extent from West Africa. And this is replacing barrels that used to come from further afar. So this was not expected and not really part of our analysis in this. So -- but I think that kind of explains, now more recently, just to add to that, we have production and export issues from Libya, which is exactly the barrel that would then trade locally in Europe. And this obviously doesn't help, particularly for the smaller segments. JM: Yeah, there's been a lot of chatter about Libya over the last 10 days or so. Do you have any additional color to add there? It seems like some political posturing and the local forces. Has there been actual disruptions in cargoes that you've seen? LB: Yes, there has been. But the challenge in Libya is that they have two national oil companies. And it is not always clear who actually has the right to the barrels they sell. So it's a very complicated kind of web of, kind of complicated picture, I would say. Because for the charter, the barrels you thought you had contracted from the right party, suddenly you're looking like you're selling it from the other party. So there are disruptions definitively on output. But we have seen this on a few occasions, and it has actually normally been resolved fairly quickly. So, I think we'll just have to wait and see how this develops. JM: One other big impact, and really the clear one over the last couple of years, we mentioned it's been 2.5 years of strong tanker rates, the sanctions against Russia after the invasion of Ukraine. Clearly a major factor caused a lot of rerouting, caused the emergence of the dark fleet. How much do you think that's still impacting your market? And if so, like what segments? Because the Frontline obviously has different types of vessels, the Suezmaxes, Aframaxes , some LR2s, VLCCs. Can you talk a little bit about that market impact? LB: Yeah, it’s -- initially it started to pull kind of compliant tonnage into the more grey sanction exposed trade of Russian oil, which ended up actually being fairly positive for the fleet that operated outside of the Russian trade. What we basically see, and then I've been fairly vocal about it, is that these sanctions have seemingly not really affected Russia's ability to export oil in any shape or form. There is basically a parallel market that's been established with kind of ample tonnage able to carry this crude ore products on behalf of the Russian exporters. It even ended up in the market where the margins are getting kind of under pressure to some extent. So I think kind of, you know, this whole is almost, you know, it's sad to say, but it is almost like the world has gotten used to and started to live with this kind of -- it's an inefficient trade. Obviously, Russian barrels still go through Suez, so they have not really been affected by the Suez closure. The operators in this market don't really mind too much. We just actually had a message kind of on the screen today of a vessel who basically embedded the crude origin into its air signal to try and prevent Houthis from attacking. The Houthis are seemingly attacking whatever there is passing through, even if it's Russian oil onboard. So I think kind of you know, the logistical challenge is there, but I think kind of that parallel market has in It's a strange way become well supplied fleet-wise and also kind of managed to conduct that trade without many disruptions whatsoever. JM: Yeah, I mean, this is certainly a very dynamic trading environment. You mentioned the parallel back to the 1970s and 1980s, and between the Russian sanctions and the Red Sea disruptions. We had some Panama Canal issues earlier last year, and so just a lot of different things going on. The rates themselves, again we are in the seasonally low period. Rates in August and September are normally pretty weak. But that said, right, there are lots of bullish disruptions and yet rates are kind of hanging out here. China data, you alluded to that, is a little bit concerning. Is there anything else when you look across the market, maybe it's the rates, or maybe it's the economic data, anything that concerns you, or gives you pause about this market? LB: The one thing that is concerning is basically how the oil price performs. We're basically just looking at the screen here and the oil is off $3 per barrel, $4 per barrel. You have to keep in mind that this is a world where we have warlike conditions in the Middle East. We have security issues in Suez. Kind of we have war in Europe, and still, there seems to be a very limited kind of risk premium in oil. And that is a bit concerning. One thing is obviously that OPEC has volume to supply with. So any kind of adverse event would be capped, should it kind of come to that, at least to some extent. But I think kind of looking at the dynamics, that is probably the one which is a bit more difficult to explain. And a lot of people that are far smarter than I am and have far more research to lean on, they're still kind of very positive about the oil price and believe that the oil price should actually move upwards in this kind of overall scenario where actual oil demand is moving in the right direction. And then I find this kind of little bit difficult to explain and then to add up. I have to say though that for the tankers market, even though we are a bit subdued on rates now, we've seen it obviously far, far worse. And also, if you only rewind a week or two back, you'll find that the volatility quickly comes in our markets when seemingly the market looks well supplied. It's-- you don't need much to tip the scale. So, basically, it points towards that the tanker market is very close to balance, and we don't need kind of that much more oil to move before, we'll have much tighter conditions and hopefully much higher rates. JM: Yeah, we'll see what happens there. And I think that's a good segue to talk a little bit about OPEC+ and whether or not they're going to let these cuts run off. It seems like with the weakening global and economic conditions and with the oil price drop we're seeing, even today, live as we're recording on September 3rd, it seems unlikely that they would allow more supply to hit the market. However, there was a rumor last, I think, it was last Thursday or last Friday that they were planning on actually phasing out the cuts and bringing supply on later this year. Any further thoughts on OPEC? LB: I think that message, and it was actually embedded in the message from kind of sources in inside OPEC. I think that was a counter message to the disruptions in Libya. Libya exports about 600,000 barrels per day. That would -- if they go out for a long period of time, that should give OPEC room to kind of fill that gap. So to me, it seemed like that was, basically, kind of how that was put together. However, OPEC has not said anything else, but that they are actually from October on going to start to gradually introduce this volume into the market. Whether if they're going to do it, with a Brent price, whole range of 75, I don't know, but I think it's potentially unlikely. JM: Yeah, I'd certainly say that given what we're seeing today versus what we would have seen a month or two ago, it seems less likely, if nothing else. Looking at the dynamics of your fleet, you have a lot of LR2s that can trade, both clean or dirty. Can you just remind us about the current balance of that fleet where you're at there? LB: Yeah, well, we got 18 LR2s, of which four are on time charter out. And then of the 14 we trade ourselves. There is actually only one left now, trading dirty. The rest of them are in the clean trade. But I think just to take your next question because I'm pretty sure what it's going to be, what's happening in the LR2 market has been, you know, I think it's a worth kind of analyzing a little bit because the one asset class that has benefited from the fact of the Suez Canal kind of being disrupted are, you know, especially the LR2s. There are still product flows coming from the Middle East, Asia going to the West. This is kind of a part of the long-term spiel of refining capacity being growing in the Middle East and Asia, whilst this is reducing in Europe and the US. And basically, you need these barrels to move kind of these long distances in order to fill kind of the demand gap. And so basically, there wasn't really any way away from that for products to move. Historically, you've never really seen Suezmaxes, or VLCCs being able to service that trade, basically, due to logistical constrictions. Yes, you have for many years to be [able] to load middle distillates or diesel on newbuild, Suezmaxes and new build VLCCs, but they would then go to West Africa typically and sit there as like a floating storage vessel, and it would gradually kind of STS or discharge by way of other smaller vessels and sell it to the various markets. But basically, what's happened, you know, the shipping world is developing and the one thing that's happened is that logistics have improved. So now there's far more ports and berths that can actually accept larger vessels as well. And this has basically meant that we've been in a situation where the economics have been so great for going through the extra effort of cleaning up the Suezmaxes and create making it an LR3, or cleaning up even a VLCC. So that would, you know, in the same kind of manner be a LR4. And they have then taken out, a lot of capacity, a lot of cargos for the LR2 and the LR1 markets, basically making them perform much or making it really difficult in these markets. This is not sustainable over a long period of time. It's you know, there is actually a limitation to how long you can trade a vessel that's built for crude with the lighter grades, basically technical constrictions. But for now at least, it has really put a lid on the markets of Iran and this kind of accelerated in May into June. And now the LR2 market has been suffering from that. JM: And do you expect to see an uplift in the fall? I mean, normally, the product markets tighten up between October and November, definitely by Thanksgiving. Do you expect to see a similar pattern, or is this pretty concerning? I mean, the rates have fallen quite a bit over the last month for reasons that you mentioned and just general global weakness? LB: It's all kind of math. And the correlation between these various asset classes, irrespective of what product they transport, if you look at kind of not on a day-to-day basis, but if you look on a month or quarterly averages, you'll find that it's the R-square is almost one. So it's -- so, basically, if we don't see any improvement on the crude side, I think, the LR2s have very little room to move on to be quite honest. So, basically, all these dynamics have to change a little bit from where we're now. But again, I think it's important to remind the listeners here. This is the worst time of the year to kind of make up your decision about whether if you're bullish or bearish because right now, we are historically at the worst place in our cycle. JM: We certainly appreciate your measured response there, right? I mean, I appreciate you looking at the challenges of the market as well as some of the potential upsides. But yeah, I mean, August, September, we have a seasonality chart, of course, in Value Investor’s Edge, and you can go back decades, really, and see that this is clearly not the time to expect a strong market. I also think it's tough. We have these year-over-year comparisons, and we look at 2022, which was a very weird, very different market. And we look at 2023 where we had all the sanctions rolling on, especially on the clean side. Right. So you see a lot of these year-over-year comparisons, and it's a very high hurdle to match those. So, we'll see. I mean, it is disappointing from an investor perspective to have this all-time record low order book oncoming to see all these disruptions ongoing and still see the rates where they're at. So I think it's definitely, I think investors are raising those questions. I think it definitely makes sense for them. Anything more to add on the broad market before we shift into Frontline specific? LB: No, I think, we have some focus in our quarterly report on this, the sanction exposed trade and how huge it's become, kind of 15% or 14% to 18% of all oil that kind of enters the market space by way of shipping is one way or another exposed to sanctions. And I just want to repeat so that everybody understands kind of our line of thinking around that. And I've been kind of referred to in the press as giving up on sanctions. We don't give up on sanctions. We respect sanctions and believe that's kind of an important way of trying to limit certain nations, or what it is, access to the oil market. But in harbor, shipping is super pragmatic. Shipping will always try and adapt and try and take as much money out of the transportation as it can. And the way this has developed now, where this dark/grey oil market has become so huge, you actually need to just look at it as an industry in itself. And that's where we kind of come to the conclusion that there is a limited kind of potential for growth in this market. The amount of oil that is sanction exposed, there's a limit for that to grow further from here. And even the Minister of Oil in Iran said it himself that they're pretty much at the peak of what they are able to churn out. Venezuela, we all know, is an absolute mess. And Russia, I don't think anybody expects any production growth from Russia going forward. But basically, what this means is that the supply into these markets are obviously aging vessels from the compliant tanker market. That will just continue because these vessels cannot trade in the dark markets. Nothing has changed there. There are no charters in the compliant market that takes an old, above 20-year vessel. And also, since the margins are fairly poor in the compliant market, then you would probably try and drift into the non-compliant market or by way of the asset being sold to somebody that's willing to pay, and then it goes on. But I think we should look at it very optimistically that this is actually probably, we're very close to the end of this dark/grey market being so profitable, which eventually, at the end of today, will result in recycling. And then the overall fleet will start to reduce. And in the same manner, if there is any place in the world where oil production and exports actually will grow, it's in the US, Brazil, Ghana is always mentioned. Those guys cannot export oil by using these kinds of vessels. So basically, for the compliant market, which the front line is apart, I think we're in a very, very good place. Short term, yeah, it looks a bit gloomy. But as we proceed forward here, it’s -- I think we're hopefully near the end of kind of the negative effects of this market from where we're sitting. And also, the current market conditions that we see on tankers has put in a very effective stop to ordering. So we're actually -- now the containers are back in the yards, starting to book up slots in ‘27 and ‘28. And we might actually end up with another hold in the order book for tankers. And whenever this market comes, it will be interesting to see where you can actually add some tonnage to this fleet. JM: I certainly hope you're correct on the dark fleet being at its peak as it were, of course, we won't know for another few months or maybe even another year, but I'm very grateful. I'm even surprised that we haven't had any sort of environmental issues, or ship disasters. I mean, the number of vessels that are approaching the end of life or not getting proper maintenance or the proper surveys or those sorts of things, it's concerning from a global, like, environmental perspective, and I'm surprised we haven't had more issues. So anything that can peek out and start to bring down that unregulated dark fleet would be a positive, and we'll see what happens there. LB: Absolutely. JM: So, shifting to the Frontline specific questions, looking at your capital allocation, I guess we'll start with the balance sheet first. So your leverage, Frontline traditionally has had a pretty high leverage. It came down both due to strong cashflow generation, and also the asset values are higher. I see you now in our analytics, we track, of course, the debt assets, and we see your leverage in the low 40% using that metric. Is that low 40%? Is that sustainable? Is that sort of longer-term target, or do you see a need to sort of bring that down? LB: No, we don't see any point in trying to bring that further down to it that way. Whenever we look at the project, we still have kind of a rule of thumb, 60% leverage. But we do, in our left eye, we do see that asset values are not, well, it depends on how you look at it. If you adjust for inflation, yes, we're probably mid-cycle, high mid-cycle. But if you ignore the inflation, we are fairly high. So, we wouldn't go to town and re-lever the entire fleet up to 60% here. But then again, we have no intention of lowering. Kind of, that's a bit different from some of our peers. We believe that in order to achieve a good return on equity, having a balanced financing strategy, which is close to 50% or even above, makes a lot of sense. With the current kind of values and where our debt is, we’re fairly insulated to adverse events to values. I think it's very unlikely that in this world, where the order book is where it is, and the projected growth of the tanker grid, particularly the larger the assets, is as low as it is, I think it's very unlikely that we'll have one of these catalytic events like we saw in 2008, 2009. So we're comfortable, and by that, free cash flow will kind of either, unless we find a project where we really want to utilize this money and believe we can give our shareholders a better return by investing, we're just going to continue our path of returning money to our investors. JM: It seems like in this market, given the asset valuations, it doesn't seem like you're in a hurry, or too interested in buying more vessels. Are there any divestiture candidates? I'm looking at your fleet list, and of course, your fleet is quite modern. You do have a few Suezmaxes and just a couple of VLCCs that are starting to come up on sort of ten-year period. You do have one Suezmax that's coming up on 15-years. Any thoughts on some of those older ships? LB: I wouldn't refer to somebody that's coming [Technical Difficulty]. So the answer is actually, no. I think we've kind of done what we need in terms of divestments. I think people have to put it in context that we did some heavy lifting, purchasing $2.4 billion worth of tankers from Euronav. And it was kind of in that context, we saw it necessary to divest some of our assets, less efficient ones. But now that Inger at on her magic on our financing, there is no need for us to do that. And there is - amongst those, there's potentially just one non-eco . But we're in no hurry to divest further now. JM: Okay. Yes, that's helpful. So don't expect a lot of changes to the core fleet. What about potential consolidation in the sector? I mean, the stock has pulled back even just today. All the tanker stocks are down and Frontline’s down fairly heavily. But even with that included, right, you still trade at a nice premium to NAV, and you trade at a significant premium to several of your peers. Is there a potential to exploit that premium and do some M&A? LB: There is always a potential. But again, I think I've said this many times on occasions like these, that shipping is a little bit special in that way that there is very often a dominant owner or a very strong management team that doesn't necessarily think it's wise to partake in an acquisition. And as we know, a hostile attempt would never really work. But there are some assets around, maybe not necessarily listed ones, that could be interesting to us. But so far, we're very content, we’ve consumed kind of the transaction that we did with Euronav. And we're always there to look at potential creative deals, but there is nothing imminent. And if they were, I wouldn't really say on this call anyway. JM: Yeah. As much as we want to know the latest and greatest. No, I certainly appreciate that. It just is interesting to see there are a couple of companies out there that we cover. One of them, I guess I'll just name. I have a long position in this company. We actually had a nice interview with them last week, which is International Seaways, and they trade at a pretty significant discount to NAV. It's over 30%, 35%. John Fredriksen, of course, who is your main sponsor at Frontline, built up a position in them as well. It just seems like, I don't really expect any comment, necessarily, from you. I guess it's just illustrating these examples of companies out there that, at least on paper, would seem like a good M&A candidate, even if it in practicalities just can't get done. I guess what about on the private side? Are there any private vessels out there where the owner might be interested in shares as a sort of liquidity currency? LB: Yes, this is always - there's always dialog in that respect for us to answer it a bit differently. For us, it's always about - for us, it's not about the number of vessels we have. It's basically the quality and our expectation for that asset class to perform that kind of directs us in how we conduct ourselves in the market. To give an example, the Euronav transaction was very logical to us. We had our Suezmax fleet was larger than the VLCC fleet. And that's not, historically, something where we're really used to. The freight, if you want to simplify it very, it's basically about our clients. It's basically about dollar per ton, or dollar per barrel transportation cost, which means that benefits of scale does play a part. And also, the marginal cost of owning and running the various asset classes is not that different in between them. And this is why we'll always kind of try and focus on the larger sizes and VLCCs. So that's kind of how we think. And whether, if that assets owned by a private shipowner or a listed entity, doesn't really matter, then it's about kind of - is there a possibility here to utilize kind of the currency that we hold, the share premium to NAV to basically do deals that are accretive to our existing shareholders. And that's basically how we think about it and how we roll. However, and I've said that a few times as well, we have 30,000 or very close to 30,000 spot days annually Frontline with the margins that we operate with, that can amass to significant amount of money if the analysis is correct on how rates is going to develop going forward over the next couple of years. I'm not saying that we're 100% in harvest mode, but we're at least thinking about where we are in the cycle. And potentially, when you are nearing, kind of not the top, but where the cycle is really coming into play, it's very important not to be too aggressive on your accumulating assets, too close to whenever the party is over. JM: Yeah. So it makes sense, and it's good to see companies having a more conservative approach. I think, if you go back and look at what happened in 2006, 2007, 2008, we saw the exact opposite, right. We saw all the companies trying to buy ships at the very top of the market. We saw a 70%, 80% leverage on new builds. So, certainly, a lot more conservatism. And you're not the only one. LB: No, it’s -- I think the word I was looking for is, discipline and basically, having kind of a long-term approach to how we conduct you because even though we expect this cycle to be fairly long-lived because the order book tells us that it may be, unless something on the demand side fails us completely on the oil demand side, things take time. All right. So if you decide that you're going to increase your fleet by 20% over the next two quarters, next two quarters is a long time for shipping. There are a lot of things that can change. So this is why I'm not saying we're nimble by any way because we are the largest stock listed tanker owner out there. But we’re having 300 vessels, it is not necessarily beneficial to the company. JM: Yeah. I think it's clear the scale has already been achieved, so anything else would have to be opportunistic. What about the dividend policy? I mean, investors love the Frontline dividends. You have a strong track record there. We talked about the balance sheet. The leverage seems sustainable, or at least at a good balance, in your words earlier. Should we expect on the dividend, is that sort of 100% earnings, or how should we think about the dividend? LB: No. You should expect, first of all, we don't have a policy. We're amongst a few that doesn't have one, it's at the discretion, at our board's discretion. We've said once that you should expect 80%. And I would urge all analysts to put that into their model. Because the fact that we have paid 100% now on two occasions does not necessarily mean that we're going to do it next time around. For us, it's a consideration of, what's the cash position in the company? Do we want to have some -- a little bit more fact, basically because we see concerning developments in the market? We have fairly good visibility when those discussions are held. And this is basically what kind of puts the board in a position to be confident enough to payout 100. But as a side, maybe – and I will repeat it again, put 80% in your model and then either be positive or be positively surprised because if you put 100%, I'm sure you will be disappointed at one junction there. JM: OK. So 80% as a rough estimate, but of course, there's no formal policy, so those can change. LB: No. And obviously, in certain instances, well, we have a very solid cash position. So it's kind of Frontline will pay out what -- well, to put it another way, our main shareholder is just as keen, if not more keen than most our other investors on dividends. It's basically -- that's how Frontline thinks in the way of how we kind of philosophically towards our investors, kind of, we pay out the money, and then you can decide whether to reinvest or not. And I think that's how we kind of managed to have happy investors that have been with us through the cycles, and there are many. And it also, obviously, if you reinvest, you can continue to take part in the story. JM: Yeah, that makes sense. I think just a question we had on the dividend level, and I think your answer makes sense, and we'll keep following that. So Lars, this was helpful. We talked big picture tanker markets. We talked a little bit more about Frontline specifically. Last question, last word over to you. You're pitching investors in the market. There's a lot of publicly traded tanker companies out there to choose from. Why should investors pick Frontline today versus those other firms? LB: I think, first of all, the way Frontline is 100% there as an investor friendly. It's basically a very transparent company. Everything we do, all the costs and kind of how the business operates is extremely transparent. You don't really have many shipowners like us that, in the press release, basically account for every earning days, whether if it's [indiscernible]or whatever. So that should be, give you the confidence, which not all shipowners have, I might say. Secondly, it's the liquidity in the stock, of course. Frontline has been around for so long that whenever Wall Street reads about the tanker in the Wall Street Journal, they type in FRO to their Bloomberg terminal, that's a huge advantage. And lastly, we have a kind of shareholder that is in the same seat as all the investors are. So kind of everything we do will be done kind of with that in mind. And I think that's also important to know. So you're basically, and we also are actually amongst the few tanker owners, listed tanker owners out there that offer you kind of the exposure, direct exposure to the large tanker markets. Namely, we also see Suezmaxes and LR2s. And you get as direct investment as you can, instead of actually buying a ship. And you get the money back, if it means that, if it proves profitable. JM: Right. Well, thank you, Lars, for joining us today. We certainly appreciate your time. LB: Well, thank you for having me. And let's just buckle up and hope that the short-term volatility and uncertainty here soon ends. JM: Absolutely, we'll set our timers and alarm clocks for mid-October, and we'll check back and see how things look. Thanks again, Lars. LB: Thank you. Cheers. JM: This concludes another iteration of Value Investor’s Edge Live. We just hosted Lars Barstad, the CEO of Frontline, traded on the U.S. Stock Exchange as (FRO). As a reminder, nothing on the call today constitutes official company guidance, or investment recommendations of any form. I have no current position in Frontline. However, if you're listening to a recording or reading a transcript, please be advised this was recorded on September 3, 2024 and positions may change in the future.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2468352622"}