Frontline Ltd. Aktie

Good day, and thank you for standing by. Welcome to the Q2 2026 Frontline plc Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Mr. Lars Barstad, CEO. Please go ahead.

Thank you very much. Dear all, thank you for dialing into Frontline's quarterly earnings call. Frontline is reporting its best quarter ever. Our long-term strategy of growing voyage base and VLCC exposure during the slim years post-COVID has come to fruition, and our shareholders are now reaping the benefits. There are lots of moving parts in this market and no playbook. The key takeaway, though, is that the prevailing situation will have long-term implications. The current environment puts our lean organization to the test, and we are extremely thankful for the hard work the Frontline global team is putting in, in keeping the propellers turning in this ocean of profits.

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 2026, Frontline achieved $152,700 per day on our VLCC fleet, $111,400 (sic) [ $111,500 ] per day on our Suezmax fleet and $92,400 per day on our LR2/Aframax fleet. So far in the second (sic) [ third ] quarter of 2026, 86% of our VLCC days are booked at $156,900 per day, 79% of our Suezmax days are booked at $117,400 per day and the LR2s are catching up, having booked 70% of the days at $81,000 per day. Again, all numbers in this table are on a load-to-discharge basis with the implications of ballast days at the end of the quarter this has.

I'll now let Inger take you through the financial highlights.

Thanks, Lars, and good morning and good afternoon, ladies and gentlemen. We report profit of $659.2 million or $2.96 per share and adjusted profit of $580.2 million or $2.61 per share in the second quarter of 2026. As Lars mentioned, this is the best quarterly profit and adjusted profit ever recorded by the company. The adjusted profit in the second quarter increased by $235.3 million compared with the previous quarter, primarily due to an increase in our TCE earnings. Ship operating expenses decreased by $4.3 million from previous quarter, and that was mainly due to sales of 8 VLCCs in the first quarter and 2 Suezmax tankers in the second quarter and an increase in supplier rebates, which is partially offset by an increase in general running costs.

Administrative expenses decreased by $2.4 million from previous quarter. This excludes the synthetic option revaluation gain of $5.3 million in the second quarter and then synthetic option revaluation loss of $5.8 million in the first quarter. Adjusted interest expense decreased by $4.8 million from previous quarter due to lower debt and decrease in interest rates. Lastly, depreciation decreased by $4.7 million from previous quarter due to sales of vessels.

Let's then look at the balance sheet on Slide 5. Frontline has a solid balance sheet and a very strong liquidity of $1.2 billion in cash and cash equivalents, including undrawn amounts of revolver capacity of $901 million, marketable securities and minimum cash requirements bank as per June 30. We have no meaningful debt maturities until 2030. Remaining newbuilding commitments as per end June was $601.1 million and relate to the acquisition of the 9 newbuildings from affiliates of Hemen. The company has secured new building financing of up to $737 million as set out in the press release.

Then let's turn to Slide 6. In the second and third quarter of 2026, we reduced our financing costs through a combination of margin reductions on existing facilities for the remaining tenors and a full refinancing of selected facilities, reducing the weighted average interest rate margin by approximately 52 basis points from 178 basis points at the end of the first quarter of 2026 to 126 basis points upon completion of the process in the third quarter of 2026. The reduction was driven by amendments with 24 basis points, refinancings with 21 basis points and new building financing and asset sales with 7 basis points. We have no debt maturities until 2028, and no meaningful maturities until 2030, supported by increased tenor across the portfolio as shown in the maturity chart.

Then we can look at Slide 7, fleet composition and cash breakeven rates and OpEx. Upon delivery of the remaining VLCC newbuildings and sale of 2 VLCCs, our fleet consists of 40 VLCCs, 19 Suezmax tankers and 18 Aframax/LR2 tankers at an average age of 6.6 years and consists of 100% ECO vessels where 59% are scrubber fitted. We estimate that average cash breakeven rates for the next 12 months of approximately $23,800 per day for the VLCCs, $25,700 per day for the Suezmax tankers and $22,200 per day for LR2 tankers, with a fleet average estimate of about $23,900 per day. This includes dry dock costs for 7 VLCCs, 7 Suezmax tankers and 8 LR2 tankers. The fleet average estimate excluding dry dock cost is about $22,300 per day or $1,600 per day less. We recorded OpEx, including dry dock in the second quarter of $9,200 per day for VLCCs, $9,000 per day for Suezmax tankers and $13,300 per day for LR2 tankers. This includes dry dock of 1 VLCC and 3 LR2 tankers. And the Q2 '26 fleet average OpEx excluding dry dock was $8,700 per day.

Then lastly, let us look at Slide 8 and the cash generation. Frontline has a substantial cash generation potential with about 27,800 earning days annually. And as you can see from this slide, the cash generation potential basis current fleet, TC rates and average spot market rates as of August 28 is $2.3 billion or approximately $10.35 per share, providing a cash flow yield of 24% basis current share price. A 30% increase of these rates will increase the cash generation potential to $3.1 billion or $13.91 per share and at 30% decrease of these rates, we decreased the cash generation potential to $1.5 billion or $6.80 per share.

With this, I'll leave the word to Lars again.

[Technical Difficulty] center stage. We see increasing risk in and around the Gulf area, both in the Gulf of Oman, in the Red Sea. We also see increased risk in the Black Sea and the Houthis have become active again. Tanker rates remain high, inefficiencies carry the weight of the shipping market. And we also see high risk premiums on certain trades, in particular, inner AG, which is somewhat illiquid. But at least showing on the bottom left-hand chart, you can see how the now somewhat theoretical TD3C index is printing levels nearing $600,000 per day. We tend to look at the TD15 and it's being dwarfed in this connection. But if you look closely on the left-hand scale, it's actually showing very close to $200,000 per day. Oil balances are kept in check by aggressive inventory draws. We are extremely surprised that the oil price manages to keep in this band between, say, $78 and somewhat north of $90. U.S., China and the rest of the OECD are kind of the key sources of this inventory growth. The question is, of course, for how long can we grow.

The tanker order book paused over the summer. Lead times from ordering to delivery is now moving into 3.5 years. So we are talking about 2030 deliveries. And we see this has kind of created a bit of a vacuum in the ordering market after a quite frantic activity in the first half of the year. The long-term implications as fleets continue to age will be around the inventory refill story, energy security policies and in the case of some sort of relief or some sort of solution between U.S. and Iran, sanctions relief could also play a part. We are in the midst of the storm, I would say, but the long-term implications are at least easier to read.

If we move to Slide 10 and try and kind of analyze a little bit what's behind this. It's actually easier to analyze the market after the fact. We've had an 82% reduction in crude oil exports from inside the Strait of Hormuz. I know this is kind of a big question mark as certain agencies report higher exports than what's recorded out of the Middle East. Others are lower in respect of kind of transits by ocean through the Strait of Hormuz, Frontline are amongst the school of thought that believe we're somewhere between 4.5 million to 5.5 million barrels per day.

China crude imports have created a cushion to the oil price, we believe, and it's actually reduced by 35% in the same period. What's happened is that we've seen huge growth in inefficiencies in the market to the tune of 23% increase in idling days per VLCC. But I do note that this is not a waiting time or time that where owners like ourselves are fiddling around trying to figure out what to do. This is basically due to the trade itself, where inefficiencies are creeping into every aspect of the voyage and under contract and being paid, you are actually waiting. We've also seen a great increase in the trade between particularly Latin America to the east of Suez. This basically results in the effective fleet supply tightening despite a decline in volumes. The increased STS transfers of Fujairah and around Singapore and Malaysia also add to this.

If you can imagine the cargo flow that formerly used to be from inner Middle East Gulf to, say, Japan is now like a 3x trip. You go firstly from inner MEG to Fujairah in some sort of shuttling traffic. Then you by way of STS, put the oil into another ship that takes it to Malaysia, where you can do an STS operation before Japanese controlled ships take it into Japan. So basically moving the same barrels in an increasingly inefficient manner. We do see, though, that there are large gaps in the tracking data, and this also confuses us and most market analysts as a lot of vessels are sailing dark, leaving a big blind spot. The headline figures may no longer be representative of the market, but what is representative of the market is the rates that we are actually collecting.

If you move to the next slide, the flows from Atlantic Basin have grown, both outright by way of volume, but more importantly, by the way of distances it's actually sailing. In a normal market, you will have kind of almost equal volume going from, say, U.S. Gulf into Europe as into Asia. Now a larger part of the volume being exported out of the Atlantic Basin is actually taking the long route. With the Houthi action, we're also seeing some very specific inefficiencies for the Yanbu exports that formerly used to sail through the Red Sea, where it's now, to a greater degree, going northbound, basically by way of you fill up a VLCC 3 quarters full, take it through the Suez Canal and then load up the remaining barrels in Sidi Kerir, which is the end of the Sumed pipeline. The supply shortage from the Middle East is further compensated by inventory draws in virtually any or every corner of the world with U.S. and China being the largest contributors.

Asia ex China has increased the sourcing, again, adding or creating the same ton-miles. Despite the volume shortfall, as previously mentioned, the inefficiency and the growing distances yields the high tanker demand we're currently experiencing. The big question, though, and this is the question as we near winter is how long can and will we draw on inventories as we approach the colder season in the Northern Hemisphere. If you look at the top right chart, this is OECD onshore crude inventories. We have drawn materially. The total, including kind of other inventories as well is actually nearing 0.5 billion barrels. There is still a lot of barrels to draw, but there is certainly a limit to how far down the various nations are willing to go in this very insecure situation we're in.

If we move to Slide 12 and look at the order books. These order books continue to grow or continued, I would like to say, going into Q3. Currently, looking at kind of the headline number of VLCCs, the order book is around 33.5% of the existing fleet. I do, however, think that one should look at the efficient fleet. And as we note here, around 166 to 167 vessels are not a part of kind of the commercially traded fleet, meaning that the VLCC order book currently is, in fact, very close to 40%. If you do the same kind of analysis across the asset classes that Frontline is exposed to, you'll get to that the current kind of order book to fleet ratio is in the mid-30s percent. We're actually closing in on what we saw in 2008, 2009. And this is, of course, a concern looking forward. However, if you look at the aging of the fleet, which we actually didn't have to this extent back in the late 2010, the situation looks far more balanced.

So if you move to Slide 13, you can see that the total order book of the asset classes we're involved in currently stands around 707 ships. As they deliver over the next 5 years, we'll see 578 vessels moving towards the 20-year threshold, which means that we'll have a total population of 1,293 vessels coming to age, assuming no scrapping. This is, of course, dwarfing the current order book.

If we have a look at the summary then from this presentation, the current market dwarfs the previous cycles. I'd like to draw your attention to the orange column on the right-hand side. Looking at what we thought was the strongest market we've ever seen in 2004, we're now twice that almost. The index is lying a little bit because a certain part of it is, of course, being weighed by both TC1 and TD3, which are inner AG loadings, but still including that, we're way beyond what we've seen in previous years. And as I mentioned earlier in the presentation, constricted global oil supply yields inefficiencies, and we see new trades and much longer trade lanes. Growing concern is starting to come forward for the supply cushion provided by primarily U.S. and China. We have the Russia-Ukraine situation adding fuel to the fire with increased risk in the Black Sea. We also see reduced Russian product exports going forward. Although this is, in many cases, sanctioned barrels, it still adds to the product pool and in particular affects the diesel supply going forward. The growth in the tanker order book is slowing as the lead times are extending. We also see that yard expansions are stretched. There's been a little bit of a period now since we've heard of new berths being launched, particularly in China. Energy security and inventory situation is likely to dominate the narrative if the current situation persists into the winter. Again, Frontline is center stage with our VLCC heavy, efficient business model. And we do see that the long-term period market is actually starting to price in these disruptions to last for much longer.

With that, I would like to open for questions and answers.

[Operator Instructions] We are going to take our first question, one moment. And this question comes from John Chappell from Evercore ISI.

Lars, last quarter, you spoke to, I think it was 5% of the fleet that you were estimated was sitting outside of the strait, and that was part of the inefficiencies. Didn't mention that today. Obviously, you had a lot of other data, but do you have an update on that? And as it relates to that, is that just right outside of the strait? Or is there a much greater geographical area that we're talking to where a lot of ships are idling and basically adding to the inefficiencies?

Surprisingly, we are actually observing that, that's kind of number of ships that are idling outside of Oman, you could say, or the Gulf of Oman, stretching basically all down the Indian Coast has actually increased. But this has increased with the growing kind of volume coming out of the Middle East by way of STS. So firstly, you have the pipeline coming into Fujairah and the kind of the Omani coast outside. But secondly, now you have kind of an increased or have had at least an increased traffic in vessels coming out for STS business.

The timing of this is somewhat difficult to nail down. So it means that if you are a charterer and you book the ship, you're not exactly going to know the date that STS ship is going to be ready for you. So this is creating a lot of delays. So this is why we see actually the population sitting in that region in particular, is actually growing, completely illogical to be quite honest in the current market situation.

Okay. Second one, more strategic. Obviously, a generational market right now, as you laid out in the last slide. And I think Frontline's track record and business model has been clear for the last 30 years. But you're doing some things you haven't really done before with the time charters and like the 2 of the 3-year time charter, special dividend. Could this be an opportunity to really change the capital structure? I know Inger has done a lot with taking the cost of debt down and pushing all the maturities out. But could you use some of this generational upside to take the leverage down? Or is that just something that's not part of the DNA?

No, I would say it's not really a part of our DNA. As I think I've said many times, we have kind of an informal strategy of trying to cover kind of 1/3 of our revenues as well as covering 1/3 of our key costs being fuel or interest rates. Currently, the market conditions have kind of prompted us to secure some of the revenues on VLCCs. And we're actually a little bit above 30% right now as we wait for the last newbuildings to deliver. But I don't think it's really changed kind of the way we look at the capital allocation. Kind of our proposition to investors continues to be that we pay everything out and then we leave to the investor to decide whether if he wants to reinvest. That will only kind of -- and it's never really going to disturb our dividends. But I think the special dividends, which you pointed to, which came from selling 2 ships, why we decided to just pay it out was basically due to the fact that we didn't really see much of kind of upside in reinvesting it in the market in the current kind of price environment we're in.

So I think kind of Frontline will just continue as we've always done. We pay the money to our shareholders. The leverage that we have now is comfortable considering the current market and where we are on asset values and so forth. So I think one should kind of keep that in mind going forward.

We are now going to take our next question. And this one comes from Greg Lewis from BTIG.

I did want to just -- if you could follow up, Lars, more on thoughts to John's question around the decision to do the longer-term time charters. Really, I'm kind of curious, these were obviously opportunistic. Historically, we've seen a lot of 1-year -- it seems like, hey, the price is pricey at the time, but 1 year, the time charters in the B market are available. I'm kind of curious how -- and you alluded to it, how is the actual depth of the 2, 3 and potentially longer time charter market for VLCCs as we kind of sit here looking at the back half of the year. Is there really customer demand for these that we could actually see maybe not Frontline, but a real increase of these types -- of these term deals going forward? Or was this kind of more of like a one-off?

No, it's a very good question. At the time when kind of these 2 time charters, the 2-year and the 3-year were concluded, I would say the depth was somewhat limited. But as we kind of got over the summer, currently, is quite deep. And this is what we alluded to in our presentation a little bit as well. It seems like kind of what is deemed intelligent money is now increasingly interested in getting kind of longer-term contracts on. So we're talking about oil majors and big kind of operators. So we could easily today do 3, 4, 3-year time charters now kind of if we were willing to accept the current levels, which is -- well, it's still south of $80,000 per day, but closing in. And it could actually be north of $80,000 depending on the position you can deliver the ship in.

So I would say this is -- we don't have a crystal ball in this market, right? So this is why, of course, you tend to end up fixing a little bit too early in retrospect. But I must say that the liquidity wasn't really there either. So you basically just had to make a decision. But now I think the game has changed a little bit. And we see -- I think a good indicator is looking at the FFA market. Right now, exclusive of the Middle East, so exclusive of TD3C, the TD22, which is U.S. Gulf to Asia kind of marker, that paper is trading kind of close to $100,000 per day for 2028 when there is 115 VLCCs being delivered. So I think the market is starting to potentially price in some of the tailwinds that we've been discussing that in the event -- well, first of all, the expectation is the situation will prevail for a while, which is just going to add further draws to the inventory, which is further going to strengthen the tailwinds coming out of this ordeal at some point.

So I'm actually happy to say that right now, that market is pretty deep. I'd like to add one comment, though, which I probably should have mentioned. We did the 2 time charters, but we also sold 2 ships. This is actually our way of being able to capture the inner AG profits because the actor that was willing to pay that kind of money for almost 10-year-old ship was -- he had a reason for that, basically because it would enable him to get full control of the logistical chain of transporting oil through the Strait of Hormuz because owners are actually starting -- even the more kind of adventurous owners are starting to be a little bit reluctant to sail through the Strait of Hormuz, meaning that if you are an inner Middle East or inner AG exporter, you're much better off basically just paying $135 million for a 10-year-old ship and controlling the entire logistical chain. But for us, since we don't trade into the AG, at least not currently, that was a way for us to capture that premium. And hence, why we also just paid the proceeds out to shareholders.

Okay. Okay. Super helpful. And then I did have a question on -- I just was looking for some clarity on Slide 12, where you kind of laid out your view of the VLCC fleet, the 900 ships. Just as we think about those -- and I think you mentioned that there's maybe 170 ships that aren't really part of the active fleet, maybe they're doing infrastructure or other types of issues. Is that the sanctioned fleet? Or is that outside -- is that other vessels because the sanctioned fleet I would think is trading? Like how do we think about where the -- and then I'm also curious, as we think about that sanctioned fleet, is a good way to think about it of those 170-ish sanctioned ships, those are all 15-plus year old vessels? Or is it kind of more broad across the, I guess, the fleet age profile?

No, I think -- no, it's more -- so that every vessel over 20 years is almost -- almost all of them are sanctioned. Because in the commercial kind of markets where we operate, very few actors accept vessels that are north of -- or older than 20 years. There are some trading, but they're trading them kind of internally for big oil majors or refiners where they kind of control the technical management and the vetting of the ship themselves. So that would almost put like an equal sign between 20-plus and sanctioned. So speaking of the sanctioned fleet, we're not really seeing kind of utilization increase on that fleet. But what we are seeing is that although extremely slowly, more and more are getting kind of sold for recycling. So it's a very, very kind of slow trend because you do face kind of the sanctions as you -- the recyclers face it when they need to or want to purchase the steel. But there are kind of starting to -- we're starting to see movements there where actually some of these ships are getting removed.

[Operator Instructions] We are now going to take our next question. And this one is from [indiscernible] Investments.

Congratulations Lars, on a good set of numbers. I had a few questions. One on, when do you see the China -- as the winters will approach, China will come back in the market? And in that situation, how do you see the market?

And second one is on the Suez. You have a drought and obviously, the limited amount of ships are going to go through Suez now. How does it impact the flows for the smaller ships?

Yes. No, first of all, on China, I think kind of the question you're raising there is basically the big question -- the biggest question of them all in shipping because China has effectively reduced their imports at certain periods, they basically halved it. And from what we understand from industry sources is that Chinese kind of domestic demand is not materially reduced. And since imports are down to the tune of 3.5 million to 5 million barrels per day, for sure, they need to be drawing on inventories. They have a huge pile of oil. They've actually been building inventories in the last years, leading up to the situation in 2026. So they have a huge cushion. But at a certain point, when somebody in Beijing will start to think that maybe we should kind of be a bit careful on continuing here.

I don't know whether if we're there yet. I don't know if we will be there in a year's time. It's very difficult to say. But this is one of the kind of the big important questions. But I think it's more important in respect of oil price rather than shipping at this point. Of course, it could propel shipping even further if they start to aggressively chase barrels. But I think kind of this is more an oil price kind of thing than the shipping thing.

When it comes to Suez, I think respectfully, you might be confusing Suez for the Panama Canal. The Panama Canal is where the drought is being experienced, and that's where kind of we're seeing reduced volumes, but not really we -- because the Panama Canal, it's prioritized for containers and natural gas and LPG vessels and kind of the rates and the way that kind of transits are organized, very few tankers are using Panama Canal as it is. For the Suez, this has not yet been an issue that's been addressed.

And one more question on the scrapping, what are your views? We have seen no scrapping because the market has been very good. But what's your view going forward in next, say, 12 to 24 months?

No. As I mentioned a little bit previously, we are seeing some small positive developments on recycling or scrapping as you say. The challenge has been that the recycling industry is a dollar-denominated industry, too. So it means that they have difficulty in actually paying cash for a vessel that is sanctioned. What we have seen is that the U.S. authorities have been willing to give exemptions for vessels that are not owned by owners that are sanctioned themselves. So it means that certain kind of quite well-renowned recyclers have been able to go to U.S. authorities. This is the vessel. This is the history of the vessel. These are the owners. Can we kind of buy this and get an exemption or a license to buy this vessel for recycling, and they've gotten yes. So the number of vessels here, we're talking kind of in the teens. So it's not material looking at the vast fleet of sanctioned vessels currently. But at least it's a start. So how that will evolve going forward, it's very difficult to say, but it's a positive movement at least.

We are now going to take our next question. And this one comes from [ Audrey Zhong ] from China Securities.

This is [ Audrey Zhong ] from China Securities. Lars, my first question is on the recent VLCC sale. We know that you sold 2 VLCCs for about $270 million. I think this is [Technical Difficulty] your decision to sell the VLCC because given the current strong rate environment, how did you compare the sale price with the present value of the future cash flows from continuing to operate the 2 tankers? This is my first question.

Yes. No, it's -- again, excellent question. There were 2 kind of key analysis that we applied to the considerations. One was kind of what is the implied value of the assets that Frontline own. And as we're priced by the market at a multiple of almost -- well, at the time, it was north of 1.3x NAV. The implied value of the vessel was actually higher than what we achieved.

But the second one is -- and this is where it gets a little bit kind of not mathematical to put it that way. It goes a little bit on experience in this market. We are operating in one of the most volatile markets in the world, if not the most. That volatility tells you that nobody actually knows what's going to happen around the next turn. We looked at the assets. And for us to decline selling at that level, we had to believe that we were going to make almost $70,000 per day every day until that vessel was 20 years old or those vessels were 20 years old. If you look at kind of how our market has been moving historically, we thought that, that was a bold ask. So of course, it was the highest price achieved for that generation of ships at the time. And that was basically the analysis.

So basically, what we do is we look at what do we need to get a 15% return on equity, which is where Frontline wants it to be kind of in order to make an investment case. And that resulted in this kind of rate requirement. And how likely was it that, that rate requirement was going to be real. And we thought potentially not. Maybe for the next couple of years, but not for 9.5 years or -- sorry, 11.5 years or 11 years, whatever it was at the time. So that was basically the analysis. But you have a very good point. It was not an easy decision to make when you're standing in the middle of a market which at the time was earning for a VLCC around $100,000 per day. It's, of course, something that needs deep consideration.

Great. That's very clear and very helpful. And my second question is on cash breakeven rates. I noticed that despite the reduction in financing margins, I think you did a very great job in decreasing your financing cost. But actually, the Suezmax cash breakeven point increased to [Technical Difficulty] exceeding the VLCC breakeven for the first time since 2021 based on our quarterly tracking. So does the $25,700 already reflect the benefit of the lower financing margins? If so, what other factors that drove the increase? And how should we expect the Suezmax cash breakeven to trend in the second half of 2026?

Sorry, I wasn't hearing everything you asked about, but I think you were referring to the Suezmax breakeven rate. Is that correct?

Yes. Please allow me to repeat my question. Actually is why is the Suezmax cash breakeven higher than even VLCC cash breakeven rate in Q2?

Yes. The reason for that is that the dry dock component in the cash breakeven rate. For Q2, the cash breakeven rates are much higher than it was for the Q1 cash breakeven rates. And then in addition to that, in Q1, we had undrawn debt or an RCF, which was undrawn on one of the vessels, which is assumed to be drawn in the Q2 breakeven rate.

Okay. Great. So can we expect that the Suezmax cash breakeven in Q3 and Q4 also have the trend like in Q2 because I think it's increasing the Suezmax cash breakeven.

I'm not sure I understood what you said now. What was the question again?

Yes. Actually, in Q3 and Q4, what the Suezmax cash breakeven would be like since, I think, the Suezmax cash breakeven is increasing.

Sorry, these cash breakeven rates are for 12 months forward. So it is for 12 months forward from the end of June 2026. You add those 4 quarters to the end of June 2027. So this cash breakeven rate of $25,700 for Suezmax vessels are for the 12 months period going forward, including then the Q3, Q4, Q1 and Q2 of 2027. It's an average. So yes, and it is explained by what I just said that you have a dry dock of 7 vessels in that period, which we did not have in the previous cash breakeven rate, which we showed you for the end of the first quarter.

That was the last question for today. I will now hand the call back to Lars for closing remarks.

Thank you very much. And all of you, thank you for listening in. It's truly an exceptional market we are experiencing and also well into Q3. So looking forward to our call next quarter. Thank you very much.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Q1 2026 Frontline plc Earnings Conference Call. [Operator Instructions] This today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Mr. Lars Barstad, CEO. Please go ahead.

Thank you. There all, and thank you for dialing into Frontline's quarterly earnings call. [indiscernible] times brings to mind as we report in Q1 '26 well into the first half of the year. I've been in this industry for more than 20 years, and I did not imagine us in a situation for this duration where the strength of homes has been effectively closed. With okay and volatile political narrative these days, the frontline team focused on the real cash-generating business to be done, not speculating too far into the future. We have put the most profitable quarter since 2004 behind us and are well into a potentially even more rewarding one.

I'll get back to how we analyze the situation within the call. And before I give the working here, I'll run through our TCE numbers on Slide 3 in the deck. In the first quarter of 2026, from plan achieved $13,500 per day on our VLCC fleet, 72,400 per day on our Suezmax fleet and $5,700 per day on our LR2/Aframax fleet. So far in the second quarter of 2026, 82% of our VLCC days are booked at $18,700 9% of our Suezmax days are booked at $131,300 per day and 68% of our LR2/Aframax days are booked at $125,000 per day, 6 digits across the board. All numbers in this table are on a lost to discharge basis with implications of ballast days at the end of the quarter.

I'll now letting take you through the finance financial highlights.

Yes. Thanks, Lars, and good morning and good afternoon, ladies and gentlemen. We can then turn to Slide 4 and look at the profit statement highlights. We report a profit of $559 million or $2.51 per share. and adjusted profit of $44.9 million or $1.55 per share in the first quarter of 2026. The adjusted profit in the first quarter increased by $114.5 million compared with the previous quarter, and that was primarily due to an increase in our time charter earnings of $112 million from $42.5 million in the previous quarter to $536.5 million in this quarter. Ship operating expenses increased by $5.9 million from previous quarter, and that was mainly due to a decrease in supplier rebates of $5.4 million in the quarter.

Administrative expenses, excluding the synthetic option revaluation loss of $5.8 million in the first quarter, a gain of $0.5 million in the fourth quarter of $25 million increased by $8.5 million from the previous quarter, and that was primarily due to synthetic option exercises in the first quarter of 2026 then the adjusted interest expense decreased by $9.8 million from previous quarter, and that was due to lower debt and decrease in interest rates and margins. Also, depreciation decreased by $6.2 million from previous quarter due to sales of PCs in the period. Lastly, income tax expense decreased by $0.6 million from the previous quarter.

Let's then look at the balance sheet on Slide 5. From plan has a solid balance sheet and strong liquidity of $945 million in cash and cash equivalents, including undrawn amounts of revolver capacity of $473 million marketable securities and minimum cash requirements as for the 31st of March 2026. We have no meaningful debt maturities until 2030. Remaining newbuilding commitments at the end of the first quarter was $925 million, which relates to the acquisition of the 9 newbuildings from affiliates of Hemen. The company has secured new building financing of up to [ $737 million ] as set out in the press release.

Let's look at Slide 6. [indiscernible] competition cash breakeven rates and offset. Our fleet consists of 33 VLCCs, 21 Suezmax tankers and 18 LR2 tankers, has an average age of 7.5 years and consists of 100% eco vessels, where over 64% are scrubber-fitted. We estimate average cash breakeven rates for the next 12 months of approximately $24,300 per day for $24,300 per day for Suezmax tankers and 2 per day for Suezmax tankers and $2,600 per day for the LR2 tankers. That gives a fleet average estimate of about $24,000 per day. This number includes dry dock costs for 6 VLCCs, 3 usage tankers and 8 LR2 tankers. The fleet average estimate excluding trade costs is about $23,000 per day or $1,100 per day less.

We recorded OpEx included dry dock in the fourth -- or in the first quarter of $11,300 per day for VLCCs, $9,100 per day for Sulige tankers and $10,900 per day for ELT tankers. This includes startup of 4 VLCCs and 3 LR2 tankers. And the Q1 26 fleet average OpEx excluding Dido was $8,090 per day. Then let's look at Slide 7 and cash generation. Following that we have been entering into 1-year time charter agreements, and we have a fleet renewal in the first quarter and also in the second quarter. Spot base for the next 12 months is about 23,700 days. Frontline had substantial cash generation potential with 2,700 earnings states annually. As you can see from this slide, the cash generation potential basis current fleet TC rates and TCE as of May 22, 2026, is $1.5 billion or approximately $7 per share. That provides a cash flow yield of 18% based is the current share price.

If we look at a 30% increase from current spot market, that will increase the cash generation potential to about $2.1 billion or $9.51 per share and equal a 30% decrease from current spot markets, we decreased the cash generation potential to about $1 billion or $4.41 per share.

With this, I leave the word to Lars again.

Thank you, Inger. Let's move to Slide 8 and look at some of the market highlights that we're going to go through in this deck. But first of all, I'd like to remind the audience that we've had tightening fundamentals in the tanker market ever since around this time last year prior to the Middle East conflict. We reached an unprecedented situation after the 28th of February with the trade performance effectively closed. The chart on the top hand right side kind of indicates this -- here you see the year-on-year weekly changes in flows, whereas the Middle East Gulf drops dramatically starting in week 12. The U.S., Iran on off-stock and a tightening potential easing of Iran-related sanctions together with uncertainty in Russia, Russian oil assets creates a lot of volatility the market is starting to focus on the potential long-term implications coming from the current situation in the Middle East and more so if we can imagine the situation getting sold.

We're going to see restocking of inventories, increased strategic storage, especially amongst Asian importers. And we're also going to see higher focus on diversification of oil supply. Now that we've seen how vulnerable you can be being dependent on purely Middle East supply. We also see that order books continue to grow as we stretch into 2030 delivery windows now. Asset prices continue to appreciate as freight market outlook remains firm, and we see a fairly high activity on longer-term time charter contracts. Just want to give you a small little kind of hint on the bottom left-hand side chart, we're basically not only using the TD3C index, which is a Middle East Gulf loading index to China.

We're also using the TD 15 index outside of the Middle East Gulf, West Africa to China although it looks quite bleak only kind of rewarding us with $100,000 per day. This is 4x our cash breakeven levels. So it's still very good money. Although we wish we could have made $400,000 per day every day. This is a very much a theoretical exercise as the market is right now.

Further, if we move to Slide 9, I'm going to take you through 2 fairly complicated slides, but I think needed for this session as we are in the situation we are. So we tried to. First of all, straight of former closure is very much a VLCC event. This is a big kind of ride for the VLCCs. This is where the most volume is listed on VLCC, transporting oil both to the east and to the west. We've seen kind of prior to the closure that the daily totals in this market has been on average 491 vessels. This colon consists of laden, dry dock vessels that are doing car gaps or other stuff. We have, at any point in time, I've had stopped ballaster, east of us, and we have always had vessels waiting to load in the Red Sea.

Basically, when the straight closed, we had a massive loss of 130 ships that were so-called laden dry docking or doing cargos. This is the dark blue kind of baseline in the chart in the middle here. Then we had an increase of 21 vessels waiting loading in the Red Sea. And this is like daily tied up tonnage, so it shouldn't really been looked as an absolute number. Then suddenly, we have 41 VLCCs laden loaded with oil waiting inside the Middle East Gulf. And then you have 55 VLCC equivalents stopped and in ballast East of Suez. This brought us back to 480 VLCCs after the homes closed, basically only a reduction of 11 VLCC equivalents in this extremely severe situation for the VLCC segment in special.

If we move to Slide 10 and look at how the flows developed post closure. We were at 17.7 million barrels per day from various suppliers inside the Middle East Gulf. We lost 5.9 million barrels per day from Saudi, 3.2 million from Iraq almost 2 from UAE and on it goes. 1.4 from Kuwait and almost 1 million barrels from Qatar. Well, as we proceeded, UE were able to increase the throughput in the pipeline ending up in Fudara of almost 1 million barrels per day. Saudi Arabia started to utilize the Yanbu pipeline going from Middle East Gulf out to the Red Sea, increasing by 3.5 million barrels per day. And then the rest of the world has gradually towards where we are now, increased output by 3.3 million barrels per day. This has basically meaning a net loss of only 6.2 million barrels per day.

What's related on a look at, and we might jump at this straight away, if we move to Slide 11, is that even with this effective closure of Hormuz, we have had so large changes in trading patterns that were actually back to oil kind of traveling over distances, oil and water, pre-Hormuz closure. The long-haul trade has kind of outgrown the loss of the relatively short haul trade from the Middle East Gulf to Far East. We've also seen export capacity that we actually didn't know existed or at least we didn't really focus on it, adding to this volume.

We've seen Asia increase their sourcing from virtually all available regions, all of them further afar fueling this ton-mile and this high utilization. Despite the volume shortfall then, adjusted for distances, shipping demand is suprisingly robust. Crude on water is recovering fast. And this is important to note, when you look at a real-time picture, you will not record this until after the fact. It takes 30 to 45 days from a barrel is contracted to be freighted before the oil is actually loaded on a ship.

This means that it's only in the last 3, 4 weeks, we've seen this materially happen using the data or using the kind of oil on water data. And to say though, and we might actually flip back to Slide 9 because this is important. On this chart, you'll see kind of in the middle on the top right-hand side there, there's a number plus 55%. These are vessels that are contracted or majorly contracted to players that are not necessarily having the same economical rationale that and then we, as a ship owner would have. These are vessels who do the base line of oil transportation from the Middle East up Asia, they're contracted to industrial players like refiners and oil majors.

And for these guys do not have vessels available should the straight open can be an extremely costly affair. These ships are contracted out on model trades you're talking 5-year deals, 6 year or 7- or 10-year deals between $35,000 and $45,000 per day, meaning that that's the option premium they pay in order to be able to lift first oil as it comes. And for them, this is logistics. It's not necessarily profit, different from frontline. And of course, haven't we had this kind of idle fleet, I think the supply and demand picture would have looked a bit different on tankers and especially VLCC. But that's the case, and that's the way it is.

And right now, we're reaping the benefits of the fact that a relatively large portion of the fleet is unutilized, waiting for something to happen in the Middle East. Let's jump forward again. I'm getting to Slide #12. So I mentioned that the order books continue to grow. It's -- we're starting to get into kind of territory where you have kind of percentage numbers that start with a 3, but still -- we have this aging of the fleet that is ongoing. If you look at the table on the top left-hand side, the vessels that are currently 15 years or currently 15 years. or younger. They are going to be 20 years within 5 years, and that amounts to 45.5% of the current fleet.

If you put that in the back of your heads and you look at the order book, which for the asset classes we deploy is around 23.2%, then it doesn't look too alarming. The period that the current order book is delivering over is the next 3 to 4 years, where kind of the bulk of the vessels for, especially VLCC and Suezmax are actually coming in 2028.

So with this in mind, I'm not saying that the order book is nonexistent, but I'm saying that the order book is manageable. Also, I think it's important to note when we look at these charts, that's the likely outcome or the likely kind of points on the list if there is a pace solution between U.S. and Iran is going to include sanctions on Iran and oil. This means that the current part of the fleet that is now servicing the Iranian crude is going to be obsolete and that amounts to 15% to 17% of the overall VCC pit, which overnight are going to become useless. We can move to Slide 13 and dig a little bit further into this argument.

So we have very strong spot and period markets in addition to the fundamental backdrop, which I just pointed on, and this keeps ordering activity high despite the current opaque situation in the Middle East. Tanker ordinary is accelerating for 2029, and we are starting to see slots move into the 2030 window, increasing the runway. We're talking about 3 years, 3.5 years until a new hole can be added to this order book. With the absence of recycling, but the continuous aging of the fleet, the net compliance fleet growth is still manageable where we are now. And mind you, again, we do not see vessels over 20 years being deployed in any markets despite extremely constructive rates.

As I mentioned, the likely end game of Middle East conflict implies reversal of our sanctions, adding to the demand for compliant tonnage and potentially triggering the very kind of sought after wave of recycling. One kind of larger fundamental piece in this picture is that a number of shipyards is still materially lower than what we saw in the 2010, 2011 peak. But the consolidation and more recently, efficiency gains put the CGE capacity closer to his I'm almost saying this, that basically to explain how even though the building capacity and the capacity to basically have new new tonnage into the market to service future oil transportation demand seems limited. We are actually in a place where we are going to be able to maintain a fleet that can service the oil markets for many years to come. The top right-hand side chart shows us basically how the kind of overall net fleet development is looking right now and it's not alarming by any means.

Then let's move into Slide 14. I think I'll just start so that you can look at the bottom hand slide, bottom I'm chart because we've used that for quite a few quarters now. And mind you, the orange thing at the end there. I mentioned that we, from plan has not had a quarter like this since 2004, look at where we are now year-to-date in 2026. It's quite extraordinary. Yes, there is a certain portion of this index that is colored by the fact that we have some of the trades that cannot be performed but are being printed at extremely high levels. But still, we are in unprecedented times. Fundamentally, tight market conditions, and they were present prior to the Middle East disruptions. The disruption in trade lanes has yielded inefficiencies and new trades and longer tail ends have been developing. And we believe this can be a bit sticky basically due to the energy security part of this. We have continuous muted growth in the compliant tanker fleet.

And that remains -- that is still at the core of the case of owning tanker stocks. Asset prices continue to move and both spot and period markets support investment decisions as we move forward here. The current political environment changes the game. And I repeat myself we are focused -- we will see a higher focus on energy supply security going forward. Frontline is incentive stage with our VLCC heavy efficient business model as hopefully positive outcomes nears.

Thank you very much for the attention. And then I'll open up for questions.

[Operator Instructions] And this question comes from the line of Sherif Elmaghrabi from BTIG.

First, starting with the fixture count. When I look at VLCC fixtures, I see activity out of the U.S. Gulf West Africa declining slightly from April to May, even though rates have remained very strong. So I'm curious if you're seeing the same thing? And if you have an idea of what's going on with the fixture activity?

Well, it's -- this market has kind of moved into very much a self mode. So it's, of course, not everything that is seen. But I think kind of from a utilization perspective, if you are an oil trader, you always utilize your own fleet first. And this means that those are factors that will not be reported in the market, although the volume might remain the same.

Secondly, we've seen that kind of the fixing happening out of the U.S. Gulf has been extremely kind of meaning cyclical it starts with kind of the short-term barrels being fixed on Aframaxes, which you've seen kind of recently. Then suddenly, it tricks into suezmaxes bringing the oil to Europe. Until suddenly, you see that being kind of confirmed for oil moving into the Far East, which brings the VLCC kind of into the game. And then suddenly, they will see fade the Suezmax phase, and we're back on the Aframaxes again, and then it just repeats itself. So the -- it seems like the U.S. Gulf fixtures on the VLCC side, happens on a kind of a monthly cycle, and it only happens within 1 week, 1.5 weeks in that month.

So I think it's quite difficult to read from fixtures first of all, because it's very difficult to see all of them. And secondly, because you have this kind of a little bit untypical pattern. You don't have like kind of a continuous flow of VLCCs being fixed or a continuous flow of Suezmaxes or continuous flow of Aframaxes. It basically depends a little bit on the prices of crude and how the ARPS are kind of opening or closing. And of course, with extreme volatile narrative. Virtually every Friday, we're about to open homo and every Monday is closed again, this makes this kind of a very difficult playground for even the traders.

I definitely get whiplash from the headlines. Sticking with the idea of captive fleets, the presentation mentions 55 VLCCs on standby outside the Arabian Gulf. Do you have a thought on why the I'm assuming the NOCs might do that rather than participate in alternative trades for the time being?

No, I think it's obviously, I don't know this, but a likely theory is that in the event of an opening, say, somebody kind of tweets on the press kind of release is coming out tomorrow saying that now it's all okay. We can travel through the first vessel that goes through can potentially buy Iraqi oil with a $30 discount to Dubai or Brent. That's $60 million right there. So I think kind of that's the motivation, having the ability to be able to move quickly to take the first barrels as opposed to having to call frontline and ask us for a rate that has huge value. And the alternative is that if they went in to compete with, say, us in the Atlantic market, that vessel would be gone for 70 to 90 days -- and then they really have to call us if they need freight out of the Middle East Gulf quickly kind of.

So I think I would assume that's the analysis behind this. And since the cost kind of on holding these assets is not like a current market cost. It's a time charter contract that was agreed years ago. I think the cost to kind of keeping that option is manageable. But of course, what happens tomorrow is it impossible to say?

Question comes from the line of Jon Chappell from Evercore ISI.

Lars, the slides 9 through 11 are really fantastic. A ton of detail, super interesting, Haven't seen it laid out this way before. My question is if the impact from the fleet on Slide 9 is only 11 VLCCs and then 10 and 11 kind of net themselves out, like you said, like the loss of volume is obviously negative, but the ton mile impact is almost a complete offset. It feels like the utilization then overall should be relatively balanced to before the straight close yet rates have obviously been incredibly strong. You have the theoretical ones, but then you also have the real ones as well. So what's the differentiating factor that takes what looks to be a balanced outcome versus 3 months ago? And has put rates into the stratosphere?

No, I think again, it's the biggest X factor, and we didn't kind of see this coming at all, what's the amount of vessels that seem seemingly for kind of -- it's not like obvious economical reasons sit unutilized -- so I think that kind of -- the tomato amount to a lot. I think people were surprised by the amount of volume. Saudi has been able to ramp up the Yanbu loads with -- but I don't think you can get away from the fact that we have this kind of uneconomical for different reasons, part of the fleet that remains unutilized. Is the biggest kind of factor in here. Because even we did not believe that what's happened or transpired since 28th of February, could be bullish we also see or unusual to LCC.

Okay. You spoke on Slide 13 about the likely end game, and I think that most people would agree with you that, that's most likely, certainly the stock market act that way. And Frontline has always been positioned, obviously, to maximize spot market exposure. If we were to consider the other end game, which is continued and escalated hostilities and maybe a more permanent closure of that water way. How do you think about how you manage risk in that outcome? Again, I know we have to lean towards the likely outcome. And what the market's telling you and the Friday afternoon tweets. But have you thought about managing the fleet or even the balance sheet in a different manner just in case that unlikely tail risk emerges from this unprecedented time?

Yes, we have. And I think although kind of we've done some more kind of time charter coverage, particularly so on the VLCCs kind of during Q1 and also continuing. And I think kind of the first situation of that was basically, we looked at unprecedented market prior to the homes closing. So of course, we didn't -- now that was going to happen. But what's happened in the aftermath is that we've actually continued to secure short-term covers like 1-year coverage on the VLCCs to the point where Inger has a table in there. We're closing on 30% of our voyage days for VLCC for the next 12 months or thereabouts or at least for the first couple of quarters, being covered by time charter contracts. And we've always kind of communicated this that our proposition to you as investors is to try and give you a small exposure. But of course, at certain points in the curve, we'll try to cover. And that's, of course, to try and prevent ourselves from going bankrupt -- should we be wrong -- so I think that is the answer to your question. We could kind of be all spot at this point in time, but we are actually very close to 30% of our voyage base on VLCC, which is the most exposed segment, we believe, for a long-term closure in case nothing is sold there.

[Operator Instructions] We are now going to take our next question and this comes from the line of Devin Sangoi from Tetch Investments.

Lars, I just want to ask you 2 questions. First 1 is that we have seen a lot of countries have used the reserve crude reserves, what they had because of the disruption? And if they have to go back the previous results relate to the for and growth of problems, how the demand will shape up even if the war is over?

Well, kind of this is a big -- and if I go to your question correctly, you're asking basically, how will this market look when it normalizes, right? Yes. No. So in our world, and of course, we lean on analysts have actually notice properly I don't think we'll see kind of Middle East exports resumed to levels prior to the closure anytime soon. I think that will take time. you will have an initial kind of flow of oil coming out. First of all, the vessels that are already laden.

Secondly, kind of barrels at sitting inside the Gulf currently and then new production is going to be coming on. For some of the exporters, this is, of course, a liquidity thing. So they want to get as much oil into the market sold and get some cash as soon as possible. At the same time, we will also have this, what we believe, high probability of a raining crude also being a compliant crude when this happens. Remind you that that's 1.5 million to 2 million barrels there as well. Coming from Iran that needs compliant tonnage.

But as we move forward here, I think if I was a refinery in in Asia or a short kind of oil entity in Asia, I would kind of the minute I feel that my inventories I would start to basically spread my risk on how I procure oil going forward. So I think that could kind of create a more long-term situation, where we see kind of this longer old-school Tomas become more and more stable as we proceed. So kind of the opening scenario, I think it's very difficult to paint a big picture for tankers. There could also be the possibility to paint a quite bullish picture for oil price basically because you need all this inventory build you will not get production back overnight, and there will be kind of a bit of a shortness of oil as well going forward.

But I think the point that we cannot get away from is that this whole situation, which has now lasted for 12 weeks or whatever we're on counting, it's also a huge kind of push for energy diversification by way of looking at other kind of energy sources like nuclear, wind, gas, what have you. maybe not gas, but at least solar then. So it's kind of -- this is actually a push towards long-term energy transition. But I think kind of that's 5 years out. It's not something that we need to think about right now. But I think kind of the short-term scenario is how I described it.

And Lars, the other thing is that India contracted today from Venezuela. And after this for is over, the 20%, which is a huge dependence of lot of countries, especially India, China, which is taking it from Middle East, we would like to diversify. Does that permanently change the ton mile demand at under ton mile traveled for the ships, especially the large oil.

Yes, I believe so. And I think this is also the root cause for some of the interest we're seeing from kind of the Asian industrial players that they actually are trying to access the time charter market, taking ships for delivery in '27, '28 and '29, so I think that's kind of the long game in this that they are there to try and commit themselves for oil supply contracts from Latin America, West Africa and U.S. and then basically need to secure tonnage against those contracts.

So I think main Slide 29 calendar year '29, you're going to have a very strong or a stable high rate scenario for the ship.

I think that's impossible to say to be quite honest. We see that the freight markets and the period markets are backwardated. So kind of a year contract for a vessel delivering fairly soon is around $120,000 per day. the minute you do a 2-year contract, you talk about 90, 3-year contracts, $756 million. And then if you kind of go out and do a 5-year deal for delivery 2029, you're down in the 4s. So it's market yes.

There are no further questions for today. I will now hand the call back to Mr. Lars Barstad for closing remarks.

Yes. Again, thank you very much for listening in. It's quite hectic political landscape we're working under. But rest assured, frontline are focused on trying to to collect cash as we proceed here, and it looks pretty okay for now. Thank you.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Fourth Quarter 2025 Frontline plc Earnings Conference Call and Webcast. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Lars Barstad. CEO. Please go ahead.

Thank you very much. In discussions with the market factors in recent weeks, a recurring phrase has been heard. People basically saying, what a time to be alive. Frontline has been around through many cycles, but the tanker markets do actually evolve over time. We will argue that we've never been in a cycle like this, where indices and freight derivatives weigh so heavily in the freight pricing mechanism. This fuels almost violent moves as we proceed. For every 200,000 per day per day fixture done physically, there is an exponential number of contractual obligations that are triggered, giving this market a new dimension and very exciting dynamics.

Before I give the word to Inger, I'll run through the TC numbers. So let's move to Slide 3 in the deck. In the fourth quarter of 2025, Frontline achieved 74,200 per day on our VLCC fleet, $53,800 per day on our Suezmax fleet and $33,500 per day on our LRG/Aframax fleet. So far, in the first quarter '26, 92% of our VLCC days are booked at 107,100 per day. 83% of our Suezmax days is booked at $76,700 per day and 67% of our LR2/Aframax days are booked at 62,400 per day. Again, all numbers in this table are on a low to discharge basis with the implications of Ballast at the end of the quarter, this incurs. However, for the VLCCs, there's little mystery left with such a high percentage in the book. I'll now let Inger take you through the financial highlights.

Thanks, Lars, and good morning and good afternoon, ladies and gentlemen. Let's then turn to Slide 4. We report profit of $228 million or $1.02 per share and adjusted profit of $230 million or $1.03 per share in the fourth quarter of 2025. The adjusted profit in this quarter increased by $188 million compared with the previous quarter, and that was primarily due to an increase in our TCE earnings from $248 million in the previous quarter to $424.5 million in this quarter. And that again was a consequence of higher TCE rates. We also had some decrease in finance and ship operating expenses and also some potation in other income and expenses.

Ship operating expenses, in particular, decreased $7.1 million from previous quarter, mainly due to an increase in supplier rebates of $7.1 million. Let's then look at the balance sheet on Slide 5. The balance sheet movements this quarter are mainly related to ordinary items and also prepayment of debt under revolving reducing credit facilities. Frontline has a solid balance sheet and strong liquidity of $705 million in cash and cash equivalents and that includes undrawn amounts of revolver capacity, marketable securities and also minimum cash requirements as in the bag as per December 31, '25. We have no meaningful debt maturities until 2030. In January 2026, we sold 8 of our oldest first-generation equals per total sales price of $831.5 million and asset commissions and repayment of existing debt on the vessels, the transaction is expected to generate net cash proceeds of approximately $477 million million.

In parallel, we acquired 9 latest generation scrubber-fitted eco-VLCC newbuildings from affiliate of MM for an aggregate purchase price of $1.224 billion. We will pay approximately 25% of the purchase price in the first quarter of 2026. And and 75% is due upon delivery of each vessel. The company intends to finance this acquisition with cash and then 60% long-term debt financings.

Let's look at Slide 6. That's complete composition and cash breakeven rates and OpEx. Our fleet consists of 41 VLCCs, 21 Suezmax tankers and 18 LR2 tankers, has an average age of 7.5 years and consists of 100% eco vessels, so where 57% are scrubber-fitted. We estimate average cash breakeven rates for the next 12 months of approximately $25,000 per day for businesses. $23 700 per day for suzmax tankers and $23,800 per day for LR2 tankers. That gives a fleet average estimate of about $24,300 per day. This number includes dry dock costs for 5 VLCCs, 2 Suezmax tankers and 8 LR2 tankers. And the fleet average estimate, excluding dry dock cost is about $23,300 per day or $1,000 less.

We record OpEx, including dry dock in the fourth quarter, up $9,600 per day for VLCCs, $7,600 per day for Suezmax tankers and $12,400 per day for LR2 tankers. This number includes dry dock of 3 VLCCs and 3 LR2 tankers. The Q4 25 fleet average OpEx excluding dry dock, was $7,600 per day. Lastly, let's look at Slide 7 cash generation. Following as we entered into 1 year time charter agreements, and we also had fleet renewal in the first quarter, the spot base for the next 12 months is about 24,400 days. Frontline has substantial cash generation potential with 27,700 earnings days annually.

As you can see from this slide, the cash generation potential basis current fleet, TCE rates and TCE as of February 27 is $2.8 billion or $12.51 per share, which provides a cash flow yield of 34% basis current share price. And a 30% increase from this current spot market will increase cash generation potential to $3.7 billion or $16.84 per share. Likewise, a 30% decrease from current spot market, we decreased the cash generation potential to $1.8 billion or $8.19 per share.

With this, I leave the word to Lars again.

Thank you very much, Inger. So let's move to Slide 8 and look at the current market highlights. So oil demand seems to be growing healthily outright, but with key focus on nonsanctioned molecules, creating a substantial year-on-year changes in trade as shown on the illustration of the graph on the right-hand side of the slide. We have a very clear a market environment. We talk about U.S. India trade, U.S. Iran, Israel discussions and U.S. EU Ukraine Russia talks. Business liberation and further pressure on Russia in addition to around tension creates strong tailwinds on for us operating in the compliant market of oil transportation.

We're also in an environment where weakening U.S. dollar is supportive of global oil demand. and the inflationary economic environment is supportive of the commodities in general. Asset prices for ships is appreciating firmly order books are building materially in 2029 and onwards. But with the 20-year age cap observed, future supply remains manageable.

Let's move to Slide 9 and look at the flow. Global crude oil in transit continues to be at elevated levels. On the graph on the right, we've added the TD3C Baltic index by some refer to as the Dow Jones of the freight markets. And there, you can see how sensitive this index seemingly is to the oil trading on the 7 Cs. In this picture, we see sanction crudes moving slower, particularly for the Russian barrels or being stored, particularly for the Iranian barrels. This creates an increased dark fleet utilization and the dark fleet then needs new capacity or attract new capacity into the dark vessel pool.

These vessels are pulled out of the compliance fleet. OPEC Middle East exports is growing firmly. But also adds to this increased demand for compliant and approved tonnage. But despite the watering freight levels we're facing right now, we see very few charters, in fact, non-breaking this 20-year age cap, which supports the case that we have been arguing for years. Strong import growth to Far East and India contradicting the energy transition narrative and especially for China. I think people are starting to get familiarized with the energy addition, not transition term.

Long haul ARPS are challenged and just to explain what an orbit, that's basically the price difference between 1 continent to another in respect of oil, which basically, if it's at a wide enough point a trader or an oil major can make a profit, moving the oil over long distances and selling it in a different market. Freight is, of course, a key component in this and by example, if the freight from -- for a VLCC from U.S. Gulf to China is $18 million, the charter is actually exposed to $9 per barrel freight. And basically, this spread between the 2 oil markets need to accommodate that.

This has put some pressure on these ARPS, and we've seen fairly little volume moving from the U.S. to the Far East. But again, if oil needs to move or when it needs to move these differentials will just have to price to accommodate this spread. The incremental marginal barrel is now compliant. We've also discussed this in previous calls is that we don't see any kind of fantastic production growth in Iran. We don't see any kind of fantastic production growth coming out of Russia. But we do see compliant oil production and exports growing. The big factor is, of course, OPEC, reversing cuts, but then in how countries like Brazil, Guyana performing extremely well.

And these are the new molecules coming to market and they need compliant ships. Let's move to Slide 9 and look a little bit at the fleet development. So the order book continues to grow.We're basically in a market where decades high prices for modern tonnage if tonnage is even there for sale. That is on the water, meaning that the vessel can trade straight away is so high that it pushes actors into the yards. Other asset classes as LNG containers brokers continue to populate the Arts order books but we do see tanker ordering accelerating for 2029, especially in China.

As the chart on the top right hand in the case, it shows basically the efficiency loss of a vessel as it ages. And the curve starts to dip around 10 years of age. And then further deteriorates into almost ignorable when it gets to 20 years. With this in mind, -- as we move forward and move into 2029, we're going to meet the generations of ships that were delivered around 2010 and onwards. And this is a large population of ships that then again will be 20 years of age and exposed to this deteriorating efficiency curve. With that in mind, although ordering is accelerating, and we have a kind of high amount of ships expected to come in 2029, and it's basically being added for every day. It's not alarming with this in mind considering the feet age or the age of the fleet and the fleet profile.

We see it as we have 2 to 3 years of a very good runway before the supply could become a worry. We also expect going forward that the yard capacity will grow and especially in China. And it's not necessarily new yards, but it's yards that haven't built tankers or at least not been specialized in tankers, but they're now adding worth in order to cater for this industry. We believe there is another trend that will evolve as we proceed here, considering or assuming this rate environment is sustainable, that Korea and Japan will increase its focus on building tankers in general, and we also see in special as the margins on these contracts start to compete with what they can achieve for containers or LNGC.

Let's move into Slide 11, where we have the familiar tables. I'm not going to spend too much time on this slide, only to say that in our methodology and we try to be consistent, we use data that's based on when an IMO number is registered. This means that these statistics will always be a little bit slow to react. The general assumption in the market is that the order book-to-fleet ratio for VLCC is probably already at 20%. But this will become more and more evident as these contracts are being registered and the IMO numbers are being created.

With that, I think we move on to the summary. And I've changed the headline here. So we also see take the center stage, Suezmax and Aframax to follow question mark. It's actually not much of a question mark because the Suezmaxes are already on the way. and the Aframaxes is boiling. We are in a fundamentally tight market condition that yields extreme volatility. Oil demand and supply is developing positively, but especially for compliant molecules. The global tanker fleet age profile and efficiency loss tighten the supply-demand balances Asset prices are on the move at both spot and period markets support the investment decisions.

The volatile political landscape fuels, energy and security conditions where tankers tend to thrive. And Frontline's efficient business models tend to produce material shareholder returns as we proceed.

Thank you very much. And with that, I will open up for questions.

[Operator Instructions]

And it comes the line of John Chappell from Evercore ISI.

Lars, so many things to ask you, but I'm not going to be greedy. I'll keep it to 2. So the first thing is, obviously, we're in a parabolic situation right now. We've seen this once or twice before. But as you said, what's the underlying factors seem to be very different this time. But rates don't go to the moon, there's a certain point where there's a ceiling. So what's the catalyst to provide a plateau and maybe a little bit of an easing from here? Is that a geopolitical event? Is it a seasonal event? Is it a Synacor event? What takes a little bit of the froth out of the market, which would still be very fantastic rates, but maybe lower than where they're moving this week.

No, it's an extremely good question. I think the answer is kind of seasonality. There is also kind of normal seasonality. We're actually not unused to having fairly kind of poised markets during this time of the year, many times due to U.S. refineries going into turnaround, allowing for more barrels to be exported. And so we're kind of -- we're actually going into that phase now. So there will be potentially a few more months where we actually can't sustain these rates depending on how the flows work -- but then there is going to be a summer lull, and it's based almost inevitable.

But whether if it's a summer lull that moves from $200,000 a day to 100 or that is almost impossible to gauge. Also I think 1 needs to note that there is 1 major importer in these markets being China, and they have built an enormous amount of inventory over the years. They could, for any reason, choose to basically turn down the speed a little bit for a period of time. And this will also create volatility. But this is -- and I expect this to occur. But it's, of course, extremely impossible or extremely difficult to say when something like that might happen.

Yes, definitely. The other 1 is also may be a bit difficult, but it's just something I've been wondering about. Nobody has done what your Korean friends are doing right now for like seemingly 50 years. And that includes your shareholder who many people probably would have anticipated would have been the 1 to try this. Why hasn't anyone tried to corner the VLCC market in the past? And where could it go spectacularly wrong for them, just what are the risks, I guess? And I guess the final thing is how do you position Frontline so that you're not affected by if it does go spectacularly wrong for the supplier?

Yes. No, it's a good question. It's -- and you're right, it hasn't really been done in a material manner in the tanker market for at least longer than I can remember. Well, there is a parallel story from the mid-2000s involving a certain person from Taiwan, but this was in the dry bulk space. And -- but the key to his success in dry and the potential key to the success that the Korean actor may might have is actually that you go in a market that is already fundamentally tight. And then you don't need much to weigh it kind of or to slow the supply side of tanker capacity before you get these wireless moves.

And also, as most people are familiar with, if you look at how freight prices just empirically -- the minute you go from 90% utilization to 95%, how freight prices -- the moves are exponential. So that would kind of be my explanation to why this is possible. I'm not going to comment on why Mr. Frederickson hasn't looked at this. But the thing is we are a stock listed public company. This is, of course, easier to do if you are a private entrepreneur in this market and, of course, willing to risk a substantial amount of money in such a game, where it can go wrong. In these situations, and we've seen them before potentially to a smaller scale. It ends up being -- it's almost like a game of chicken, who can hold the longest.

So this is what makes me extremely excited over the months to come and the summer and so forth because we'll see some very interesting dynamics kind of come to play. But 1 thing I'm 100% certain of is that there will be volatility.

We're going to take our next question. And the next question comes from the line of Sherif Elmaghrabi from BTIG.

It seems like charters are seeing what you're seeing and willing to take more ships on term. Would you say that's the case and the TCE market is more active? Or is it just that rates have risen to a level that shipoders are more comfortable with?

No, I think as I kind of touched upon in the introduction today is that this market has evolved quite a lot in the last 20, 25 years. And if you -- by example, if you look at the Middle East market, for instance, for VLCC, transport from pain tail from Middle East to Asia. This market used to have a lot of physical liquidity, what happened over the years is that more and more actors are using the index itself to price the freight. So basically during contracts, floating contracts that prices of the Baltic index quote to the point where actually very little liquidity is actually transacted in the market.

So price visibility has been quite difficult actually sometimes do a parallel for every barrel -- physical barrel of rent oil that is produced, it tends, it trades tenfold on paper. And we've seen a little bit of the same kind of tendency or trend in freight. And this becomes a problem then if everybody are kind of pricing their freight of an index, that runs out of control. And then suddenly, you need to hedge and then you need to access the paper market or you need to buy back hedges for the guys who have taken ships on time charter and basically hedge the part of the curve in that exposure and so forth.

And you end up with a very vibrant FFA market, which every broker today with testify to. And you get these kind of ebb and flows out on the curve from panic to some sort of quiet until the panel kicks in again. So because over the last couple of weeks, we've seen -- you see the index. It's just relentlessly printing what is physically actually being done. But it's not like 10 cargoes are fixed today. It's 2 to 3 cargoes may be fixed today. But the amount of pricing exposure around that quote is enormous and this triggers kind of is almost like self-propelled move going forward.

But I think it's important to note, this is not a manipulation the market is fundamentally extremely tight. But of course, you could argue that maybe freight rates are moving ahead basically due to this tightness as the panic ebbs and flows.

Well, that's very interesting. Something else that I thought was interesting. And was your comments specifically about new tanker yard capacity coming online. And so I apologize if you mentioned this and I missed it, but do you have a sense of what the turnaround time on these projects might be and when first ships might hit the water?

No, it's 2029. So a yard that is now marketing kind of a new birth that they're going to build, but it's not like a greenfield because the artist is there. but they're just kind of introducing a new birth, I can say, accommodative we also see build. That is 2029, so 3 years.

[Operator Instructions]

And it comes line of Devin Sano from Tech Investments.

I just want to ask you, what will be your strategy on spot versus time charter as you go through these interesting times. And -- that's my first question.

Yes. No, and it's a good question. As we said before, we kind of our proposition to our investors is, of course, to give you spot returns. So basically, you don't have to buy a ship, you can just buy frontline. But at times, we will choose to use elevated markets to try and secure revenues. We've also kind of -- we don't have a fixed policy or anything, but we have like a golden rule of 1/3. So in theory, our Board will be comfortable under certain conditions that we get up to time charter coverage of 30%. We're, of course, in -- as you've seen from the stuff we did, we reported the 71 year time charters.

In the report today, we also reported another 1 that was done like a week later. So we are in these models of Brandi to try and secure some longer-term income. But we are so constructive about this market that we are not really engaging yet, at least in the longer term because we actually do believe that there is still some to go for the longer-term contracts, but they are also appreciating quickly.

So I'm not going to exclude anything. But you will not find frontline in a situation where we've put 50% of our exposure out on time charter because that's not really what our investors are after, we believe.

Sure. And I see the dark fleet, which we've been struggling and finally, it's coming with sanctions and whatever was needed to be done has been done now. In this -- though the probability is 50%, if Russian crude oil and if the bar stops and the sanctions are lifted, is also going to get into a compliance fleet, do you see in foreseeing such scenario what will happen to the market?

Yes. So if you'd ask me this in like September 2022, I would have said it would be like an immediate kind of bearish kind of proposition. But so much time has passed. And if the Russian barrel becomes a compliant barrel kind of you'll probably get half of the capacity back into the compliance on the shipping side. into the compliant fold. But the other half will either be -- or will actually be disqualified basically due to age. And this is the same for the Iranian or the fleet servicing the Iranian oil with a lot of ships, yes, but these are ships that were supposed to be recycled years ago, basically due to age.

So very few of them are actually going to come back into kind of compliant trade. And also the scrutiny in the compliance market on ship's history is extremely kind of tough. So it's not very easy kind of whitewash a tanker that's been involved in elicit trades. But 1 point I need to make, we've actually seen this before when sanctions were eased towards Iran in 2016. They have a national fleet, national tanker company ITC and of course, any part of a sanctions lifting kind of solution will also involve nationally controlled shipping companies. So for Russia, that will be so conflated potentially others.

But again, just analyzing those fleets age is a problem. So actually, we would welcome these molecules into the compliance fold.

Sure. And the last 1 is that if this sustains and obviously -- and you do the best to get make out of the cash becomes a cash pile. Obviously, you're paying out a large part of it, but do you think at what point in time you will start deleveraging balance sheet or you will stay levered?

No, our intention is to stay levered because for every share you buy in frontline, you get like a 1.4% ship exposure equivalent, basically due to our leverage. So we still believe that the model and obviously, I can't rule anything out, but we have no inclination to delever apart from what actually happens when you pay down debt. So the point of cash is actually going to you guys.

[Operator Instructions]

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

Thank you very much for listening in, and I hope you are as excited as I am to what the future is going to bring. I think it's the tanker markets turn now. So let's enjoy the ride. Thank you very much.

This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.

Good day, and thank you for standing by. Welcome to the Third Quarter 2025 Frontline Earnings Conference Call and Webcast. [Operator Instructions] Please be advised that this conference is being recorded.

I would now like to hand the conference over to your first speaker today, Lars Barstad, CEO.

Please go ahead, sir.

Thank you very much.

Dear all, thank you for dialing into Frontline's quarterly earnings call. It's noticeable how everyone at Frontline and in the general tanker industry for that sake, walks with an energetic spring in their steps these days. We have previously argued that this market owes us money, and we have finally started to collect some of it. I'll try not to jinx it by using caps lock on absolutely everything, but it is a mild understatement that we are positively excited by the developments in this market that started to materialize during the third quarter of the year.

Before I give the word to Inger, I'll run through our TCE numbers on Slide 3 in the deck. In the third quarter of 2025, Frontline achieved $34,300 per day on our VLCC fleet, $35,100 per day on our Suezmax fleet and $31,400 per day on our LR2/Aframax fleet. So far in the third quarter of '25, we have booked 75% of our VLCC days at $83,300 per day, 75% of our Suezmax days at $60,600 per day and 51% of our LR2/Aframax days at $42,200 per day.

Again, all numbers in this table are on a load-to-discharge basis with the implication of ballast days at the end of the quarter this incurs. This means that although we continue to fix extraordinary freight rates every day, we are dependent on the cargo being loaded before New Year's Eve to account for that income in Q4.

I'll now let Inger take you through the financial highlights.

Thanks, Lars, and good morning and good afternoon, ladies and gentlemen. Let's then turn to Slide 4, profit statement, and we can look at some highlights. We report profit of $40.3 million or $0.18 per share and adjusted profit of $42.5 million or $0.19 per share in the third quarter. The adjusted profit in the third quarter decreased by $37.8 million compared with the previous quarter, and that was primarily due to a decrease in our time charter earnings from $283 million in the previous quarter to $248 million in the third quarter. That was a result of lower TCE rates in addition to fluctuations in other income and expenses.

With respect to ship operating expenses, they increased $3.1 million from previous quarter, and that was due to a decrease in supplier rebates of $2.5 million and cost of $1.1 million due to change of ship management for 7 LR2 tankers. This was partially offset by a decrease in general running costs of $0.5 million. The administrative expenses, excluding synthetic option revaluation loss of $5.7 million this quarter and $1.7 million in the previous quarter decreased by $0.2 million from previous quarter. Let's then look at the balance sheet on Slide 5. The balance sheet movements this quarter are mainly related to ordinary items, the sale of one Suezmax tanker and also the prepayment of debt under revolving reducing credit facilities. Frontline has a solid balance sheet and strong liquidity of $819 million in cash and cash equivalents, including undrawn amounts of revolver capacity, marketable securities and minimum cash requirements bank as of September 30, 2025. We have no meaningful debt maturities until 2030 and no newbuilding commitments.

Let's then look at Slide 6, that is the fleet composition, cash breakeven rates and OpEx. Our fleet consists of 41 VLCCs, 21 Suezmax tankers and 18 LR2 tankers. It has an average age of 7 years and consists of 100% eco vessels whereof 56% are scrubber fitted. We converted 7 existing credit facilities with aggregate outstanding term loan balances of $405.5 million and undrawn revolving credit capacity of $87.8 million into revolving reducing credit facilities of up to $493.4 million in September 2025. We subsequently prepaid a total of $374.2 million in September, October and November '25, leading to a reduction in fleet average cash breakeven rate of approximately $1,300 per day for the next 12 months.

We estimate average cash breakeven rates for the next 12 months of approximately $26,000 per day for VLCCs, $23,300 per day for Suezmax tankers and $23,600 per day for LR2 tankers, with a fleet average estimate of about $24,700 per day. This includes dry dock costs for 14 VLCCs, 2 Suezmax tankers and 10 LR2 tankers. The fleet average estimate excluding dry dock cost is about $23,100 or $1,600 per day less. We recorded OpEx, including dry dock in the third quarter of $9,000 per day for VLCCs, $8,100 per day for Suezmax tankers and $9,100 per day for LR2 tankers. This includes dry dock of one VLCC and finalization of dry dock for Suezmax tanker, which entered dry dock in the second quarter.

The Q3 '25 average OpEx, excluding dry dock was $8,500 per day. Then lastly, let's look at Slide 7 and cash generation. Frontline has a substantial cash generation potential with 30,000 earnings days annually. As you can see from the slide, the cash generation potential basis current fleet and TCE rates for TD3C for VLCC, TD20 for Suezmax tankers and average of TD25 and TC1 for Aframax LR2 tankers from the Baltic Exchange as of November 18, 2025, is $1.8 billion or $8.15 per share, providing a cash flow yield of 33% basis current share price. A 30% increase from current spot market will increase the cash generation potential to $2.6 billion or $11.53 per share.

With this, I leave the word to Lars.

Thank you, Inger. So let's move to Slide 8 and have a look at what's going on in our markets. As many of you have noticed, oil in transit has become kind of a more mainstream measure for investors that focus on shipping. It's now at record highs. This happens as export volumes grow from especially the Americas or around the Atlantic Basin, and we see a positive development in how oil trades. Policy does affect behavior, and it has opened the arbitrage between Atlantic Basin and Asia. The OPEC voluntary production cuts reversals are starting to express themselves in real export volume gains.

Year-on-year for October, we're up 1.2 million to 1.3 million barrels per day, looking at the Middle Eastern producers, excluding Iran. There are increasingly logistical challenges around the trade of sanctioned exposed oil, and this was further amplified as LUKOIL and Rosneft were put under sanctions. We have a picture where we see very firm refinery margin environment supporting refinery crude runs. So it begs the question, when are we going to see -- perform. Resale asset values are starting to reflect the hike in freight rates as order books for tankers are near full through 2028. Let's move to Slide 9. The heading is the arb is back. The behavior of especially India, but also China is yielding an increased demand for compliant crudes, especially in the Middle East.

This raises the crude price level for local crudes in the Middle East, causing Atlantic Basin grades to price their way into Asia. Since 2022 and Russia's invasion of Ukraine, the long-haul trade has suffered. We have seen Russian oil taking Asian market share and Europe relying more on Atlantic Basin barrels. This looks to reverse to some degree and could be a sustainable development going forward and means that we are back to the old school tanker market where the VLCC with its economies of scale leads the pack. This VLCC-centric trade pattern change has also been driven by very positive export numbers from Brazil, our new producer Guyana, Canada through the TMX pipeline and more recently, also U.S. The incremental barrel to the market now is compliant oil and compliant oil means compliant vessels. That means unsanctioned vessels and predominantly below 20 years of age. If this supply trend continues on the oil side, we are likely to see a sustained contango structure in the oil market developing.

This will imply inventory builds. We are low on inventories in most regions of the world. It's unlikely to imply floating storage due to the financing cost, which is much higher now than it was in the last cycle, we had this effect to the market. But there is an equally interesting trading pattern that may develop and it's called time. When you can load the barrel in U.S. and sell it 2 months after in Asia, you're actually having a tailwind on that trade as the price of crude is increasing over time. Let's move to Slide 10. So the net fleet development, and this is kind of a recurring discussion I have with investors when we are out presenting our company.

We have virtually 0 recycling or scrapping, but -- and we have actually a substantial order book, not a scarily big one, but there is still vessels to come, and that order book has been increasing. So what we've tried to do here is to put forward a couple of scenarios just to explain why we are so constructive on this market. So as -- so the order book continues to grow, and this is mainly due to limited offering of available modern tonnage on the water. This basically means that if you are a ship owner or an investor that wants to buy a ship, it's -- the best way to get access to tonnage is actually to go to the yard and you're not penalized by missing out on freight even though the ship is being delivered in 18 to 24 months. But this looks to change now. Now that you have spot rates that can give you $5 million to $6 million on the bottom line for a 50-day voyage, you start to think, should I go and access the retail market and get a ship that I can fix in the next cycle? Or do I go to the yard and order a ship that will be delivered in more than 24 months.

This means that the owners can actually now start to pay up for a resale, and it makes economical sense to do so, assuming these rates stays around for a while. We continue to see the trend that other asset classes are populating the yards order books. There is now limited capacity left in 2028. If you look at the overall age profile of the global tanker market, and this is basically the key fundamental part of at least how we see this tanker market develop going forward or as I've said previously, the revenge of the old economy due to lack of investment in particularly tanker tonnage over a long period of time, we are in a situation where we will, every year, have a new batch of ships that are crossing this magical age cap, which we put at 20 years.

If you look at the VLCC chart here on the top right-hand side, just to explain how we're thinking, if you assume absolutely no scrapping, no ships disappearing into the dark and basically every new ship being delivered on top of the existing fleet, we will have around 15% fleet growth towards 2019 -- 2029, sorry. But if you assume that VLCCs at least stop effectively trading when they turn [ 2022, ] that growth will only be 3.4% through 2029. But what is actually the more realistic case is that VLCC are either scrapped start to trade sanctioned oil or for other reasons, no longer part of the effective fleet at 20 years, will have a negative fleet growth with the existing order book, a negative fleet growth of 2% towards 2029. The other charts are basically showing more or less the same. I think this is kind of the key reason why we believe that there is some longevity in the market we have in front of us. Move to Slide 11, order books. And I've been quite repetitive on this.

The order book on the asset classes that we are exposed to is in total 16.5% of the existing fleet, 19 above 20 years. If you put the threshold at 15 years, 44.3% of that fleet is above 15 and 21.6% of that fleet is sanctioned by either or OFAC U.K., EU and so on. We also have the highest average age in the tanker fleet for more than 20 years. So let's move to Slide 12 and the summary. And I called it old school bull market because some of the characteristics we see in this market, and I've been in this market for quite a while, meaning that I was actually around in the period from 2002 until 2008, we are actually seeing some of the same characteristics, where there is a proper trade going on between a charter and an owner and the brokers actually need to do some proper work to find the right ships and cargoes struggle to get offers basically. So we have high utilization. We have strong oil exports, and we have a positive change in trade lanes.

As I've gone through limited growth in the compliant tanker fleet and with compliance, I also add under 20 years. And we also see the sanction trade sucking more tonnage in due to logistical challenges. The overall age profile is key, as I just mentioned, and despite the populated order books, effective fleet growth remains muted. We have firm refining margins and the winter market has actually already started. We are in a situation kind of on global S&D that we might come into a prolonged period of oversupply, and this may yield interesting trading developments, firstly, for oil, but also for shipping. And I can assure you, Frontline are prepared to offer outsized shareholder returns with our efficient profit for fleet. Thank you very much, and we'll open for questions.

[Operator Instructions] Now we're going to take our first question. And it comes the line of Jonathan Chappell from Evercore ISI.

Lars, to your last point about the outsized shareholder returns and then tying it into this financing update that you provided today. Completely understand, I think the dividend policy will remain as robust as it's been since the start of 2024. But are we looking at a new era now where you're looking at deleveraging the balance sheet as well? You're clearly in a strong enough market where the dividends can be strong, but you're still generating enough cash. where you can deleverage and you've done quite a bit of it in the last 3 months. So are we looking at a new Frontline where the balance sheet becomes as strong as maybe some of your public peers without violating your dividend policy?

No. We are different from our peers. We're actually not particularly comfortable working with this kind of fairly low LTVs. I think as a result of we're being hesitant to invest in this market for reasons I actually described a little bit in the presentation. We've had values moving ahead. So resale values moving ahead of the market. We've had kind of -- since we are prepared, we want our assets to generate cash as quickly as possible. We've been hesitant to stretch kind of far out in time, tying up CapEx on assets that will come in a year or 2 years' time.

And so we basically found -- and time charter rates haven't really defended this either. So we kind of just by pure being quite conservative on our financial analysis, we haven't really been kind of up for doing any massive moves since we did the Euronav transaction. So I think kind of that's more a result of it or that's more the reason for us being in this position rather than actively trying to reduce our debt.

And then just a follow-up, I want to push back a little bit on Slide 10, but then offer an opportunity for you to push back to that. I think the premise of scrapping ships at 22 years and at 20 years, given the rate outlook that you just laid out in the prior slides is a bit misleading. I mean people don't scrap ships when they're making that much money.

So maybe could you explain to us how those ships become less efficient or they don't have full utilization and they're still kind of like come out of the net fleet supply without them being actually scrapped because if investors are waiting to see big scrapping numbers over the coming years with rates as strong as you think they are, and I think they are, they may be disappointed. So how do those ships become less efficient and still kind of help utilization without actual scrapping?

Well, as you know, I was going to push back on that. No, the thing is that why we haven't seen scrapping or recycling to be more politically correct, is the fact that you have an alternative use of these vessels, right? And the alternative use in the old days, it could be a conversion into floating storage or production units. There could be kind of other -- it could be floating tanks or whatever. But the alternative use that's been going on ever since 2019 or '18, '19 is the trade of sanctioned oil. And that has obviously paid a lot of money to the owners that have been willing to engage in this trade. The thing is that we circle around the compliant market, and we relate ourselves to the compliant oil market.

And in a compliant oil market, even if you're Exxon or even if you're Shell or Glencore or whoever you are, you trade on the margin. If you're going to trade on the margin and you're trying to ensure 2 million barrels of oil on a plus 20-year ship, that price of that insurance is going to be so high that you will struggle to actually make the ends meet. So it means that -- and it also limits your optionality on how you can trade that oil because you have to take away kind of 80% of the terminals that just have a blanket ban on vessels that are older than 20 years of age. So effectively -- and we actually see this, you don't really need to look up which ships are sanctioned by OFAC. You can just draw a line at 20 years. The vessels and the Suezmax and VLCC side that are above 20 years and not sanctioned, you can literally count on one hand. And we actually see a big efficiency loss in the tanker space when the ship reaches 18 years.

So -- and I think a little bit of a proof in the pudding here is that the compliant oil market has actually had a terrible development in volume for a sustained period of time. But still, we have had poor rates, but we haven't had like car crash kind of rates. And this is basically due to the fact that ships become less tradable, less efficient, limited use actually starting from the year -- from the turn at 17.5 years. So there could be that we'll have a wall of scrapping, but I actually don't think that's going to happen. I think kind of the alternative use is going to be around for a long time, unless, of course, the sanctions are lifted all around. But now we also have another problem here is that a sanctioned vessel is not easily recycled because the recycling industry is actually a real business, and they access financing and they deal in many ways in dollars. Where you are right, where ships can easily live kind of past the 20-year age kind of ceiling is if it's for specific use, let's use India as an example.

If you're India flag and for an Indian refinery, to, of course, control the entire value chain on that oil trade, that ship can easily kind of trade until it's 25 years. But it will only be for the purpose of transporting feedstock to an Indian refinery. But that is only a small portion of the market. And even Indian refiners realize that they can't have too much of an exposure in that market because basically, you have virtually no other options than to do exactly that back and forth between the Middle East and India.

And the next question comes from the line of Sherif Elmaghrabi from BTIG.

Lars, maybe first to just follow up on that line of thought about the sanctioned fleet. India and China are lifting more compliant barrels, as you said. And so there's more noncompliant vessels that maybe have less work. And I'm wondering what you see happening to the dark fleet right now given there's less work and also maybe in the next 6, 12 months, if that's a different picture.

Yes. No, it's -- there is actually -- so for once, there are an increasing amount of vessels just sitting at anchor with no crew on and keys left in the ignition. These are kind of the first-generation sanctioned fleet that came out of Iran and Venezuela kind of 5, 6 years ago. And there, you will probably never be able to locate who was the owner. But then you have kind of what's in between, and there are actually initiatives or also commercially things that are being worked on, where you basically -- you can buy sanctioned vessels, but you need a license from -- and the most important license is from the U.S. And there is actually some motion in that work now where, of course, since the federal state in the U.S. was closed for a while here, it's not been particularly efficient for the last couple of months. But there is a discussion ongoing to -- if one can kind of set up some sort of mechanism where against a fine, you can actually access the recycling market, but only the recycling market alone.

So I think that could be a solution as we proceed here. One side being that local governments actually need to take action to avoid environmental damage for those vessels left with keys in. But secondly, a growing industry around this kind of licensed but also find recycling work being done because kind of if you have -- if you're going to buy sanctioned vessels, it's actually worth 0. But then, of course, if it's worth half the normal recycling price, there is actually still money in it. So -- but I don't know if that's going to be the solution, but at least that is something that is being discussed. But it's still so that the sanctions are -- different countries kind of respect them to various degrees. Oil has a tendency to move anyway. So I have no illusions as to the vast amount of Iranian oil, which is currently kind of being clogged up a little bit, the vast amount of Russian oil, which struggles to find a home.

I'm pretty sure it's going to find a home, and it's probably going to find a home on one way or another on ships that are either fully sanctioned, halfway sanctioned or whatever. So I think kind of that industry, that paralleled industry, we're probably stuck with for a while. But the incremental barrel now does not come from the sanction nations. It actually comes from the compliant fleet, and that's the only part of the market we really care about.

That's very interesting. So sticking with the compliant barrels now, you've highlighted the tailwind to futures curve, gifts cargoes lifted from Middle East to Asia. That's not floating storage, like you said. So I'm wondering how that affects vessel demand given it sounds like the contango in the curve lines up nicely with normal voyage time lines anyway.

Yes. No. So currently, we don't really have the contango. And actually, I'm no expert on oil pricing, but I'm actually quite surprised of the firmness in the oil price considering the oil in transit numbers that we have. Mind you that oil in transit is a combination, of course, of backing up sanctioned oil. It's also backing up oil that was supposed to go to sanctioned terminals. And it's also -- but it's also commercial oil, which is backing up due to weather as well. That's a really old school winter market kind of thing is that there is actually some severe weather around key ports. So we're actually seeing extended kind of waiting time to discharge basically due to that. But with that kind of a pile of oil sitting or being kind of in the logistical chain, I'm surprised that we can have kind of front oil having at these levels. But anyway, if you believe in EIA or IEA or all the kind of market experts, we are actually going to be in an inventory build environment for the next 6 months-ish. But in order to get there, in order for that to be even feasible, we can't have a steep backwardation on oil.

So then you get into this contango kind of shape of the curve. And that is interesting, as I mentioned in the presentation, because we tend to see trade lanes extend when you have some sort of carry in the oil curve. And it doesn't need to be supportive of floating storage because then you need like $2, $2.5 per month in order for that to make sense. But only a modest 50% -- sorry, $0.50 contango helps or increases the trading system basically because you get a little bit of tailwind as you try to position a cargo.

And the question comes from the line of Omar Nokta from Jefferies.

A couple of questions. I wanted to ask just about the LR2s. Obviously, there's a bit of a big gap between what's going on in majority and clean markets. And just wanted to -- if you can just remind us how you're trading those. And then also, do you have any comment regarding some of the chatter from last month that you had sold or in the process of selling that entire LR2 fleet.

Yes. So let's do the last one first, and let's know and then do the first one. The kind of this spread right now surprises us a little bit as well. You're an expert analyst too. And you know that the kind of high refinery margins, a lot of oil going through the system normally yields a lot of product exports. And we haven't seen that yet. But I'd say that the setup for the LR2s look increasingly exciting because, number one, due to the relatively stronger crude markets, a lot of LR2s are actually trading dirty. So it means that there is a kind of limited amount of LR2s that are clean and ready to do a clean cargo at this minute.

Secondly, the Suezmaxes in particular, are making so much money in crude that there is no economics in cleaning up to do a clean cargo at these levels at all. So my point is I don't think you need much in that market to flip it. And it can actually be quite good or you can get this kind of exponential freight development basically because you don't have the lid of a Suezmax cleanup or a VLCC cleanup on top of the LR2 market as it is right now. But I don't have a very good kind of factual answer to you on why we are in this situation. But I think we've already seen some kind of small signals that LR2s have run up $5,000 to $10,000 per day just in the last week. Now we're probably around the $35,000 per day mark, maybe a bit above. It doesn't need much to take it further. So let's see.

Okay. Yes. So maybe some convergence is happening at the moment. Okay. And I understand Lars, it sounds like you said no comment regarding the sale of the LR2s. But humor me perhaps, if you were to potentially or if you were to consider selling those LR2s, what do you envision the use of proceeds would be kind of maybe along John's question, would it be more towards debt repayment, which it sounds like perhaps you don't want to do? Would it be a special payout? Or would you consider rolling into the Suezmax and VLCC classes?

I think we've kind of between the lines, you're probably answering that in this presentation. And it's -- we kind of we've been very patient since we started to expand our VLCC part of the fleet. That's grown 33% in the last 5 years. We've doubled the kind of the amount of ships. Regretfully, the trading pattern that developed after Russia-Ukraine did not really support the VLCCs at all. Now that is -- and I don't want to jinx it, but it looks like at least right now, it's coming together. And it's the economies of scale that then gets into play. So kind of long term, if we were to divest of the LR2s, I think we also think that this market has some runway, just showing you kind of the fairly modest -- in our model, at least, the very modest growth total in supply of tankers and actually particularly so on the VLCCs and also our belief that the oil demand is probably going to grow for a few more years. I think it would be natural for us to focus on the big guns on the VLCCs.

I feel like that's fairly clear between the lines. And then just a last one just in terms of the performance to date here in the fourth quarter. Clearly, a nice big increase in your earnings power coming here across all 3 segments. But this is one of those few times where there's such a gap in terms of what you're showing as a realized average to date in the fourth quarter and where spot rates are. And so you've covered, say, just looking at the VLCCs, 75% of 4Q is at $83,000, the spot market, say, well over 100,000.

Load to discharge accounting makes things a bit tricky here as we think about the realized average for the full quarter. Do you think based off of where things are, that there's upside to that 83,000 figure in this quarter? Or are we looking at basically these 100,000-plus rates becoming much more of a January item?

I think I'll answer that question by saying that in kind of the load dates that are being worked, so say you do a fixture today on the VLCC in the Middle East that has -- and the rates there are around $130,000 per day right now. That's for loading on the 11 -- 10 to 11th of December. So there kind of -- you have only 20 days that you would account for then in Q4 when you load that cargo.

So half of it will actually come into January. But if you go to Brazil, for instance, you're already fixing kind of around the 20 mark, if not further out on loading. So then you only have like 5 to 10 days to account for that will actually affect Q4. And for U.S. Gulf loading, it will be more or less the same. So I'm not going to say no, we won't get more money into the chest before we close the year, but I can't categorically say yes either. We'll just have to see.

The question comes from line of [ Devin Sangofrom Tech Investments. ]

Lars, I just wanted to ask more about the floating storage. And we're seeing that during the COVID. And how do you see this floating storage and how sustainable this demand?

If I understood you correctly, so yes, we had very high floating storage during COVID. That was, of course, more due to the fact that the demand disappeared overnight and supply could not follow. But we were also in a 0 interest rate environment, which meant that the capital was basically free. And that is an important part of this because if you're going to purchase or take position of 2 million barrels, it's a sizable kind of amount of money, and we need to finance that. And that adds to the cost of storing on a vessel.

So -- and this is why I mentioned that in order for floating storage to work commercially on ships, you basically need $2.5 per month or $2, $2.5 per month or thereabouts. And that's a pretty steep contango. And we're nowhere -- we're actually in slight backwardation right now. So it's nowhere near. The storage that we are seeing right now is more due to logistics or distress or weather. So it's not commercial in that way. I don't know if that answered your question.

Yes. The second thing is that I've seen that different -- U.S. has different part of sanctions for black -- dark fleet, U.K. has different, EU has different. And if you put -- so is there anything which has gone that total dark fleet under different sanctions are now getting tighter? And what's your view on that?

Yes. No, you're right. But it's actually a very high degree of correlation between these sanctions. So normally, it's just a question of time. EU sanctions one vessel, then OFAC will do it 2 weeks after and then U.K. will do it more or less at the same time. So there's actually a lot of overlap between these various kind of regulatory entity or regulatory bodies. So -- but it's for sure, it's getting tighter. And this is global politics, right? I think one doesn't need to be a rocket science to understand that particularly U.S. is putting a lot of pressure on Russia right now, basically to prime them for negotiations.

I think this Rosneft/LUKOIL sanction was -- that was a direct kind of hit on creating a lot of trouble for this industry and for Russia's export. You're talking about half their exporting volumes that were serviced by Rosneft and LUKOIL. But for sure, these molecules will, at the end of the day, find their way somewhere. But I think we're probably going to see this pressure continue until we have some sort of resolve on the whole situation.

And last, you've seen last year, Q4 was not great, the seasonality didn't come up. But this year, if I see Q4 is good, but how do you see Q1? Because Q1 is going to be as strong as last year or better than what we have seen looking at the current scenario?

Well, you're asking me to give my view on one of the world's most volatile markets. Actually, the fact that it is -- this volatility tells you that this is not an efficient market. It's a market that's extremely difficult to predict. But what I can say is that from what we're seeing right now, we're not seeing any kind of weakness in this market. We're seeing an old school extremely tight physical shipping market. So -- but of course, who knows what can happen next week.

No, because see all the factors that the compliant crude producers have gaining market share, dark fleet is being targeted. The volumes overall, at least as of today, there is no debacle of China on consumption side. In fact, China is buying all the commodities in order to put the extra reserves. So put all things together, Q1 can sustain this rate. I'm not asking you to predict, but it looks like Q1 can be better or as good as Q4, if conditions sustain.

Yes, yes, 100%. And we pointed to it in this report. There are some key fundamentals here that will not change short term. It's -- there are some key drivers to this market that we didn't have Q4 last year to put it that way.

And the question comes from the line of [ Luis McKibben ] [indiscernible].

Yes, Lars, I wanted to talk about Frame 7, Page 7, where you show the $11.50 a share generated with $149,000 daily VLCC rate. And having -- you were in the business back in the good old days of 2006 and '08 and also during COVID when they had the floating storage. But I think the rates went up to like $240,000, $260,000, $280,000, $300,000 a day. Is that right?

Yes. That's right.

So if you were to get similar rates, your free cash flow would be in excess of $20 a share. Would that be correct?

Yes. If you do that for 365 days, yes.

It could happen. All right. The other thing was that I read somewhere where India will not accept a tanker in excess of 22 years old. And I was wondering if China has a similar policy.

Well, China is not kind of uniform in that respect. They have kind of 2 different oil systems, one being the -- what is referred to as the TPOs, but these are big refineries that they are privately owned. And they, of course, have a little bit of a different kind of requirement. The terminals are then also privately owned. But if you look at the government system in China and Unipec, which is kind of the biggest, they actually normally have a 15-year kind of threshold. But of course, they have maneuvering room between the 15 and 20, but you very rarely see them take a ship that is materially above 17 years old. So it's a little bit fluid. On India, I haven't seen or heard what you're referring to. All I know is that if you sail under an Indian flag and you're an Indian ship owner, they have at least up till now accepted trading all the way until 25 years.

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

Yes. No, thank you very much again for listening in. It's extremely exciting times indeed. And I wish you the best for the remainder of the year. Thank you.

This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.

Good day, and thank you for standing by. Welcome to the Second Quarter 2025 Frontline plc Earnings Conference Call.

[Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lars Barstad, CEO. Please go ahead.

Thank you, Nicolas. Dear all, thank you for dialing into Frontline's quarterly earnings call.

Shipping and tankers from our vantage point is still in the eye of the storm in relation to global conflict and trade policies. We have started to grow numb in respect of our industry's ability to regulate the ever-increasing parallel tanker market, stealing margins from the law-abiding citizens of the tanker trade. But now we are hopefully seeing the contours of change. one being trade policy reflected in nation's behavior on crude sourcing and the simple fact that global oil demand growth has surpassed what sanctioned molecules can satisfy, meaning incremental oil demand and supply for that sake, its growth seems to benefit the compliant fleet being the market Frontline operates in.

So 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 2025, Frontline achieved $43,100 per day on our VLCC fleet, $38,900 per day on our Suezmax fleet and $29,300 per day on our LR2/Aframax fleet. This is up from the first quarter of the year, but admittedly somewhat short of expectations. So far in the third quarter of '25, 82% of our VLCC days are booked at $38,700 per day, 76% of our Suezmax days are booked at $37,200 per day and 73% of our LR2/Aframax days at $36,600 per day. And again, just to remind you, all these numbers are on a load-to-discharge basis with the implication of the ballast days at the end of the quarter this incurs. However, we have fixed very far into Q3 at this point in time. So there's not that much that can move the needle coming in from here.

And I'll now let Inger take you through the financial highlights.

Thanks, Lars, and good morning and good afternoon, ladies and gentlemen. Let's then turn to Slide 4, profit statement and look at some highlights. We report profit of $77.5 million or $0.35 per share and adjusted profit of $80.4 million or $0.36 per share in the second quarter of '25. The adjusted profit in the second quarter increased by $40 million compared with the previous quarter, and that was primarily due to an increase in our TCE earnings from $241 million in the previous quarter to $283 million in the second quarter as a result of higher TCE rates, partially offset by fluctuations in other income and expenses.

Let's then turn to balance sheet at Slide 5. The balance sheet movements this quarter are related to ordinary items. Frontline has a solid balance sheet and strong liquidity of $844 million in cash and cash equivalents, including undrawn amounts of revolver capacity, marketable securities and minimum cash requirements bank as of the end of June 30, 2025. We have no meaningful debt maturities until 2030 and no newbuilding commitments.

Let's then look at Slide 6, fleet position and cash breakeven rates and OpEx. Our fleet consists of 41 VLCCs, 21 Suezmax tankers and 18 LR2 tankers. It has an average age of 7 years and consists of 100% ECO vessels, whereof 55% are scrubber-fitted. We estimate average cash breakeven rate for the next 12 months of approximately $28,700 per day for VLCCs, $22,900 per day for Suezmax tankers and $22,900 per day for LR2 tankers, with a fleet average estimate of about $25,900 per day. This includes dry dock costs for 12 VLCCs and 8 LR2 tankers. The fleet average estimate, excluding dry dock cost is about $24,600 or $1,300 per day less. We recorded OpEx expenses including dry dock in the second quarter of $8,700 per day for VLCCs, $8,900 per day for Suezmax tankers and $7,600 per day for LR2 tankers. This includes dry dock of one VLCC and one Suezmax tanker. And the Q2 '25 fleet average OpEx, excluding dry dock, was $8,100 per day.

Then let us turn to Slide 7 and look at cash generation. Frontline has a substantial cash generation potential with 30,000 earnings days annually. As you can see from the graph on the left-hand side of the slide, the cash generation potential basis current fleet and TCE rates for TD TC for VLCCs, TD20 for Suezmax tankers and the average of TD25 and TC1 for Aframax and LR2 tankers from the Baltic Exchange as of August 28 '25 is $648 million or $2.91 per share. And further, a 30% increase from current spot market will increase the potential cash generation with about 64%.

With this, I leave the word to Lars, again.

Thank you very much, Inger. And let's turn to Slide 8 and look at the current market themes. So what's going on out there?

The compliant tanker fleet sees improved utilization, and this is as the compliant oil export is growing and some of the trade lanes are stretching or lengthening. India and China are balancing their feedstock exposure as they're negotiating U.S. trade policies, and we've also seen increased pressure by both U.S. and EU on sanctions. We also have OPEC voluntary production cut reversals. They have yet to materially affect export volumes. And just to remind you, in the Middle East, about 20% of electricity generation comes from burning oil. So Middle East will still kind of consume about 800,000 to 900,000 barrels per day more during the hot summer months.

We do expect this to stop over the next weeks. And we also have quite exciting projections for Q4 global oil supply growth, which is supposed or at least according to EIA, give us a 3 million barrel per day year-on-year growth. If you translate that into exports, probably going to be close to 2 million barrels per day of increased exports. We are back to solid U.S. exports again after having a soft development as ever since January. And we look in August, at least looking at tracking, to reach 3.9 million barrels per day coming out of the U.S. Gulf. And as I'm going to come back to later, we see more and more of this oil pointing towards Asia. We've also had Brazil and Guyana production performing very, very well and likewise on their export side.

The improved -- we also are in an environment here with improving refinery margins that -- which basically supports kind of refineries' crude demand and the product arbs. EIA again expect us to reach 105.4 million barrels of consumption in December globally. And we need to keep in mind this is coming from 101.5 million barrels in January.

So let's go to Slide 9 and dig a little bit into the policy and how it -- the policies and how it affects behavior. So the oil discount that countries are achieving by importing sanctioned oil versus the trade balance and then in particular, towards U.S. is an important measure for nations not embracing the current sanctions regime. To put some numbers, and this is not exact science, but just taking it off what's being reported around there, India are benefiting around $2.7 billion from -- as a discount to benchmark oil prices by importing large amounts of Russian feedstock. But there bilateral trade is tenfold of that or even more. So about $86 billion is their trade worth with U.S. alone. It's also expected that if the U.S. tariff pressure continues on India as it is right now, they stand to lose about $20 billion of trade to the U.S.

So this motivates and although not officially, but it does motivate them to change their tactics. We have, with this seen sanctioned barrels or we have seen sanctioned barrels increase their market share in key growth regions over the years, and this accelerated after 2022 and Russia's invasion of Ukraine. But now we're in a situation where OPEC8 voluntary production cut reversals and the supply growth, especially in Latin America, has given the market headroom to choose compliant sources of oil without affecting oil prices materially. And as global demand continues to grow, we seem to have found the limit on production and export growth from the sanctioned nations.

If you look at the 2 charts on the below on the slide and look at these kind of 3 key sanctioned nations production, it seems to be tapering off. And also, if you look at their exports, it's tapering off even faster. There is a fact that when these countries lose kind of knowledge and parts from the rest of the world in order to maintain their production levels, they tend to also lose productivity. If you look at the chart on the top right-hand side, year-on-year, China and India's compliance crude imports, we see a very positive development. Whether this is sustainable is obviously difficult to say, but we are at least moving in the right direction.

Let's dig a little bit further into the flows on Slide 10. So on the top left-hand side here, we have year-on-year change in global crude production and also in global exports. Exports is the part that concerns tankers. We've seen quite steep year-on-year changes to the positive in Q2 and also looks to come in, in Q3, and this reflects the previously mentioned increase of around 2 million barrels year-on-year in exports. This is predominantly coming from compliance sources. If you look at the chart below, we've just taken out Iranian and Russian and Venezuelan oil, and it looks very promising. If you look at the chart on the bottom right-hand side, and this is important. If you -- basically what's been missing in our market and particularly hurting Frontline has been the fact that the long-haul trade of oil has suffered.

Russia has supplied Asia to a very large degree, whilst Europe has received resupply as they're missing the Russian barrels from U.S., Brazil, Guyana and West Africa. What we ideally want is Latin American and U.S. oil to go east. This is about double the voyage of this local transatlantic trades. But in order to get to that point, Atlantic Basin oil basically needs to price eastbound. It needs to be cheaper, including freight than the benchmark grade in the Middle East, which is called Dubai. What's happened over the last couple of weeks is with India entering the Middle East market to a larger degree now than what we used to do, they have pushed up prices in the Middle East to the point where now you can actually place U.S. barrels cheaper into the Asian market than taking it from the Middle East. Of course, it takes time for this to be reflected in rates. But what we have seen already is a significant increase in U.S. Gulf fixtures for September, which obviously is going to be October delivery than what we've seen previously.

Let's move to Slide 11 and look at then the order books. So basically, what I described on the previous slide, it basically equates to about 6% increase in freight demand, and that's not adjusting for ton miles. So the potential change here is greater. But the fleet is not really growing at all. In 2025, it's expected to be reduced by about 0.5% if you look at the active trading fleet that is either not sanctioned or sitting still. There are so few vessels coming into this market that we're actually experiencing negative growth. So with that equation together with longer trade lanes, more compliant oil in the market and a stable fleet development is good news as we move into the fall here.

We have a record amount of vessels above 20 years of age in the fleet. We have a record amount of or part of the fleet being sanctioned. And in light of that kind of setup, we continue to have a very limited order book. We also see that the activity on the yards for tankers has been fairly slow for a long period of time now, and there's only very few orders being placed. If you order a vessel today, you are 90% certain that you need to wait until 2028 to get that vessel on the water. So basically, the tanker market is sold out for 2027. There will be transactions on resales for both '26 and '27 delivery, could even be '25. But if you go to -- if you want to increase the order book from here, 2028 is the year.

So to try and sum up a little bit, and I have jokingly, but hopefully, it's not a joke, call this compliant bull market question mark. Basically, trade policy is affecting crude sourcing for the key demand regions, and this has been a little bit of a step change as far as we can see it over the last couple of months. We see an increased utilization in the compliant fleet, and we see kind of a more healthy growth in both employment and freight as we are proceeding here. The effective tanker fleet growth remains muted, both due to the aging and -- but also, of course, due to the widening sanction reach.

We have healthy refinery margins, and this is actually the first time in a while, and it's been steadily improving since November last year. We've had a seasonally strong summer market, which again kind of confirms this positive demand growth as we see it. OPEC cut reversals are expected to yield increased exports from the Middle East as we approach winter. And Frontline continue to retain its material upside with our modern but not the least spot exposed fleet.

Thank you. And with that, we'll open up for questions and give some answers.

[Operator Instructions] Our first question comes from Omar Nokta with Jefferies.

Lars, Inger. Thank you for the update. Lars always very good as you kind of go through all the detail and all the moving parts in the market. I did want to maybe follow up just on a couple of those discussion points. Maybe you made a point on Slide 10 talking about those West to East flows and how those have been missing from the market. But here recently, there's perhaps a jump in terms of U.S. VLCC exports going to Asia. I guess how do you think about how that starts to play out as we get closer to winter here over the next several months where you do get an incremental amount of volume into the Middle East market from OPEC. How does that all kind of justs that dynamic overall in terms of the long haul of VLCC trade?

Well, of course, I should say Jefferies, but I have to actually lean on Goldman here. They and other kind of observers are modestly or even increasingly, bearish crude prices this winter, one being due to the return of the Middle East oil from OPEC. But secondly, that we are actually -- on supply side, we are about 1 million barrels per day north of the demand side. So it's a very good point. I don't want to be in the predicting or in the betting kind of part of this. But I do subscribe to the idea that we could -- it's not a floating storage contango, but we could get a contango basically with -- well, I assume most of you know what the contango means that could kind of come into the oil curve this winter unless we see something very surprising on the demand side.

What normally happens then on oil trade is that utilization further increases. Basically, since the future price is higher than the present price, traders and transporters of oil have no hurry to move into port to discharge. And also, it kind of -- it gives you the ability to freight oil longer. But lastly, and the most important part, it also incentivizes people to build inventories. And that's been a big missing part as well. We do see reports of China building inventories, but the rest of OECD is kind of very, very low on the inventory side. So if that answers your question, this is a potential scenario we see play out as we come into winter.

That's helpful. And then maybe just a follow-up, kind of talking a bit more on the market. A big theme here over the past maybe few quarters or perhaps a couple of years is the fits and starts we've seen in the VLCC market where rates gain momentum and you think this is going to be the big shift and then they fall back and then expectations sort of get reset. Last week was a bit exciting in terms of the move in spot rates. They seem to have gapped up. And it seems maybe this week that they're holding up. What would you kind of attribute some of the -- I know it's very short-term thinking, but what would you attribute those recent gains to? Are you starting to actually see those export barrels from OPEC come to market? Or is it something else at play?

I think kind of what has come to motion here or gotten into the market is this shift from -- with some Russian backing up, quite a bit of Iranian backing up and that oil being replaced from the complied sources. This has kind of almost like an exponential effect on the demand for compliant tankers. So that is kind of driving it. We have this kind of magic ceiling around $50,000 per day on VLCCs, and we struggle to push through. This has something we believe with the structure of the market, we are kind of -- we are deep in the money, long-term owners of tankers. We -- for us, there shouldn't be a ceiling at all.

But if you are more on the short-term trading side, and you're taking a ship in on time charter for $40,000 per day, suddenly, you can kind of literally close the strategy with a $10,000 per day profit you do that because then you get the bonus next year and can buy yourself a new Chalet in Switzerland. And those guys have an awful lot of ships under the commercial control. So you could say that the owners have been a little bit diluted by such a presence in the spot market. What's encouraging right now is that I can promise you, ever since last Thursday, all the charters have been trying to push this market down as far as they could. And it seems like we are finding some support and only lost like $5,000 per day in earnings.

So if this is a floor, just to put the VLCC there around $45,000 per day, then I'm actually quite optimistic that we'll be able to push through this kind of artificial ceiling at $50,000 and hopefully establish a new floor a little bit higher up. So the waiting that's been happening now and all the fun and games to try and push this market down has meant that charters are actually starting to get a little bit -- little time to get the vessels they need in order to lift their cargoes. And that's always a very good news to the market. And it's going to be very interesting as we come to work next week and see what -- how this develops.

Okay. Yes, very good. Lars, I'll see how things indeed develop here. Appreciate it.

Thank you, Omar.

[Operator Instructions] I'm showing no further questions at this time. I would now like to turn it back to Lars Barstad for closing remarks.

Well, thank you very much. I hope it's good news that there were so a few questions at this point or if it's just Friday. But thank you very much for listening in and looking forward to see how this develops.

This concludes today's conference call. Thank you for participating. You may now disconnect.