Frontline Ltd.
Q1 2020 Earnings Call Transcript

Published: 20 May 2020

[Operator:]

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

[Robert Macleod:]

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

[Inger Klemp:]

Thanks Robert and good morning and good afternoon ladies and gentlemen. Let's then turn to slide four and then take a look at the income statement. We achieved total operating revenues net of wage expenses of $289 million and EBITDA adjusted for certain non-cash items of $234 million in the first quarter.Frontline reported net income of $165.3 million, equivalent to $0.84 per share and a net income adjusted for certain non-cash items of $179.3 million, equivalent to $0.91 per share in the first quarter.The net income in the first quarter excludes the $7.1 million of net cash received and accrued profit share in relation to the five charter-in and charter-out agreements with Trafigura that have been treated as a reduction of the acquisition cost of the vessels instead.The non-cash items this quarter was net $14 million in total and consisted of $5.4 million unrealized loss on marketable securities, a $15.8 million loss on derivatives, a $1.2 million gains related to our equity method investments, a $1.8 million on settlement of claim, and a $4.2 gain on termination of the lease from Takata.The first quarter shows an increase compared to the fourth quarter of 2019 of $70 million against adjusted EBITDA and an increase of $72 million against adjusted net income. And the increase in net income in the first quarter of $72 million is mainly explained by the increase in result on time charter basis due to the higher reported TCE rates in the first quarter compared to the previous quarter.Then let us take a look at the balance sheet on slide five. Changes to the balance sheet as of the end of March 2020 compared with December 31st, 2019 mainly relate to an increase in cash and cash equivalents of $64 million, which is the net effect of CapEx payments, prepayment of debts, drawdown of debts, cash flow from operations, and dividend payments.Then we had an increase in new billing of $21 million explained by installments paid in the quarter. We had an increase in vessels of $270 million related to the prior vessels on TCL to Trafigura, which were recorded on the balance sheet when closing of the acquisition took place on March 16 this year. Also we had an increase in short and long-term debt of $484 million used to drawdown on the $544 million facility with ICBCL offset by repayments this quarter.We had a decrease in short and long-term debt -- sorry, short and long-term obligations on the finance leases were $298 million, primarily due to the five Trafigura vessels moved to owned vessels at closing, March 16, 2020. And then we had an increase in equity of $94 million, mainly due to the net income for the quarter, offset by cash dividend.As of March 31st, 2020, Frontline has $392 million in cash and cash equivalents, including the undrawn amounts under our unsecured loan facility and marketable securities and minimum cash requirements.Our remaining newbuilding CapEx requirements at the end of March amounted to $282 million, related to one Suezmax tanker, which we took delivery of on May 19, and one VLCC expected to be delivered in June 2020, and four LR2 tankers expected to be delivered in January, March, and October 2021, and January 2022, respectively.We estimate approximately $237 million in debt capacity for these new buildings, where we drew down $42 million under a term loan facility with Credit Suisse entered into November 2019 in May to finance the delivery of two Suezmax tankers [ph].The short-term -- long-term debt includes approximately $310 million debt maturity of the $500 million facility, which matures in December 2020 and approximately $40 million debt maturity of the $60.6 million facility, which matures in March 2021.We are in the process of refinancing the $500 million facility and we have signed a terminal facility with Nordea in May this year in an amount of $50 million to refinance the $40 million maturing in March 2021.In March 2020, as Robert mentioned, with did sign a sale and leaseback agreement with ICBCL of $544 million and then in April 2020, we repaid $60 million of $275 million senior unsecured facility agreements with an affiliate of Hemen and up to $250 million remains available on this facility following industry paymentsIn May, finally, we signed a senior secured term loan facility with Crédit Agricole and then amount of up to $62.5 million to part finance the VLCC that we have at the construction at Hyundai.Let's then take a closer look at cash breakeven rates and OpEx on slide six. We estimate average cash cost breakeven rates for 2020 of approximately $22,000 per day for VLCC, $18,600 per day for Suezmax tankers, and $15,000 per day for the LR2 sector and the fleet average is estimated to be about $18,600 per day.These rates are all-in daily rates that our vessels occur to cover the budgeted operating costs and dry dock, estimated interest expenses, time charter and bareboat hires, installments on loans, and G&A expenses.In the graph on the right hand side of this slide, we have shown incremental cash flow after debt service per year and per share assuming $10,000 per day, $20,000, $30,000 or $40,000 per day in achieved rates, and excess of cash breakeven rate, respectively.These numbers include the vessels on time charter route and we are looking at a period of 365 days from April 1st 2020. As an example, with a fleet average cash cost breakeven rate of $18,600 per day and assuming $30,000 on top, the average fleet rates TCE rates would $48,600 per day. And Frontline, would in this scenario generates a cash flow per share after debt service of $3.55.With this, I'll leave the word to Robert again.

[Robert Macleod:]

Thank you very much, Inger. Now, let's move to slide seven please. The first quarter was certainly a volatile one. As the COVID-19 pandemic swept across the globe, traditional drivers like ton-miles and refinery runs were disregarded as a new powerful dynamic emerged.As crude oil imports to China began to decrease, the market turned sharp upwards, as expected production cuts did not materialize and instead, Saudi Arabia, Russia, and the UAE increased output.In the freight market, we witnessed the busiest charting period I've seen in my career, as charters were scrambling for tonnage. With a rapid decline in global oil consumption due to lockdown across the globe, oil production was soon well in excess of demand. Under normal circumstances, a drop in demand might lead to lower freight rates. This time, it led to a search for places to store; on ships was one solution.These were not normal circumstances and the speed and the severity of the drop had an opposite impact on tanker rates as a record increase in oil and water saw freight rates firm significantly.In the charts in the slide, we see how demand has retracted faster than production cuts, implying inventories being built at an unprecedented rate, both on land and water.These moves in the global trade have happened very quickly. Trade developments going forward is linked to how fast demand recovers and to what degree and how quickly production returns. This is obviously very hard to predict.I'll get back to this on the final slide. But let's first look at global fleet capacity. Turn to slide eight please. The global fleet capacity growth is slowing. Global tanker fleet growth is a key driver of long-term earnings and the order book is at a level not seen since 1997. Various factors support our expectation that order books will remain low over the next 24 months.In addition to the historically low order books, it is worth noting that 24% of the deals at sea fleet is above 15 years this year. Customers versus modern tonnage is only increasing and that puts Frontline's fleet in a great position.We also expect vessel off hire to continue to have a material impact on fleet capacity this year, as a large number of vessels are due for period dry dock and quite a few of the vessels too have recently been granted short extensions, but this is temporary postponement only, the service must be carried out.All eyes are currently on inventory draws, the vessel supply could be a big surprise in the second half of 2020 and into 2021. We watch it very closely.Moving on to the present market and a bit of outlook. Oil demand has been described as destroyed in recent months. We think suppressed describes the situation more accurately, as we believe the decrease in oil demand is temporary.The recent production cuts have been both immediate and real, absolutely no doubt, and has effected the freight levels negatively. On the oil demand, there has been surprises in recent weeks. Chinese gasoline demand above 2019 figures and recent figures from India also shows a sharp recovery and gasoline sales. Not surprisingly, Asia leads the way on demand recovery, whilst the U.S. is likely to recover faster than Europe.Over to floating storage, we currently estimate around 200 million barrels floating and we might be close to the peak. We expect to see an unwind of floating storage during the balance of 2020. Aframaxes in Europe are likely to be the first ones to unload. Some have already done so, whilst VLCCs are likely to be locked up on a longer structure.It is pure speculation, of course, but given recent news on the demand side, we could see production cuts reverse as early as during the second half of 2020. One fact can be stated, volatility will continue forward -- going forward, sorry, very much like the year so far.So, in conclusion, Frontline enjoys the youngest fleet and lowest breakeven level in the history of the company and 2020 is shaping up to be a great year for Frontline and its shareholders.With that operator, I would like to turn to questions please.

[Operator:]

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

[Jonathan Chappell:]

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

[Inger Klemp:]

Obviously, it’s difficult to predict there, but it will be as some ballast days at the end of the quarter, which will take it down. It will also be taken down a bit by the current rates are weaker than what is so far for the 75% has contracted. So, -- but to give you an exact number or anything that's been difficult already -- that's not possible in a way. So, sorry about that.

[Jonathan Chappell:]

That's okay. Maybe another way to ask is the ballast days that you perceive for us to Q2; would it be similar to a normal end your quarter? Are there more, are there less--

[Inger Klemp:]

It does vary. The number of ballast days will vary between the quarters, but for this quarter, it was quite high actually. It was 390 ballast days for VLCC as an example. And that was -- quarter.

[Jonathan Chappell:]

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

[Robert Macleod:]

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

[Jonathan Chappell:]

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

[Robert Macleod:]

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

[Inger Klemp:]

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

[Jonathan Chappell:]

Great. Thank you, Inger. Thanks Rob.

[Operator:]

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

[Randall Giveans:]

Howdy, Rob and Inger, how are you?

[Inger Klemp:]

We're Fine. What about you?

[Randall Giveans:]

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

[Inger Klemp:]

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

[Randall Giveans:]

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

[Inger Klemp:]

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

[Randall Giveans:]

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

[Robert Macleod:]

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

[Randall Giveans:]

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

[Robert Macleod:]

That's a very good and relevant question and what you're stating is actually also the case for the second half of 2019. The Aframaxes were outperforming the LR2s and there were definitely times where I was kicking myself for not having gone dirty on more LR2s.The -- between the two segments, obviously, we have 18 LR2s in total, we're trading 11 clean and seven dirty, which was fortunately now in recent months, the LR2s sort of called back in terms of the earnings, not I mean looked at the exact numbers, but they're probably going to be not far off being on par with what's happened recently.The LR2 market, I find it very difficult to even comment on how it's been going over the last couple of months, it's been -- I've never seen anything like it. It's -- I would describe the LR2 spike to be more extreme in relative terms than what the VLCC spike was.There's a lot of delays in our segments, the -- in terms of number of LR2s, the fleet size is only 23%, 24% of the VLCC in terms of number. So, as soon as you have a little ships delayed or held up on storage or poor storage, then you get these mega spikes. So, I think the very, very high rates as we had on the VLCC as well only happened on a handful of fixtures, but over the last month which has been extraordinary.So, it's now stabilizing. But still it is at a very healthy levels. But it's very, very difficult to predict how this is going to carry on. But it looks like although there are signs of -- as I was saying earlier that the demand is coming back, especially in the -- in Asia, then Europe and the U.S. will still be struggling. So, you will have ships being forced to store for quite some time.

[Randall Giveans:]

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

[Robert Macleod:]

11 LR2, seven afra.

[Randall Giveans:]

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

[Robert Macleod:]

Yes, so that's been -- we're going from $122 million to $60 million. Further down payments have not been decided, but we will revert on that when that comes up.

[Operator:]

Thank you, sir. Does that answer your question?

[Randall Giveans:]

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

[Operator:]

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

[Gregory Lewis:]

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

[Robert Macleod:]

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

[Gregory Lewis:]

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

[Robert Macleod:]

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

[Gregory Lewis:]

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

[Robert Macleod:]

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

[Gregory Lewis:]

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

[Operator:]

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

[Omar Nokta:]

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

[Robert Macleod:]

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

[Omar Nokta:]

Well that's interesting. So, it's a good point that so you're talking about the discounts from the Saudis and whatnot. And so it's not just simply looking at the frontend of the curve and the backend of this are six months there's also the $5 or $10 discount up front as well?

[Robert Macleod:]

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

[Omar Nokta:]

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

[Robert Macleod:]

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

[Omar Nokta:]

Okay.

[Robert Macleod:]

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

[Omar Nokta:]

Yes. Thanks. Thanks for that color, Robert. One other question I have is just on the, you referenced earlier, the LR2, 11 are trading clean, seven are dirty. How you think about the mix going forward? There was a lot of pressure last year to switch the dirty and then there's a lot of talk about potentially dirty LR2 is going back to clean. Now, how do you think about those ships from here as we think about the next six months, for instance?

[Robert Macleod:]

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

[Omar Nokta:]

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

[Robert Macleod:]

Thanks.

[Operator:]

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

[George Burmann:]

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

[Inger Klemp:]

Thanks.

[George Burmann:]

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

[Robert Macleod:]

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

[George Burmann:]

Okay. And then referring to your current valuation in the stock market, it looks like a lot the crude transportation company, shipping companies, tanker companies are sort of afforded an extremely low valuation rather than acquiring new buildings or existing ships in the market. Do you see any opportunities maybe for a combination with other companies that are even less attractively valued than yours?

[Robert Macleod:]

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

[George Burmann:]

It seems like we need to figure out a way to transport the oil via the cloud.

[Robert Macleod:]

Exactly, right.

[George Burmann:]

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

[Robert Macleod:]

Thank you.

[Operator:]

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

[Unidentified Analyst:]

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

[Robert Macleod:]

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

[Unidentified Analyst:]

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

[Inger Klemp:]

Thank you very much.

[Operator:]

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

[Robert Macleod:]

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

[Operator:]

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