Frontline Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 30, 2023

There are 7 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Q3 2023 Frontline Plc Earnings Conference Call. At this time, all participants are in listen only mode. After the speakers' presentation, there will be the question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Lars Bastad.

Operator

Please go ahead.

Speaker 1

Thank you. Darryl, Thank you for listening into Frontline's 3rd quarter earnings call. To start off, I believe it's prudent to mention that Q3 this year Started challenging. And remind the audience of July, August and SEP is normally called the summer lull in the tanker industry. The excitement in June did give us high expectations for the fall market.

Speaker 1

And although not jaw dropping, we have seen worse. The tanker market continues to be firm with risk rather on the upside than the downside, But there are many pieces to this puzzle. I will get to some of them in this presentation. Before I give the word to Inger, let's look at our TC numbers on Slide 3 in the deck. In the Q3, Frontline achieved $42 per day on our VLCC fleet, dollars 37,600 a day on our Suezmax fleet and $33,900 per day on our LR2Aframax fleet.

Speaker 1

We saw the more normal split between the segments, but this converged again as we progressed into Q4 With 81% of our VLCC days booked at $48,100 per day, 70% of our Suezmax days at 50,300 dollars per day and 70% of our LR2Aframax days at $51,300

Speaker 2

per day.

Speaker 1

Again, all numbers in this table are on a load to discharge basis, and they will be affected by the amount of ballast days we end up having at the end of Q4. We would also like to highlight that these numbers exclude the 24 VLCCs that are delivered during this quarter and next. Further, as we can only account for revenues when the vessel is laden, The new vessels are not likely to affect revenues for Q4 materially. I would now like to let

Speaker 3

Thanks, Lars, and good morning and good afternoon, ladies and gentlemen. Then I think we can turn to Slide 4, Profit statement. Frontline achieved total operating revenues and net of voice expenses of 232 $2,000,000 in the 3rd quarter and adjusted EBITDA of SEK 173,000,000. We report net income of €107,700,000 or €0.48 per share and adjusted net income and net profit of €80,800,000 or €0.36 per share in the 3rd quarter. Adjusted profit in the 3rd quarter decreased by CHF 129,000,000 compared with the previous quarter, And that was mainly driven by a decrease in our time charter equivalent earnings due to lower TCE rates in this quarter, which was partially offset by appreciation in other income and expenses.

Speaker 3

The adjustments in the 3rd quarter consist of EUR 17,900,000 gain on marketable securities, A EUR 1,700,000 share losses of associated companies, EUR 400,000 unrealized loss on derivatives and EUR 11,100,000 of dividends received. Let's then Look at the next slide, Slide 5. Frontline Has strong liquidity of SEK 715,000,000 in cash and cash equivalents, including the undrawn amount of our senior revolving credit facility, the marketable securities and minimum cash requirements for the bank as per the September 30, 2023. The current portion of long term debt in the balance sheet at the 3rd quarter includes €91,000,000 from a loan facility due in the Q1 of 2020 4, which was refinanced in November 2023 And then also SEK 75,300,000 related to the senior unsecured revolving credit facility, which we, in October 23, extended to the Q1 of 2026. We have no remaining newbuilding commitments And no meaningful debt maturities until 2027.

Speaker 3

And we also have a healthy leverage ratio of 52%. Then I think we can turn to Slide 6. We estimate average cash cost breakeven rates for the Q4 of 2023 of Approximately $28,200 per day for the VCCs, dollars 25,700 per day for the Suezmax tankers and $17,100 per day for the LR2 tankers, with a fleet average estimate of about $24,200 per day. The fleet's average estimate includes drydock of 7 Suezmax tankers This quarter, where one vessel only includes 50% of its strata cost due to docking in between two quarters and also 1 VLCC in the 4th quarter. The cash breakeven rates, excluding drydock Cost is estimated to be $2,000 lower or $22,200 per day.

Speaker 3

We recorded OpEx expenses, including drydock in the 3rd quarter of $7,400 per day for VLCCs, dollars 7,500 per day for Suezmax tankers and $7,100 per day for the LR2 tankers. 1 Suezmax entered drydock in the 3rd quarter and finalized in the Q4. Q3 fleet average OpEx, excluding drydock, was $7,400 per day. Then lastly, let us look at Slide 7 and how the acquisition of the 24 VLCCs is funded. As we can see from the slide, We will finance the purchase price of $2,350,000 for the 24 VLCCs with The bank facility of SEK 1,400,000,000, SEK 252,000,000 cash proceeds From the sale of the 13,700,000 shares of Euronaut to CMB, EUR 49,000,000 cash on hand, €99,700,000 from our senior unsecured revolving credit facility and also $514,000,000 from the shareholder loan from HEMLIB.

Speaker 3

The ambition is to minimize need for cash From the shareholder loan through Frontline's capacity to deleverage the existing fleet due to the historically low loan to value and or Sale of all the non equal, less efficient vessels. With this, I leave the word to Bergen, Lars.

Speaker 1

Thank you very much, Singer. As I started with in the introduction, Q3 was a challenging quarter. And just So the audience on Slide 8 can remind themselves. If we look at the three graphs at the bottom side of the slide And you look up July, August September, you'll see kind of what state we were in. Despite this, We actually managed to churn quite a good return for this quarter, I believe.

Speaker 1

The big theme in Q3 was definitively the G7 price cap That came into force in earnest on Russian crude and increased scrutiny on the Fleet sailing with Russian crude. A lot of these vessels and owners decided to return to the non Russian fleet, which increased supply, basically competing with the front line fleets as we progressed through Q3. I think on the positive side, China continued to grow and with record import volumes and U. S. Exports surprised to the upside incurring very healthy ton miles.

Speaker 1

We got U. S. Sanctions on Venezuela lifted. I'll come back to that later. We did see towards, as we got into Q4, a growing political risk and the Israel Hamas conflict.

Speaker 1

This has yet to affect the physical kind of trade of ships per se, But it's a security concern in respect of our seafarers, and it's also an operational concern when we sail through the area. I've also mentioned earlier in presentations that we do have a normal seasonality at play, now that we have kind of less Amounts of black swans in operations in the market post COVID. And then we come back to, which is very, very current, OPEC action and OpEx eagerness to balance markets. So on that note, let's move to Slide 9. So I was actually just trying to check on Twitter whether if OPEC has Actually come with the statement yet, but it seems that there is a lot of People betting on 1,000,000 barrels per day cut into next year or during next year.

Speaker 1

In addition to Saudi Arabia's 1,000,000 barrel voluntary cut. And I think it's prudent to remind the audience That OPEC output production and export, these terms are not kind of equal. Output and production is not exports. And as oil demand is very firm, we also need to remember That OPEC is not the only supplier. Also, these production targets leaves room for individual nations to adjust their export levels.

Speaker 1

And exports seem to be more correlated to domestic demand amongst The large producers rather than kind of the stated OpEx targets. What we've experienced since August this year, for instance, from Saudi Arabia is that our exports have actually increased. Also, if we look at an aggregated graph on the right hand side, looking at all the OPEC producers, We've actually seen the same trend. So as production is actually coming off in line with adjusted targets, exports It's actually increasing. And again, the reason for this is basically because the domestic needs for this oil or for oil has been reduced, which enables the various OPEC members

Speaker 2

to actually export more.

Speaker 1

At the end of today, I believe it's oil revenues. That is what really matters for these nations. And we kind of commitment To balance in the oil market, it's probably difficult for OPEC considering all the alternative sources of crude we currently have. With that, let's move to Slide 10 And some of the tanker narratives. One thing that's quite surprising is, first of all, the stickiness to Russian exports Amidst kind of a very stated policy against Well, first of all, it's the market is quite surprised about Russia and the resilience of Russian exports Again, kind of a very firm policy on crews being purchased above the price cap.

Speaker 1

We also see Iran, who is still heavily sanctioned, Managing to maintain their exports. And even increase them as we come into the second half of this year. And then lastly, Venezuela It's kind of the new entrance to the table where U. S. Sanctions have been lifted.

Speaker 1

Also U. S. Exports are at record highs and they're increasing. With regards to Venezuela, we to reach 600,000 to 700,000 barrels per day annually. This is not a massive number.

Speaker 1

But if we look at just Now as we see, there are 4 to 6 VLCCs on subs to lift Russian sorry, Vansal and crude in late November sorry, in December late November December. And this is actually a significant number of vessels then that are not available to U. S. Exports. So we believe that this will actually, to some extent tighten up the Atlantic market.

Speaker 1

Then lastly, what we have seen, and I mentioned this before Seasonality, we've had 2,500,000 barrels of refinery capacity, which is now back after the full maintenance. And since a lot of this volume is directed to ocean going oil, this is a Significant percentage of the 42,000,000 barrels of oil that is transported every day. Let's move to Slide 11. And we've included in this presentation what we call the very long view. And this is kind of an interesting observation both from A products point of view, but also from a crude point of view.

Speaker 1

East and West of Suez And how the pipelines of the ocean seem to be stretching. New oil production capacity and shale It's been contributed it's contributed from West of Suez. We've seen Brazil increasing production. We've seen the new production coming out of Guyana. We're seeing Venezuelan exports increasing, and we see that shale continue to increase productivity.

Speaker 1

Same time, we're seeing a strong refinery capacity to be built up Having been built up and to continue to be built up is the Suez. This would benefit both crude transportation as feedstock into these refineries And products trade would benefit from this development as this product the clean product or refined product will flow back West of Suez. And I think it's important to note that the future tanking capacity is not reflecting these projections and the trade extension whatsoever. Let's turn to Slide 12 and have a look at order books. We've gone through this slide every quarter now for quite a while, and it's not materially changing, I would say.

Speaker 1

We see the virtually no new orders for VLCCs over the last quarter, and the order book Stands of 1.8 percent of the fleet. I think it's at least in my time in shipping, it's the first time we're only looking at 3 VLCCs to be delivered next year. This will affect the market come Q1. Normally, you will have, I wouldn't say a wall, but you would have a significant amount of VLCCs being delayed from the previous year into Q1. This is also likely to affect the demand for LR2s As a lot of these vessels on their maiden voyage will carry refined products.

Speaker 1

This will not be available We've seen both the Suezmax and LR2 fleets increase, but predominantly in 2026 and to some extent in 2027 most recently. This gives us an indication of that the yard's capacity to build in 2026 is waning, And we are now more focused to 2027. And I've repetitively said this quite many times now. This gives us Quite a long time going forward where the fleet growth is expected to be muted. Also, please Keep in mind that the effective age of a clean trading LR2 is much closer to 15 years than 20 years.

Speaker 1

Lastly, on Page 13, I thought I'd spend a little bit of time on EU ETFs. As most of the listeners would be aware of, EU has imposed a tax or a fee or whatever you call it On carbon emissions inside the EU and in and out of EU. And shipping is to be included from the 1st January 2024. The EUA exposures on current voyages going into 2024 are already exposed. 100% of the emissions on voyages within EU and the EEA Needs to be accounted for.

Speaker 1

And 50% of the emissions going in and out of EU And EEA will apply. This scheme will cover 40% of the total emissions in 2024, 70% in 2025 100% in 2026. This is a fairly big change to how shipping is being orchestrated within the EU. For every tonne of carbon we emit inside the EU or on our way in or on our way out, We actually emit 3.2 tons of carbon. And this means that we need to buy carbon credits for each tonne we emit.

Speaker 1

EUAs are easily available and can be traded through various exchanges. The European Union are the ones monitoring this and that we need to report during our via our normal MRB reporting I think the headline here is that For the big question mark here, is our industry really prepared for this change? At Frontline, we have decided to take a very pragmatic approach. First of all, we have a modern and energy efficient fleet, Meaning that we should be competitive as our emissions is most likely to be lower than our peers. We also have decided to look at this as an additional fuel cost.

Speaker 1

So basically put it into our voyage calculation and put it in our freight calculation. So it's basically an additional voyage cost. Also, our overall fleet, it's only 60% of our voyage days that are exposed to the EU ETS. But I think it's very important that this is coming basically around the corner. There has been some discussions in the press about this.

Speaker 1

There are ongoing discussions between charters and owners on how we deal with this From a charter party and a legal perspective, GrowthScale has already fixed EUV test Into their wholesale calculation. But how this is going to end up? When we start to see the trading partner going in and out, Evidently increased cost to the charter, hopefully, at least to the charter. I think it's going to be interesting to see how this plays out next And as I mentioned, we're already getting exposed because vessels that go into the EU For a cargo operation in 2024, and some of these are being fixed as we speak, will be exposed to the EUV test. So let's move to 2014 and go through the summary.

Speaker 1

So tankers are performing. And if you look at the bottom chart here on this page, and I think this is important because we're obviously As I mentioned today and I was quoted in the press, I would obviously love a lot of fireworks in the market. But if you look at the columns to the right, We are actually on an average as a combined tanker fleet, including all the tankers, We are actually not doing too bad. So tankers are performing, and maybe now it's time for the VLCCs, at least looking at the most recent development in the market. Frontline has more than doubled its VLCC position, And we are gearing up for tighter fundamentals.

Speaker 1

The fundamental backdrop remains. We have decade low order books, And we have further extending lead times for that to be replenished. Frontline has, by this Transaction increased our operational leverage as global oil demand is expected to grow. And short- and medium term oil demand expectations are very good, and we're seeing that in the numbers. We have seen political risk increase, and this creates tension in the oil and the freight markets.

Speaker 1

But we believe Frontline's large Modern fleets and very efficient business model is ready as these next chapters unfolds. Thank you very much for that. And with that, I'll open up for questions.

Operator

Thank you. And now we're going to take our first question. And it comes from the line of Jon Chappell from Evercore ISI. Your line is open. Please ask your question.

Speaker 4

Thank you. Good afternoon. I have 3 kind of quick clarification questions mostly. Lars, if I can start with you. So the slide on the Output versus production versus exports is very interesting.

Speaker 4

Obviously, the exports have started to pick up meaningfully from August. But if I look at your quarter to date bookings on the VLCCs, just a little bit only a little bit higher than what you did for the full Q3. And you're also insinuating that because of the ballast days, that number comes in less than 48,000. So probably even A shorter or more narrow outperformance relative to 3Q. What's been holding back the seasonal recovery in the Q4 so far for VLCCs

Speaker 1

And it's a daily discussion point amongst Us at least in house in Frontline because the general activity in the tanker market is extremely high. There are a lot of cargoes being worked, a lot of fixtures being conducted every day. But Very quite a few players there are seemingly very happy with doing last time. I think kind of one way to explain it, and I'm going to be quite frank here. If you look at Middle East as an export region, About 70% of the cargoes going out of the Middle East are contracted.

Speaker 1

So it means that they're either under a COA or some 4 Time charter coverage. They are the COAs are priced off spot the spot market as spot poles. But it only leaves like kind of 30% of the cargoes coming out into the spot market to be negotiated. And then if you look at the balance between the owners, you also find that quite a few of those 30% Owners that are carrying kind of in that market don't necessarily have Are very inclined for the market to go up. It's either they're kind of They're both charters and owners, or for other reasons, they're not really that interested in fighting this market.

Speaker 1

So it leaves us with kind of very few, well, to reuse the term, real owners That are there to basically hold back and fight for the next world scale points. And I think kind of regretfully, the market has become more and more efficient. So when we have situations in the VLCC market where you would say, okay, this is going to pop by 5 points because there's only one ship in position, Suddenly, that one ship in the position does last 10 or 2 points below last. So It's a very kind of the dynamics is very difficult to understand right now. On the Suezmaxes and Aframaxes, I believe Kind of it is explained by the increased scrutiny, particularly by OFAC on former Russian traders, which basically has increased the fleet supply in kind of this conventional market at a price of the indices.

Speaker 1

So I think basically what you need to do what you need to see is that this market just need to grind for a bit longer before the tightness becomes evident. Lastly, we do still see a significant volume of oil being transported of ships on ships that are totally out of IMO or insurance or legal or whatever kind of framework. So if you look at the population of shifts that are above 20 years, and it was Commented by one analyst in the morning meeting today, you see a 1996 VLC lifting Iranian crude. You do wonder why is this still going on. So I think that should answer both your and many other people's questions, I

Speaker 4

Okay. Yes, I appreciate that. Thank you. Ingrid, second one is for you on Slide 7. Completely understand the ambition To minimize the shareholder loan of $540,000,000 and I understand that there's opportunities to refinance and also potentially sell Some non core vessels.

Speaker 4

But your liquidity is $715,000,000 If I look at this Chart, I assume that that $149,000,000 the cash on hand, dollars 49,000,000 the $100,000,000 on the senior unsecured is part of that $7.15,000,000 So that takes you down to $5.65 Of liquidity, which would be more than the shareholder loan. So I guess the question is, why couldn't you use the existing liquidity, understanding you don't want to use every last dollar of liquidity, To bypass a significant portion of the shareholder loan immediately without being then reliant on vessel sales or refinancing.

Speaker 3

Okay. Of this EUR 715,000,000, that includes The shares in Euronav also is a part of the, let's say, financing of this transaction. So we have to take that out first at least. And then also this EUR 715,000,000 includes The undrawn portion under the senior and security revolving credit facility, where we have stated in this slide that we will Plan to use about EUR 100,000,000 off. Yes.

Speaker 3

And also, of course, we need to have some cash On our balance sheet to support the operation and also minimum cash requirements. So yes, But so I think you will find that we do need this the cash of $540,000,000 as well.

Speaker 4

Okay. Last one, super quick, just understanding the dynamics for the Q4. I think you were clear the revenue from the 24 VLCCs. We shouldn't Anything until January when they lift their first cargo? Obviously, the interest expense would fall in December.

Speaker 4

What about operating expense And depreciation, will operating expense and depreciation hit the profit and loss statement as soon as the vessels hit and therefore the revenue will be the only lag?

Speaker 3

Yes. I guess what we talked about earlier today was that you could probably assume that As much as 15 vessels will be delivered in the Q4 out of these 24. Let's assume that one vessel is delivered every 2nd day in December, then you will get to about 255 operating days in December for these vessels. And then so as you say, you will have operating expenses, of course, because from the very first day you take delivery of a vessel that will start to accrue. You will also have interest expense on the loan drawdowns, and you will also have depreciation on the vessels.

Speaker 3

So that's correct.

Speaker 4

Okay. Thank you, Inger. Thanks, Lars.

Speaker 3

Thank you. Thank you.

Operator

Now we're going to take our next question. Just give us a moment. And the next question comes from the line of Amit Mehrotra from Deutsche Bank. Your line is open. Please ask your question.

Speaker 5

Hey, good morning, good afternoon, Lars and Inger. This is Chris Robertson on for Amit. Just first question, Inger, for you. On Slide 6, talking about The dry docking expected for 4Q, how have dry docking days kind of trended recently? I know that they were pretty Elevated during the COVID congestion times, but are they around 30 days now per vessel, 35?

Speaker 5

Kind of where does that sit?

Speaker 3

No, Arthur, the assumption for these dry dockings that we have in the Q4 is about 20 to 25 days for each docking.

Speaker 5

Okay. That's helpful. And then, Lars, maybe a market question for you. Turning to China, Chinese oil import demand has been pretty robust this year, I guess, despite some economic issues in the property market issues going on still. What are you seeing in terms of today of Chinese oil product demand domestically?

Speaker 5

And what are your around export quotas coming into 2024?

Speaker 1

Well, Yes, you're absolutely kind of right in the economical headwinds that have kind of dominated the narrative around China Hasn't really been noticed on the crude oil import side. And incidentally, it's actually the same case So if you look at LPG and coal and iron ore as well that China is seemingly pretty healthy. I think over time here, China oil and oil products have become more kind of a consumer good rather than an industrial good, Potentially explaining some of this resilience. We're also seeing that China did or at least It's implicated that they built a lot of inventories kind of as we proceeded into Q3, but which they're apparently drawing on now. On the product export side, I think kind of how this winter will bear with us It's going to be a key to that, because we did see that a little bit last year that with the fairly mild winter in the Northern Hemisphere across the globe, You saw that China's kind of ability to export or willingness to give export quotas on product It was pretty good at the beginning of 2023.

Speaker 1

So I think that the last question is on product and product quotas It's probably more a weather question than anything. On the import side, we saw them just recently increase The import quotas of fuel oil, which is actually quite positive In light of kind of the fear of China to stop growing.

Speaker 5

Got it. Yes, thanks for the color on that Lars. I'll turn it over.

Speaker 1

Thank you.

Speaker 3

Thank you.

Operator

Now we're going to take our next question. Just give us a moment. And the next question comes from the line of Omar Mukhtar from Jefferies. Your line is open. Please ask your question.

Speaker 2

Thank you. Hey, good afternoon. Hey, Lars, I think obviously as this call has gone on, we're starting to see headlines coming out that OPEC plus have agreed on a cut. And it looks like Still waiting for the statement, but it appears 1,000,000 barrels of incremental cuts. Now we don't know if that's a cut or just a quota reduction.

Speaker 2

Just I guess in general, historically, there's always been this close relationship with VLCCs especially that cut is bad, a boost is good. That seems to have been challenged here over the past several quarters, I guess, and with your commentary in the presentation. But I guess, Lars, as you kind of think about it, Yes. How do you think that this market plays out here in the near term if indeed there is 1,000,000 barrels taken off the market? Obviously, it reads As a negative, but just big picture, what do you think this means for VLCCs and say the fewer MAXs over the next few months?

Speaker 2

No,

Speaker 1

I'm tempted to say it's flat out positive, but you can't really say that. I think on this notion of OPEC cuts and predominantly that happens in and or around the Middle East. If you look at it in a very historical perspective, this was when the Middle East countries dominated crude oil exports in total. Now the landscape has changed. U.

Speaker 1

S, South America, even the North Sea and West Africa, To some extent, it's a big contributor to the demand side is Kind of east of the Middle East and east of Suez. And then and I'm not the only commentator that Has kind of said this, but this is in fact great news for U. S. Fracking and great news for U. S.

Speaker 1

Production. But then it will also then benefit the long haul trade off of crude oil. But I think Initially, it's obviously a bearish sign. It do contradict OpEx very, very bullish stance on demand. So that's maybe something one needs to dig a bit more into.

Speaker 1

But So number 1, you do assuming demand is going to be the same, you need to source oil from elsewhere. But number 2, also keep in mind that, as I mentioned, production is not necessarily exports. And we do see that the Middle East and exports are actually more correlated to the temperature in the Middle East over the summer when they do consume a lot For cooling rather than the stated kind of production quarters.

Speaker 2

Thanks, Lars. I appreciate that. And I guess maybe it does feel perhaps that As time goes on, we're going to see more of that non OPEC production start to fill the gap. I guess, As you think about the 24 VLCCs coming on, obviously, you have those financed and you've been pretty vocal about Not needing to raise any equity to fund the transaction and kind of went over the liquidity earlier, Inger. I guess Any updated thoughts on the need or potential willingness to want to issue equity even though your leverage is still at 52%?

Speaker 2

Any updated thoughts on perhaps wanting to tap into equity just to de risk the transaction?

Speaker 1

Not really, to be quite honest. And I believe we're fairly vocal in this presentation, and Inger Du clearly stated that we have capacity in our existing or old front line to say, To use another word. We're also kind of looking to see if we can divest Certain assets to maintain our very, very modern fleet. So we I believe we have the same message as we did when we went public with the transaction, and we'll just continue that.

Speaker 2

Thank you. Figured, I just wanted to ask that. And then final one just on the dividend. Obviously, you have the I think I may have asked you this last quarter or maybe last month when you held the call following the announcement of the deal. Just in terms of the dividend, You've had this unofficial policy of perhaps paying out 80% of earnings.

Speaker 2

That was recently with a lower net debt Gearing, how are you thinking about that dividend? Does that change percentage wise once the deal is complete and you're up to a higher leverage? Or are you still comfortable with, say, At 80% being a good threshold?

Speaker 1

As you rightfully say, we don't have a policy, but the Expectation should be around 80%, and we will continue to do that as long as the market allows us to do that. This is why we don't really have a policy because we don't want to be forced to pay out the dividend when it's not kind of feasible from a Financial perspective, or in so this is basically at the discretion of our Board. But we have a main shareholder who is more interested in dividends than you are. So I think you should expect that to continue going forward.

Speaker 2

Okay. Yes, very good. Makes sense. Thanks, Lars. I'll turn it over.

Speaker 2

Thank you.

Operator

Thank Now we're going to take our next question. And it comes from the line of Greg Lewis from BTIG. Your line is open. Please ask your question.

Speaker 6

Yes. Hey, thank you and good afternoon everybody and thanks for taking my questions. Lars, I guess I had a question around as we look out at potential pockets of oil production outside of OPEC, clearly there's been some Guyana has been a nice bright spot. I'm kind of curious as we look at South America, What's your outlook on volumes from that? And then I guess there's been more recent headlines this week.

Speaker 6

Yes, they're coming at us in a million directions about Venezuela potentially. I don't know. They're unhappy with What's happening in Guyana and there's talk of invasion of Guyana. I guess my question is, what is how much Crude is hitting the international market from Venezuela today. How much is coming from Guyana?

Speaker 6

And if there's a disruption there, What segments of the tanker market are probably going to be most impacted by that?

Speaker 1

Well, the I believe the sorry, the Venezuelan exports, and it's obviously strongly advocated Well, the U. S, on relief on the sanctions, it's basically because the U. S. On a refining industry or the crude slate, which is the word for that, do need these barrels. They can't refine more shale, so they actually need this mix into the refineries.

Speaker 1

So kind of one would assume that most of this Vencellen Oil is ongoing short haul on Afra and potentially Suezmax into U. S. But what we've seen just recently is that there's a lot of VLCC cargoes being built up. And actually, some of them are being are pointing towards India. So I guess the jury is still out on Venezuela.

Speaker 1

Venezuela is we're exporting between 300,400,000 barrels per day prior Should these sanctions getting lifted? It's expected and this is not my number, it's what I'm basically read in the press It's that they might short term be able to increase this to 300,000 barrels per day or with 300,000 barrels per day. So they're going to be in the 600,000 to 700,000 barrel per day kind of export capacity. Which portion of this is going to U. S, Europe or Asia is very, very difficult to gauge.

Speaker 1

They do still apparently owe China a couple of $1,000,000,000 For that oil for loan kind of financing deals that were done some years back. When it comes to Guyana, Guyana is producing and exporting because it's a small nation, it don't really consume anything, Around 450,000 barrels per day. I think in the Venezuela Guyana discussion, One could probably have some comfort in the fact that virtually all their oil production is owned by U. S. Interests.

Speaker 1

So it's probably likely to think that U. S. Will help Guyana in protecting their sovereignty over these areas. But it's very early days to speculate on that. Operations are going as normal out of Guyana as we speak.

Speaker 1

But I think kind of there is the bright spot here is that we have I think most analysts have been quite surprised by how Resilient U. S. Production has been this year and even going kind of above expectations despite the lack of DUCs and the lack of CapEx and the lack of everything. And at the same time, we've seen that Latin America, there are more and more barrels being kind of squeezed Out of the various basins there. So we're kind of mildly optimistic about that development going forward.

Speaker 6

Okay, great. And then As I think about the queue At the Panama Canal, I mean, clearly that looks like it's impacting the smaller segment of the product tanker markets just as we look at like North American cargoes heading down to Southwest South America. Has there been any knock on effect on the LR2 market, just given that's where your focus is? I'm trying to understand These disruptions and I guess containerships have priority over product tankers, which is keeping product tankers I was hearing that you might even see some MRs go through the straight of Magellan. Is there any kind of knock on effect that we're seeing there that's impacting the LR2 market?

Speaker 1

I wouldn't say It's significant, to put it that way. And we haven't really it's not that often. We've been exposed to the Panama Canal. We've on the other occasion ballasted through from the other end. And but it's not I yes, I would play down the impact at least on the larger clean vessels Because we haven't really seen that tighten up the market very much or increased ton miles to be quite honest.

Speaker 6

Perfect. Thank you for the time, everybody.

Speaker 1

Thank you. Thank you.

Speaker 3

Thank

Operator

There are no further questions at this time. And I would now like to hand the conference over to Lars Bastad for any speaking remarks.

Speaker 1

Well, thank you all very much for listening in, and I wish you a pleasant day. And we'll Hopefully, there is some I've used the word fireworks. At least there's some firecrackers left in this market as we move into December. Thank you.

Operator

That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.

Speaker 1

Thank you.

Speaker 3

Thank you. Operator is connected.

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Earnings Conference Call
Frontline Q3 2023
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