Frontline Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 24, 2023

There are 8 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Second Quarter 2023 Frontline Plc Conference Call. At this time, all participants are in listen only mode. After the speakers' presentation, there will be the question and answer session. You will then hear an automatic message advising your hand is raised.

Operator

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lars Bastad. Please go ahead.

Speaker 1

Thank you. Dear all, thank you for listening into Frontline's 2nd quarter earnings call. In the Q2, we have a very untypical spike for VLCC and Suezmax towards the end, and this put us in a position to make some extra cash And also to carry some value into the Q3. Most interestingly, this spike was caused by minor weather delays And we'll get to that later in the presentation. I think it's worth mentioning that in the markets like these, Frontline's efficient and transparent platform comes to shine in effectively turning revenues to shareholder returns.

Speaker 1

Our running cost remains fairly stable as expressed in our cash breakeven levels, and all incremental income goes straight to the bottom line And back to you, shareholders. Before I give the word to Inger, let's look at our TC numbers on Slide 3 in the deck. In the Q2, Frontline achieved $64,000 per day on our VLCC fleet, $61,700 per day on our Suezmax fleet and $52,900 per day on our LR2Aframax fleet. I hope you're all fairly comfortable with these numbers, and we are back to a somewhat reverted earnings relationship between our segments, where the VLCC makes the most. We have secured quite firm numbers as we progress into Q3 with 74% of our VLCC The C days booked at $53,200 per day, 67% of our Suezmax days Fixed up $48,800 per day and $57 of our 57% sorry, of our LR2AFRA days At $40,500 per day.

Speaker 1

And again, to remind you, all these numbers are on a load to discharge basis, And they will be affected by the amount of ballast days that we end up having towards the end of Q3. Now I'll let Inger take you through the financial highlights.

Speaker 2

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. In the Q2 of 2023, We recorded the highest second quarter profit since 2,008 of €230,700,000 or 1 €0.4 per share. Adjusted profit came in at €210,000,000 or €0.95 per share. Revenues came in at EUR 513,000,000.

Speaker 2

With a clear cash dividend of 0 point 8 0 dollars per share from the 15th quarter of 2017. I will mention that following the transition to IFRS, drydocking costs will be capitalized and subsequently debited over the period to the next Scheduled drydocking, which is 2.5 to 5 years. In the second quarter, drydocking costs of EUR 1,000,000 have been capitalized, And one vessel was drydocked in this quarter. In addition, I will mention that the company revised the estimated useful life of its vessels from 25 years 20 years effective January 1, 2023. Let's then look at some balance sheet highlights on Slide 5.

Speaker 2

The company has no remaining newbuilding commitments as the company took delivery of the 2 last We've seen newbuildings from Ochsla in some time in January 2023. The company has Strong liquidity of $719,000,000 in cash and cash equivalents, including undrawn amount of unsecured facility, Marketable securities and minimum cash requirements for bank as per the 30 June 2023. And we have a healthy leverage ratio of 51%. Then lastly, let's look at the Cash flow potential on Slide 6. We estimate industry leading cash breakeven rates of 20 2,700 fleet average, including drydock cost for 8 Suezmax tankers in 2023, 4 in the Q3 and 4 in the Q4.

Speaker 2

The Q2 'twenty three fleet average spot, Excluding Dradoc was $7,300 per day. We notice from this Take a graph on the right hand side. That free cash flow indicates strong potential return. If we assume VLCC TCE rates of $75,000 per day with 5.5 year historic spread to VLCC for Suezmax and Electric Tankers, The annual free cash flow potential is €1,400,000,000 or $6.34 per share, which Translates into a free cash flow yield of 36%. With this, I leave the word to Lars again.

Speaker 1

Thank you, Inger. So let's go to Slide 7 and look at what's going on in the current market. So we've just been through a very volatile summer market. Hopefully, it's coming to an end. The key themes have been Asia Pacific continue to pull volume.

Speaker 1

We're seeing increased supply from What I refer to as new exporters, as you can see on the bottom right hand side chart. This is United States and Brazil. They're not really new, but they are Kind of growing at least. And then Guyana, which is like the added spice to the mix here. As OPEC cuts production predominantly around the Middle East And with the continuous pull from Asia Pacific, we've seen ton miles increase and benefiting We also see tonnage in particular.

Speaker 1

Year on year or quarter Q2 last year versus Q2 this year, Demand in the Asia Pacific region is actually up 1,800,000 barrels per day. That's quite significant considering most of that oil is being freighted on tankers, and this represents about a 5% increase in coverage or volume for going on shipping. And that's those 5% is not taking into account, a ton mile effect. We started to see that the Russian price cap started to bite in Q2. I'll come a bit back to that later.

Speaker 1

We are also seeing refinery margins improving as we move towards the end of maintenance season. And we have the background music of basically every analyst under the sun Expecting oil demand to grow by about 2,000,000 barrels per day for the second half. Let's go to Slide 8, and I'll go through the Russian price cap and what effect that has had on our markets. So the G7 oil price cap came into effect in December 2022, and it will set up the $60 Per barrel for Russian crudes. We're using on the bottom left hand side, the euros as a reference oil price and it's predominantly The quality one discusses around Russian supply.

Speaker 1

With the price moving above the price cap, It's become increasingly complex to freight Russian oil. We've seen various kind of policies among owners whether if they're willing to service the Russian market or not year to date. But what we have seen now recently Is that some of these owners are less lenient to lift Russian barrels, basically because it's very hard to argue you're doing it Inside the framework of the current sanctions. These vessels are then returning to the non Russian market or the plain vanilla, And this has put pressure on rates as obviously the capacity then has increased, Particularly in these fleet sizes. Product exports has been less and it hasn't yet Kind of traded above the price cap.

Speaker 1

It is actually flirting with the price cap now, where the price cap is actually up to $100 for gasoline. Not that gasoline is a big Product for Russian exports, but it's kind of a it's a product To represent where product where it is, and gasoline in Singapore is now trading very close to $100 per barrel. We've seen Russian exports kind of falling quite rapidly due to this. We've lost 1,700,000 barrels per day of Russian exports since the peak in April. 400,000 barrels of that is products, And we see that the fall there is less pronounced, but 1,300,000 barrels of per day of crude or fuel oil has been lost During the last 5, 6 months.

Speaker 1

It's going to be very interesting to see how this develops further. We're starting to see Analysts arguing for the Russian controlled fleet or the Russian owned fleet struggling to maintain volumes, Which is evident looking at the export statistics. The only way they can kind of replace the capacity there now Would be to actually go into the non Russian trading fleet and purchase more assets. There are actually, in fact, fairly high numbers of vessels that's needed in order for them to maintain their export levels Should they want to do so? They're obviously a part of OPEC plus So the official argument will always be that they're Working in line with the OPEC strategy with the voluntary cuts, but we believe that it can be very interesting to see what happens In both the markets for older purchases older vessels in asset classes, we trade Clear then from Aksens Sussmax as this progresses.

Speaker 1

Let's move to Slide Mine and look at what's going on in the refinery world. I think it's important we almost forget because we've had so many black Swans and whatnot in the tanker industry for the last few years. But the seasonal summer slowness or softness It's in fact caused by the scheduling of refinery maintenance. On the bottom left hand side there, we see kind of global refinery outages. These are basically refining volume that's been taken out due to maintenance work.

Speaker 1

And we see it's a very distinct Kind of highs in April. And likewise, there's also a distinct high in September, October, Where refineries are shut in basically to do maintenance work so that they can run effectively Either for the summer season or for the winter season. This has a fairly, Fairly significant effect on demand for oil and also demand for tonnage then. What we see now is that we're heading in towards kind of on the refinery turnaround side, we're actually fairly low, But we're going we are going to go into the high turnaround season in September, October. So it's actually looking at it on face value, it looks Fairly bearish for tankers to come on.

Speaker 1

But one has to remember that tankers are fixed ahead. A VLC now is being fixed For mid September, and the oil will land in the various refining regions By end September. If you look at West African crude, that's being fixed today, will actually land in the beginning of October. And in the U. S.

Speaker 1

Gulf, We're actually already fixing for oil that will land in the mid October. So basically, it's over the next few weeks, We will start to see kind of the purchasing managers on behalf of the refineries starting to Plan to bring more oil into the refinery as they come out of China. Looking at the refinery margins, They are firming. This is obviously a result of refinery outages, but it's also a fairly strong signal of demand I expect it to look fairly okay. The diesel margins are leading the pace, and this is typical for the season.

Speaker 1

The winter season It's kind of predominantly a diesel market, at least historically due to heating. Whilst the summer market is sorry, The summer market is more a gasoline market due to driving. We had a very mild winter last year in the Northern Hemisphere. Well, the jury is still out, but will we have that occurring again? Let's move to Slide 10.

Speaker 1

And this has been known to everyone who's been on a Front Plan call before, basically the fleets and order books. It's kind of the notable thing to comment on in this quarter is actually the increase in ordering for LR2s. We've seen 15 new LR2 orders being placed in the first half of this year, and that's bringing up the order book to close to 20%. If you we also look to use a measure of a 20 year effective lifetime for trading tanker. This 20 year is actually more like a 15 year for an LR2.

Speaker 1

LR2s have coated tanks, and the coating in these tanks will Kind of lose its quality over years. So charters are very hesitant to book A clean LR2 above 15 years. If you use that as a measure, about 22.9% of the A lot of it is above it's going to be above 15 years this year, then the order book actually doesn't really look that worrying. What is worrying is the lack of order books for VLCCs and Suezmax. We have the highest percentage Of kind of the population above 20 years we've ever seen, 108 VLCCs Will be either be above or past 20 years this year.

Speaker 1

85 Suezmaxes will be above For past 20 years this year. And on the order book side, if you go into the market to book a tanker now, and particularly on the VLCC, You're looking at the second half twenty twenty six delivery. That's 3 years from now, and it doesn't really add up Today, the to the overall expectations of oil demand remaining fairly firm for the next 3 to 4 years. So with that, I'm going to move into the summary side on Slide 11. We're very happy to report the highest second quarter profit since 2008, dollars 210,000,000 and a cash dividend of $0.80 per share.

Speaker 1

In the last four quarters, if my record is correct, Inger, we've paid out $2.72

Speaker 2

That's correct.

Speaker 1

And with an average share price during that period of $13.9 that's a 20% yield. So quite impressive, I believe. Asia demand continues to be supportive, and OPEC cuts are driving the tons. The price cap on Russia crude is starting to bite and what's going to happen next there. Seasonal refining maintenance coming to an end Margins are improving, and this is what we're going to kind of see reflected in the particularly the VLCC and then secondly, the Suezmax market Over the next few weeks, ordering is still muted for the bigger vessels, for the 1,000,000 barrel and the 2,000,000 barrel vessels.

Speaker 1

But LR2s, we've seen a lot of activity in the last couple of months. How the big question is obviously how the winter will play out this year. But then I think kind of the background music and the absolute biggest question In the tanker industry going forward is represented by the chart at the bottom here. The tanker order book as a percent of fleet, I've just taken it from 1996 to show kind of a little bit of the history behind us. We see the dark kind of blue line, which is the product tankers that started to react, But not to any extent so far.

Speaker 1

And then we see the gray one being the VLCC, which is supposed to be The pipeline of the world on crude oil, virtually nothing on order. So with that, I think we can open up Two questions.

Operator

Thank you. And wait for a name to be announced. And now we're going to take our first question. And the question comes from the line of John Chappell from Evercore. Your line is open.

Operator

Please ask your question.

Speaker 3

Thank you. Good afternoon. Excuse me. Lars, you mentioned in this closing slide the question about the winter. Everything seems queued up pretty well from The inventories to the refinery maintenance coming to an end to the IEA's outlook for the second half sequential recovery.

Speaker 3

What can go wrong this winter? Is it just a macro event where oil demand continues to disappoint? Is there something related to Russia? Do the Saudis become more emboldened and keep more oil off the market, so there's a bigger inventory drop, but the tankers don't see the demand? Where can we miss the typical seasonal recovery that seems set up so well?

Speaker 1

I think there's 2 key factors there that needs to be watched. One is obviously China. There's mixed signals coming from So in our little part of the world, as I mentioned, which is transport of oil, China looks to run on all cylinders. Their import numbers are kind of record high every month. And that doesn't tally up With kind of all the other macroeconomic data coming out of China.

Speaker 1

So if they're building issue building a lot of inventories Into the winter here, they have at least historically, they've been able to Take the foot off the gas pedal and suddenly disappoint by 1,000,000 or 2,000,000 barrels per day in their import program. And if that happens, well, that's obviously not going to be very, very bullish. So I think that's the big question. Are they either running in preparation for other stimulus that will stimulate their economy to need basically all this oil? Are they importing in order to have the ability to export into the winter season?

Speaker 1

Or are they basically trying to hoard Crude oil before and expected price increase on crude oil or others, it's very difficult to know. I think that's the thing to watch. And kind of with the imports next to all the economical news we're getting out of China, It's one tends to become a little bit worried. Secondly, it's obviously the weather. And the weather, we can't really control.

Speaker 1

Whether if we're going to have a repeat of last year, which was fairly warm or if we're going to have a Proper full on winter, which is going to kind of affect demand on the positive side. So I think those 2 are the key factors that at least I'm a little bit Concerned about.

Speaker 3

Okay. That makes sense. Just follow-up question on strategy. I thought it was interesting you noted The DIRST, I mean, we all know that there's not much of an order book, but you said that's even a concern that there's not enough ships to offset some of the older ships. It's kind of rare to see Frontline without anything on your new building plan.

Speaker 3

Given that give and take of not getting a shift for 3 years or the economics Savit versus maybe a need at some point in the back of the decade, how do we think about your capital investment on newbuilds or secondhand ships going forward?

Speaker 1

Well, I think on the newbuild, we are definitely sitting on the fence. We've been kind of commenting on that before. You need flat out So north of $50,000 per day in 20 every day for 20 years in order to make sense of Going and ordering a book a new build at these levels. And then obviously, you have the technology discussion kind of adding to that. So we don't see that as a good proposition.

Speaker 1

On the secondhand market, yes, we will always be looking. But I think as you also know, there's been extremely little modern tonnage out offered. There has been a couple of deals done, but it's been very, very slow. So it hasn't really been a big option. So and this is where I've kind of alluded to in previous calls that maybe we are in a harvest period.

Speaker 1

It's difficult to say.

Speaker 3

Would you harvest by selling any more older tonnage? Or are you just happy with the fleet as it stands today?

Speaker 1

I think we're fairly content with the composition of the fleet. Of course, we have some units that kind of further down the line We'll probably look to let go of, but we're fairly comfortable. Some The older vessels we hold are modified or derated and so forth. So they're actually holding pretty well into The things to come on the regulatory side, and so we're fairly content.

Speaker 3

Great. Thank you very much, Lars.

Speaker 1

Thank you, Don.

Operator

Thank you. And 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.

Operator

Please ask your question.

Speaker 4

Hi, good morning, good afternoon. This is Chris Robertson on for Amit.

Speaker 1

Hi, Chris. Hi.

Speaker 4

Hi. Lars, I just wanted to go back to the discussions around the supply coming back into the market from the Russia trade. So as these ships come back in, are they in the penalty box at all in terms of returning to the vanilla market? Are they Trading normally, how much of that supply just won't ever come back? Can you talk about that a bit more?

Speaker 1

Yes. It's we've been kind of previously talking about the dark fleet, which is obviously the Davensel and Iranian trading vessels, and they are kind of in a penalty box forever. And then we have the gray fleet, Which maybe kind of have questionable trading history and will struggle to get accepted by Kind of compliant charters, put that way. And then we have the non trading Russian fleet or the Just touching the Russian oil on a few occasions fleet and whatnot. And it's It's shades of gray, if that makes sense.

Speaker 1

What we've observed when some of these units come back to, say, the West African TD20 market is that they might have to discount a little bit in order to get going, but We haven't seen a huge resistance from charters to as long as they don't have kind of shady Yes, history in their kind of papers or have kind of activity That can't explain. They're actually fine to get back. And I think we need to remind everyone of transport of Russian crude that has It's legal as long as it's within the sanctions.

Speaker 4

Right. Yes, that was good color. My follow-up question is related to your comments around The order book and then the lack of scrapping, as you think about 20 year old vessels, could you give some commentary around how much of a discount Those vessels are currently earning in the market compared to the average? Because if it's at a shallow discount, it would imply the ships might stick around for longer.

Speaker 1

Yes. No, I think it's a question of that portion of the fleet is not really engaged In the normal freight market that we at least compete in, it's been a long while since we've seen Plus 20 vessels fixed by any commercial party. I think the last one was IOC last fall. So I think the way we measure it is not the discount they have to accept, but it's more the efficiency they're able To offer. So this is why we kind of in our SMD model tends to cut their efficiencies in half the minute they pass 20 years.

Speaker 1

But I think this and I'm just to that question is probably coming, so I'm going to Put that in there. As we proceed here, I think, yes, there is a scenario where ships will have to actually Service the market for a longer period of time. And although not what we want, but we will Potentially see more and more charters having to accept 20 plus vessels as a part of their to service them and to get oil moved. But that can only happen when we have a firm pricing. We need earnings to get to a level where the charters Like Chevron VP, Shell Total and all these guys, and their vetting departments say, hey, okay, Well maintained the 22 year old vessels, we can use that.

Speaker 1

But they're not going to use that until the average of $100,000 $150,000 $200,000 per day, I believe. Okay.

Speaker 4

Yes, thanks for that color. I'll turn it over.

Speaker 1

Thank you.

Operator

Thank you. And now we're going to take our next question. And our next question comes from the line of Omar Nochta from Jefferies. Your line is open. Please ask your question.

Speaker 5

Thank you. Hey, good afternoon, guys. Lars, Hi. I have a couple of questions just as a follow-up, I think, to John's questions at the beginning and your comments, maybe first just on the order book and Your thoughts about the your disinterest, I guess, in ordering VLCCs, given the timeframe and the cost, Is that commentary just based on VLCCs? Or is that also a hold for the Suezmaxs and LR2s?

Speaker 1

I think kind of for the VLCCs, that's more us because we're We're quite content on the Suezmax size we carry, and we also have very modern Suezmax fleet, predominantly very modern Suezmax fleet. So for us, it's been looking into the VLCC space. And I think also we've communicated quite clearly that we believe that VLCCs over time Basically due to the benefit of the size, it kind of offers Our investors are more bang for the buck. But I think you could say it's the same for the Suezmaxes as well. The challenge we have actually in this market, if you look further into the shipyard industry, is that One thing is that owners are not really interested in ordering them, but yards are not really interested in taking the orders either.

Speaker 1

As long as there are higher margin kind of ships to build, they will prefer that. So it's kind of a little bit twofold. I also had a look at kind of the overall Yard capacity in the world, it's probably anybody's guess, but it's somewhere between 15200 shipyards in the world servicing Kind of commercial segments that we care about. And you have, I think, currently more than 100 yards building dry bulk vessels. You have more than 80 yards building container vessels.

Speaker 1

You have 13 yards, I believe that currently has a tanker in the order book. So it's quite peculiar. And also you have The other thing is that if you take off those 13 yards that build an anchor, there's actually very few that can build a VLCC. So it's a structural kind of issue we have at hand here as long as the Koreans are completely absent from the VLCC

Speaker 5

Building side. Thanks, Lars. That's, yes, interesting something has to give at some point. Maybe just One follow-up and also kind of what John was talking about and maybe the inverse of the question of what could go wrong. Maybe What could go right in terms of this market over the next few months?

Speaker 5

Clearly, you laid it out in your opening remarks. But just in general, we've seen, as you mentioned, the refining margins have gone up. We've seen LR2s push higher. And so When we think about both crude and products here over the next few months, should we think that LR2s will outperform for now? And then what are you looking for in terms of Laying the groundwork for crude tankers to start to get a bounce.

Speaker 5

Well,

Speaker 1

I think kind of at the end of the day, we need If we get oil demand anywhere near where EIA or IEA or OPEC or whoever you ask put it, That we're going to consume 103, 103,500,000 barrels per day in December, I think that's basically all we need. If that trajectory is true, I think we're going to kind of gradually come out of here. And also, Russia is obviously a big X factor in addition to China. It's quite likely that with that demand Projection, oil prices will behave fairly okay. And then I think there will be initiatives Starting from to start to get hold of assets that can actually transport their products.

Speaker 1

And that will kind of Be the reverse of what we've seen just now where a lot of Russian or former Russian trading vessels have started to compete with us in the Suezmax and Aframarkets, They're basically going to go back. I saw some one headline from a broker that this fall, If that plays out, it's going to be very good for S and P brokers that deal with the kind of tonnage going in that direction, to put it that way. And this is obviously going to be the older tonnage in both the Suezmax and Aframax fleets. So and then there is also an alternative story starting to develop on all the kind of headwinds coming out of China Because you can speculate what will they actually do now. Will they allow the country to run at half steam until kind of they get to some sort of natural recovery?

Speaker 1

Or will they actually start to stimulate in order to carry Kind of their economy over this gap. And if they do so, I think we'll get the same result. We will have the 2,000,000 barrels And we will have a healthy and a continued healthy import into China. So I think it's very It's very easy to paint a bullish picture here. I think it's more important to try and look for the cracks Because it's almost too good to be true.

Speaker 5

Yes. It certainly looks like the script is written and we just have to Follow through on it. Great. Okay. Well, thanks, Lars.

Speaker 5

I'll pass it over.

Speaker 1

Thank you.

Operator

Thank you. Now Now we're going to take our next question. And the question comes from the line of Chris Fang from Webber Research, your line is open. Please ask your question. Excuse me, Chris, your line is open.

Operator

Please ask your question.

Speaker 6

Hello? You say Chris?

Operator

Yes, Chris Chung, your line is open.

Speaker 5

Sorry about that. Hey, Lars, Ainger, how are you?

Speaker 1

Hi, Chris. I'm good.

Speaker 6

I just have a quick question on your fleet. What are your plans for the 2 2010 built VLCCs without scrubbers? Would you look to install scrubbers? Or could those vessels be sold? And what would the timing be for those decisions?

Speaker 1

Well, that's a fairly specific question. I think it's very likely that they will have Kerber is in accordance with the dry docking schedule. But we don't have any apart from It's funny how some ships are lucky ships, so they actually make money literally around every corner. And these have been very, very Good, operator. So for now, they're in our fleet and going to remain there.

Speaker 6

Okay. Fair enough. And one for you, Inger. Sorry, I missed the part earlier where you provided drydosing guidance. Can you repeat how many vessels you plan on drydosing for the rest

Speaker 2

For the next year?

Speaker 1

For the rest of the year.

Speaker 2

For the rest of the year. For the rest of the year, we plan to dry dock 8 Suezmaxes. 4 in the Q3 and 4 in the Q4.

Speaker 6

Okay. That's it for me. I'll turn it over to you. Thank you, guys.

Speaker 2

Thank you. Thank you.

Operator

Now we're going to take our next question. And the next question comes from the line of Lou McGibbon from Frank Wynne. Your line is open. Please ask your question.

Speaker 7

Hi. Two questions. The first is, when you went from 25 to 20 years on your depreciation, How much did that reduce the earnings per share?

Speaker 2

It was about for a year, it Total is about $60,000,000 So that means yes, that means divided by 222,000,000 shares.

Operator

Excuse me, Lou, do you have any further questions?

Speaker 7

Yes. The second question. This deals with the Sorry,

Speaker 2

26 subs. That's your answer.

Speaker 7

Okay. Thank you. It's a conservative mood and I applaud you for taking that. The premium on the modern vessels, I was wondering if you could discuss that. And in particular, the IMO guideline, The regulatory side that you've mentioned, when does the next major change kick in?

Speaker 7

And I was curious what makes up the premium that Frontline gets such a benefit on because it has the world's youngest fleet.

Speaker 1

Yes, it's That's like 5 questions in one or 2, I don't know, so 5 answers at least. Now, first of all, I think kind of the biggest IMO was actually not really an IMO Change that's going to happen. It's the EU EPS. That's the next in line for us For everyone in the industry, it's basically the that we need to start to pay carbon tax In Europe, trading in Europe or trading into Europe or trading out of Europe with the carbon emissions related to those voyages. That comes into effect next year.

Speaker 1

And I think it's going to maybe not so much for the bigger ships because it's They're not that frequent inside the EU zone, but for Suezmax and Aframax And there are 2, it's going to have an impact. And there, we do believe that having efficient vessels help a lot. Also, I think kind of the discussion around alternative fuels is going to become more and more Important. Right now, you wouldn't really willingly put use kind of Partially by your fuel in your fuel mix, basically because it costs more. But obviously, if you put it against buying carbon credits, Then it becomes kind of economically effective to do so.

Speaker 1

So I think that's kind of the biggest headline on, say, the regulatory framework going forward. I think your question was around the premium we achieve on our vessels due to the having the modern ships. Was that correct?

Speaker 7

Yes. In particular, I was curious if interest rates have an effect because on a shorter vessel, it's less costly to hold A couple of $100,000,000 worth of oil, but then also the insurance rates, how that would have affected because you have shorter time frame.

Speaker 1

Okay. So that's more like the trading side of it. So if kind of our charters Are being limited by the high interest rates because they're the ones who own the cargo and they're the ones who basically have to then Finance themselves from A to B. We haven't really seen that having an impact Kind of in the stock market, to be quite honest. I think it's more a discussion for had we been in a carrier market, so meaning that oil was going to be Stored on ships, it would have had a huge effect.

Speaker 1

The difference between having 0.5% interest on the per day and the 7% interest per day Has a huge impact on the economics of storing oil. But I think in general, The financing cost has affected the world's, in general, willingness to keep inventory. And I think that is probably partly why we see inventory levels fairly low across the globe.

Speaker 7

Okay. One final comment. What percentage of your business is European that would be affected by that regulatory side change?

Speaker 1

It varies. So it's and it also varies a lot amongst between asset classes. But I think our kind of the headline number would be 10% to 15% of our voyage days

Speaker 7

Thank you. And I congratulate you both for running the most efficient, best Tanker fleet in the water.

Speaker 1

Thank you very much.

Operator

Thank you. Dear speakers, there are no further questions. And I would now like to hand the conference over to Lars Bastad for any closing remarks.

Speaker 1

Thank you very much, and thank you so much for listening in. We are the markets are a little bit Kind of in the doldrums right now, but I'm hearing bottoming kind of from various The sides of the marketplace, over the next few weeks, we're going to Hopefully, start to chew into the winter season, and we're looking forward to see what comes. 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.

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