Frontline Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 30, 2024

There are 6 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Second Quarter 2024 Frontline Plc Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your first speaker today, Lars Bastard, CEO of Front Line Management AF. Please go ahead.

Speaker 1

Thank you very much for that introduction. Dear all, thank you for dialing into Frontline's quarterly earnings call. The Q2 of 2024 ended up very much in line with the first with volatility, but ending up on softer notes as we entered the seasonal summer lull. Complications around war risk in the Middle East and tightening sanctions against Russia has regretfully become the norm. And I will be touching on that later in the call.

Speaker 1

It's important to remember though that we are at the seasonal lows and I would like to say that all shareholders have a very exciting fall ahead as Front Plan has not had this number of potential money making days going into the winter for decades. Before I give the word to Inger, I'll run through our TCE numbers on Slide 3 in the deck. In the Q2 of 2024, Frontline achieved $49,600 per day on our VLCC fleet, dollars 45,600 per day on our Suezmax fleet and $53,100 per day on our LR2Aframax fleet. So far in the Q3, 79% of our VLCC days are booked at 47,400, 85% of our Suezmax days are booked at $49,900 and 65% of our LR2Aframax days are booked at $50,100 per day. Again, all these numbers are on a load to discharge basis, meaning they will be affected by the amount of ballast days we end up having at the end of the Q3.

Speaker 1

Although Q3 bookings came in somewhat short of market expectations, please do keep in mind the binary characteristics of our market, especially as we come out of the seasonal lows. And then 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 and look at profit statement and highlights. We report profit of $187,600,000 or $0.84 per share this quarter and adjusted profit of 138 point $2,000,000 or $0.62 per share. The adjusted profit in the second quarter was comparable to the Q1, as you can see from the slide, And the decrease in our TCE earnings with $12,400,000 as a result of the disposal of 2 VLCCs and 2 Suezmax tankers was offset by a decrease in ship operating expenses, administrative expenses, depreciation and finance expense as well as an increase in interest income of €12,600,000 making up the €200,000 increase in the quarter. Let's then move to Slide 5 and look at the balance sheet.

Speaker 2

The balance sheet movements in this quarter are mainly related to sale of 4 vessels in the Q2, of which one VLCC was held for sale in the Q1 and also to re leveraging part of the existing fleet used to repay debt drawn to partly finance the acquisition of the 24 VCCs from Euronav. Frontline has strong liquidity of EUR 567,000,000 in cash and cash equivalents, including undrawn amount of the senior unsecured revolving credit facility, the marketable securities and minimum cash requirements to the bank as per June 12, 2024. We have no remaining new billing commitments and we have no meaningful debt measures until 2027. Then we can look at Slide 6. In the second and the third quarters of 2024, we completed our strategy of freeing up capital by deleveraging part of the existing fleet and also divesting older vessels, which enabled us to repay an aggregate of 395,000,000 which was strong under the German shareholder loan and also under our revolving credit facility with an affiliate of German to partly finance the acquisition of the 24 businesses from Euronav earlier.

Speaker 2

From this slide we have made up here, we can see that this has involved optimizing the capital structure through refinancing of 36 vessels and divesting 8 older vessels. Total recent and ongoing refinancings in a total amount of $1,550,000,000 have secured long term financing at highly attractive terms with maturity of about 8 years and have improved debt margins with about 30 basis points on a weighted average basis. The net expected cash proceeds from the refinancings is $548,000,000 and $311,000,000 from divesting older vessels. Let's then look at Slide 7. Our fleet consists of 41 businesses, 23 Suezmax tankers and 18 LR2 tankers.

Speaker 2

It has an average age of 6 years and consists of 99% eco vessels and whereof fifty 6% is scrubber fitted. We estimate average cash breakeven rates for the next 12 months of approximately $29,600 per day for VLCCs dollars 22,300 per day for Suezmax tankers and $21,200 per day for the LR2 tankers, with a fleet average estimate of about $25,700 per day. It is slightly down from previous quarter, mainly as a result of the financings and refinancing done. The fleet average estimate includes drydock of 2 Suezmax tankers and 4 VLCCs in the next 12 months. We have 2 VLCCs in the Q3 of 2024, 1 VLCC in the Q4 of 2024, 1 Suezmax in the Q1 of 2025 and one VLCCs and 1 Suezmax in Q2 of 2025.

Speaker 2

We recorded OpEx expenses including drydock in the Q2 of $8,600 per day for VLCCs, $9,300 per day for Suezmax tankers and $7,600 per day for LR2 tankers. This includes start up of 2 Suezmax tankers and 2 VLCCs in the quarter. The Q2 twenty twenty four fleet average OpEx including Mexico within the Dara Grande was $7,600 per day. Then let's move to Slide 8 and look at cash generation potential. TransAlta has about 30 earnings days annually.

Speaker 2

We have about 28,000 are spot days. Even in this weak spot market that we experience now, the cash generation potential at current fleet and spot market earnings from Clarksons Research as of August 29, of $33,500 per day for VSEs, dollars 36,600 for Suezmax tankers and $28,700 for LR2 tankers is $242,000,000 or $1.09 per share. The sensitivity is high from these spot market levels that you see now and 30% increase from current spot market will increase the potential cash generation with about 116%. Note that the spot market earnings at a 30% increase is only 43,600 for VSSEs, 47,500 for Suezmax and 37,300 for LR2 Tankers. And the upside potential should be much higher going forward when the party begins.

Speaker 2

With this, I leave the word to Lars again.

Speaker 1

Thank you very much, Inge. Let's then go to Slide 9 and start discussion on the current market narrative. You will notice that there is a new theme we're focusing on at Frontline as we've been trying to kind of explain the developments in the current market. We all sit on more or less the same S and D models. The unknown is basically how oil trades.

Speaker 1

There is a development of a 2 tier market between what we would refer to as a compliant and non compliant market. And this divide has grown over the last 12 to 18 months. Currently, and this is quite surprising to some I would assume, 23% of the global fleet is expected to be or involved in sanctioned trade. And in these numbers, it's not necessarily a ship that has lifted Russian crude because the molecule is still not sanctioned, But it's vessels that have adverse activities surrounding their trade, whether if it's with Russian crude or other sanctioned crudes. And so basically what these numbers tell you is that 17% of the VLCC fleet is currently under some sort of scrutiny, either by Ulfak, Uanni or they have red flags attached to their activities.

Speaker 1

And likewise, if you move to the Suezmaxes, you have 21% of the fleet is under the same kind of in the same kind of situation. And we have 28% of the Afre LA 2 fleet having the same characteristics. This is obviously related to the rise in sanction scrutiny and also the volumes trading and I'll come back later come back to that later in the following slide. Geopolitical risk linked to the Middle East is ever increasing. It's also quite surprising to us to see the somewhat moderate oil movements of volatility considering this explosive backdrop.

Speaker 1

Chinese imports are in question after the softer July, but as far as we can see it, August tracking imply an increase of 1,200,000 barrels month over month to China. So although that doesn't really make this story fantastic, it's at least you should not base China on the July observations. Global oil demand is on track, at least looking at the numbers we see. Oil in transit is in a rising trend. World inventories are at historical lows.

Speaker 1

And there is a limited cushion for adverse events, which also could be related to weather. The order book expansion in our industry is slowing. The available delivery window for tankers has moved into 2028 for any substantial order that is. And other other classes are starting to take the center stage. Let's move to Slide 10 and discuss a little bit more of the sanction exposed trade growth.

Speaker 1

So there has been over the last months an increased scrutiny on the Russian trade, basically exposing more and more vessels to being sanctioned by either G7 or EU in their operations surrounding the Russian trade. We've also seen steep growth in Iranian exports, which basically has increased the need for tonnage for transportation. What we've ended up seeing is that we have a 2 tire market, which is kind of developing in front of our eyes. We have what we would refer to as a compliant market, which involves 80% of the tanker fleets or thereabouts. And then you have the dark or gray fleet, which involves 20% of the tanker fleet or even up to 23% of the tanker fleet.

Speaker 1

The interesting part here is that you're not building vessels to enter the dark or gray fleets. So basically they get their fleet supply from the compliant fleet. So the compliant fleet is shrinking whilst this kind of dark or gray fleet is growing. It's supplied by the aging of the overall tanker fleet basically. And over 20 year old vessels still do not trade in what we regard the conventional market.

Speaker 1

It creates an interesting dynamics because unless non conventional trade continues to grow, the illicit market will soon be oversupplied as the fleet aging accelerates. So basically vessels moving from the compliant market due to age and basically because we have 0 scrapping will at some point here start to overcrowd the dark or gray fleet and one should expect scrapping to start to happen in the end. The parallel oil trade carries an increasing risk to any reversal of sanctions as well and that needs to be kept close to mind. There's kind of implication here and we can question where is sanctions enforcement in this picture and also where is IMO in respect of safety and reducing emissions etcetera. I can assure you this fleet is not spending too much CapEx on reducing their carbon footprint.

Speaker 1

At the bottom right hand side of this slide, you will see kind of how this development is and the red arrows basically indicate this divide. So basically, the overall fleet continues to grow as basically no fleet no ships are being recycled, but the compliant fleet vessels under 20 years of age is gradually shrinking as we proceed. This includes the new buildings coming into the market. So with that harsh message, I'm going to move to Slide 11 and let's look at the upside potential here in the compliant market. We have tanker seasonality and it's extremely pronounced.

Speaker 1

90% of the global population lives in the Northern Hemisphere, basically where most of us on this call live. And EIA does expect the oil consumption to increase by 1,500,000 barrels by December, basically due to some temperatures turning. On average, looking back, the winter market sees an increase of consumption by 1,500,000 to 2,000,000 barrels in the period from August to December. This is a long term pattern, and we see it both in all in transit and then obviously in freight earnings. If you look at the bottom right hand slide chart, that's we were basically just taking the last 34 years and looked at the seasonal trend.

Speaker 1

And we're basically in the weeks where this market starts to come to action. It's also quite encouraging to see oil in transit actually dipping out of the long term trend. And to top it, we have to keep in mind that the inventories within OECD and we added China and India as well to this is at historical lows. And it again, I would like to emphasis, it offers a very limited cushion in the event of an unexpected event. OPEC is still supposed to be increased supply to increase supply from October.

Speaker 1

The question is whether if they will do it where oil is currently trading. But 2,200,000 barrels is said to be returned between October and the end of 2025. And again, as from the previous slide, this shrinking compliant tanker fleet capacity to serve conventional all the month growth makes this a very interesting picture. And also, I think we need to keep in mind that although the market is sluggish currently, the balance is fairly thin. Only 2 weeks ago, we had the VLCC rates moving up 25%, and it doesn't take much to move the needle.

Speaker 1

Let's then have a look at the order books. And the overarching theme here is that the ordering we saw in the beginning or the first half of the year has been muted over the last month, month and a half. Basically, virtually 0 tankers have been ordered in the last month and a half. And basically, at the same time, we've seen other asset classes move in to contract vessels. And in particular, we've seen big orders being placed on the container side for 2028 delivery.

Speaker 1

We think that for VLCC and Suezmax, the order book looks still looks low, very low for VLCC, medium low for Suezmax and high for LR2. But with LR2s, as I mentioned before, we need to consider that there are virtually no Aframaxes on order. So if you take that percentage and apply it or sorry, take that number of ships on order and apply it to the overall LR2 Aframax fleet, we come in at 13%, which is still not alarming. We also need to keep in mind that we're heading into a generation of ships that came post 2008 sorry, 2008 for VLCC and Suezmax, post 2007 for LR2s, which are sizable generations of vessels, which will come to age in 2027, 2028 and onwards. So to sum this up before we open up for questions.

Speaker 1

Frontline has decades high earnings capacity as we move into second half. We have a strong balance sheet with sensible leverage on our modern fleet. There is, as mentioned, a growing divide between the clock compliant and the sanction trade, which can create interesting volatility going forward. The security situation in Red Sea, Gulf of Aden and Middle East is ever increasing. As delivery slots for newbuilding moves into 2028, we have seen that container ordering has accelerated again.

Speaker 1

Short and medium term oil demand looks on track, but China is of course a question. The seasonal play is on and I know a few people below this, let us say it again, winter is coming. So with that, we will open for up for questions.

Operator

Thank you. We will now take our first question. Please stand by. And the first question comes from the line of Jonathan Chappell from Evercore ISI. Please go ahead.

Operator

Your line is now open.

Speaker 3

Thank you. Good afternoon. Inger, first question is for you. Slide 6 says you've completed the re leveraging and the divesting of older vessels. So I just want to be clear, there's no more big refinancings that we should expect before 2027 and the divestiture of the older vessels is mainly complete at this point?

Speaker 2

Your first question was that there were no more refinancings until 2027. Was that correct?

Speaker 3

Correct.

Speaker 2

Yes. Well, not any material ones. We have a few smaller ones, which will come in 2025. But apart from yes. And your next question or your second question was, sorry?

Speaker 3

Was it around the divesting of the older vessels? Is that process completed as well?

Speaker 2

Yes. That is also completed, yes.

Speaker 3

Okay, good. And then just a follow-up question on this latest refinancing with the sale and leaseback. It's interesting, sale and leasebacks were kind of a thing of the prior tanker markets where rates were weak and maybe financing wasn't as available or attractive. And you've done most of your refinancing through traditional credit facilities. What was the thought process of doing another sale and leaseback at this point in the cycle to refinance that prior one?

Operator

Well, actually,

Speaker 2

it's this new lease sale leaseback arrangement is refinancing a current sale leaseback arrangement. So we are not actually doing more. That's the same type 10 vessels that we have today, which we just are replacing. And it's not a standard sale leaseback arrangement in a way. You can look upon it more like a kind of bank facility because its leverage is only 60% loan to value and the terms are like a bank facility in a way.

Speaker 2

So that's why. Yes.

Speaker 3

Okay. That's very helpful. Thank you for that, Ingrid. And then Lars, just one for you. I mean, I think the seasonality slide is pretty clear and many of us who've been around understand this very well.

Speaker 3

I guess there is some concern about China. You noted in your prepared remarks, let's not extrapolate July. But is there any way to take that inventory slide that you did for Slide 11 and isolate China? And is there a reason that China may be a lot more aggressive in the back half of the year? Or is it more of an OCD OECD depleted inventory and maybe China doesn't have that type of panic going into their winter season where they need to be more aggressive on the imports?

Speaker 1

It's a very good point. And if we did that chart with China isolated, although it's implied inventory builds because the strategic part of their inventories is not public, it would look a bit different, whereas China has been more or less stable, running a fairly high level of inventory ever since we came out of COVID. And as you might remember, they used that period with extremely weak oil prices to replenish their inventories. But with regards to China, it's not a mystery, but it is apparent that China is not going at the speed that we would like to see. However, if you just look at our neighbors in this building being in the dry bulk market, there is somewhat a different story.

Speaker 1

So I think it's just very important to or it's very difficult to kind of read China right now. We also need to keep in mind that of the imports China do, they take close to 20% of their supply is coming from either Iran, Venezuela or Russia. So it's kind of difficult to monitor these flows accurately. But also we know that they're taking more crude coming from Russia in the north. So I would say China is the dark horse.

Speaker 1

And right now, it doesn't look too good to be fair. But there are other countries in the region that are historically higher consumers during the winter. And the most notable one is in fact India. So I actually think that I don't believe we'll have a muted China into Q4 or towards Q1. That adds out whether if we're going to have a year on year growth, that's more questionable.

Speaker 1

But I still think that with the rest of the situation, the rest of the countries that normally grow their demand during winter, I think we should still be okay.

Speaker 3

Okay, great. Thank you very much, Lars. Thanks, Inger.

Operator

Thank you. We will now take our next question. Please stand by. And the next question comes from the line of Omar Nochtar from Jefferies. Please go ahead.

Operator

Your line is now open.

Speaker 4

Thank you. Hi, Lars and Inger. Good afternoon.

Speaker 5

Just got a couple

Speaker 4

of questions on the market, but also wanted to touch about touch on the VLCC performance you booked thus far into the Q3. You've got 79% of 3Q booked at just over 47,000, which obviously a little bit down from the first half, but still I would say quite impressive when we look at what the market has averaged since the start of say June, whether you take into account ECO and scrubber premium. So just wanted to ask what's driven that perhaps outperformance in your view?

Speaker 1

Well, first of all, Omar, you need to keep in mind the fact that we report on a load to discharge basis. So that has to be highlighted. It's not all our peers and it's not always clear how our peers report. So you should not expect us to be able to book too much towards the end of the quarter here basically because we can't account for income until the vessels actually load the cargo. But what has happened in Q1 is that we received a fairly big new fleet from Euronav, almost all delivered in the Middle East.

Speaker 1

What we've done over the quarter is been able to kind of put this fleet into the trade, reflecting the rest of the frontline fleet, whereas we try to keep limit our exposure to or to kind of to try and avoid having too much exposure to one particular basin. And most more recently, it's been the Middle East that is the soft spot, kind of the it's kind of ironic that the VLCC benchmark or S and P 500 or Dow Jones Index is based on into the trade in Atlantic Basin, West Africa, U. S. Gulf, Brazil, regretfully, a lot of short hauling because oil hasn't really gone far during the latter part of Q2 and into Q3. This will also explain some of the weakness in this segment in particular and also how it's been cannibalizing on Suezmaxes and to some extent I'd say that there is no magic portionary is probably the word.

Speaker 1

Yes. But also keep in mind that this performance is we're quite okay or proud of it, considering also the fact that we've reduced our scrubber penetration in the fleet. Having said that, you probably also noticed that the spread between high and low sulfur has been fairly narrow. So you could say that the scrubber benefits in the more recent months has not been as pronounced.

Speaker 4

Okay. Thanks, Lars. Appreciate that. And just a quick follow-up just on that point or just generally on the Versus have you played into the whole product cargo lifting in your fleet?

Speaker 1

Not on the VLCCs, but on the Suezmaxes, yes. So basically cannibalizing our own LR2s.

Speaker 4

Okay. And then just kind of more on the market here. 1, we've seen the recent pullback in Libyan exports or at least production volumes. It seems that they may be still able to export from inventory, but if this is prolonged and that volume is away from the market, how do you think that affects the different dynamics within the crude trade at this point? Obviously, Aframax has seemed more exposed to that, but how do you think the VLCCs and Suezmax react in that type of environment?

Speaker 1

As you asked me before, the disruption started in the Suez Canal or Red Sea Gulf of Aden. I would have said that this is kind of material. But basically, what's happened kind of since those events started to occur, Libyan used to go east by way of either Suez or well, actually, rarely all the way around, but at least through Suez. And with the disruptions in Suez, we've seen that oil trade local. So you're right that it affects the Aframaxes.

Speaker 1

It might have a limited impact on Suezmaxes. But I would say virtually no impact on the VLCCs. And it's actually again then that if you take one crude out of the equation, another one comes up.

Speaker 4

And I guess in that situation, the if you lose that crude from Libya and that gets made up potentially from the Middle East, does that become a VLCC trade?

Speaker 1

Potentially, but it could also be replenished from Latin America or U. S. Gulf or West Africa because Libyan is now then predominantly going into Europe and not to the east to basically due to those disruptions in Suez.

Speaker 4

Okay. Got it. And then one more for you just on you talked about the sanctions and the dark fleet, the gray fleet. I wanted to ask in terms of what's going on with Iran, how would you how do you think the market would move forward in a situation where, say, there's more scrutiny on Iranian crude exports and those fall back to where they were a few years ago? I guess, you that gray dark fleet perhaps maybe makes its way back to the clean or not clean, but the market fleet.

Speaker 4

How do you kind of think about that versus needing to make up those barrels?

Speaker 1

No, I think as this this development has been going on for far longer than at least I anticipated or we anticipated. But it's so it's basically kind of making it less and less likely that the vessels servicing this market is ever going to be able to return to a compliant market. So it means that any change, however unlikely, to the sanction regime against Iran, will be even a more positive effect on the compliance market. How this and this is an ongoing or a discussion that comes up quite often. From our side of the equation, we struggle to understand why this trade can even go on.

Speaker 1

But obviously, if you come from a crude short nation who needs to refine petrol for your inhabitants, then you will obviously take an opportunity for any barrels that you can get hold of. So, you know, regretfully, I don't think we can necessarily do much with this trade. What I am saying though is that as the compliance fleet is aging, it's a price into this fleet and this aging is accelerating as we move forward here. So I actually unless you see Iran able to produce significant more oil or same goes for Russia of course and Venezuela, all three which is unlikely, will actually start to have an overcrowded kind of oversupplied sanctioned market. So I think that's because I've lost all faith in enforcing sanctions, I've lost all faith in kind of to regulate one out of this.

Speaker 1

We had a better tanker that blew outside Singapore recently, and nobody really put too much attention to that. So we have a Suezmax burning in the Red Sea as we speak. Nobody really it doesn't really make that much of a headline if you're outside of shipping. So I kind of lost that faith. But what I do believe is that we will see that fleet just continue to grow because they're the source of or the alternative for a ship turning 20 is still it makes a lot of sense to go into that market.

Speaker 1

But once the margins in that market is are destroyed, we'll actually start to see recycling. Yes, that made sense. Sorry, it was a very, very long answer to your question.

Speaker 4

No, no, it did. Very interesting. No, I appreciate that perspective, somewhat sobering. But yes, thanks Lars. I'll turn it over.

Speaker 1

Thank you, Omar.

Operator

Thank you. We will now take our next question. Please stand by. And the next question comes from the line of Devin Sangoi from TEJ Investments. Please go ahead.

Operator

Your line is now open.

Speaker 5

Yes. Lars, I just want to ask you a question that you mentioned about the oil spillage in Red Sea, which happened and there were several other instances. How do you see this dark fleet insurance getting covered? Because that's again the amount of food is moving on and we don't have a global insurance companies who are willing to underwrite?

Speaker 1

It's an extremely good question. And when we did the basically we've done an exercise prior to this quantifying to gauge how many ships and how many vessels are operating in the sanctioned trade or kind of are operating illicitly in the Russian trade, because there are owners that are able to trade Russian barrels within either by way of getting attestation on the price cap or other means that they actually managed to trade Russian crude without raising any flags. But in order to gauge how much of that oil is actually under sanction, one of the studies we did was basically to see how many of these vessels are actually not insured by any recognizable P and I club. And that is basically the foundation for saying that we assume 75% of the Russian volumes are under sanction or sanctions exposed. So and that paints a horrendous picture if something happens.

Speaker 1

So the Suezmax in question that is currently burning in Golferwedden that has insurance, I understand, from a P and I club that's recognized. But the tanker that blew up outside Singapore, I might be mistaken, but I still think they're trying to figure out to actually own the vessel in the end. So I think this paints a very, very bleak picture if we get more events like this.

Operator

Okay. Thanks. And the second

Speaker 5

question is on if you see the way soft landing is being questioned about, there is always a doubt about U. S. Economy going into a soft recession, if not soft landing. And you have a Chinese economy not recovering. So next year, do you see if both these don't recover, then there'll be a lower oil demand globally?

Speaker 1

I don't think we'll have lower global oil demand globally, but the expected oil demand growth will be limited. So but if you couple that with the fact that the fleet the tanker fleet is presumably shrinking, at least the efficient fleet is shrinking, we're not too worried about that from a tanker demand perspective.

Speaker 5

And any other factor which can affect the tonne mile because we've seen a significant change in tonne mile over the last 12 months. So do you see any other factor which affects tonne mile positively or negatively?

Speaker 1

No. There is nothing really that comes to mind. We are moving into a very weather exposed period of the year, which partly explains the volatility we normally see towards winter. So that could obviously change things up. But and obviously, sudden supply changes like Libya was mentioned where we're losing 6.5 sorry, 660,000,000 barrels per day or thereabouts.

Speaker 1

That is actually enough to trigger certain changes. But there is nothing kind of apparent I see. We see the TMX pipeline, which is a new flow out of Canada on the U. S. West Coast.

Speaker 1

That is kind of developing, but it doesn't seem to have altered trading lanes materially. And that is again, one thing to watch is, of course, production growth in Guyana in Brazil and then in U. S. Gulf. There is not so much export growth expected out of U.

Speaker 1

S. Gulf for next year, but everybody has been wrong every year in quite a long time. And there is also an election over there, so which might affect the willingness to invest in production, which will hit on exports. So I think there are numerous kind of interesting spots to look at, but nothing kind of material that I think will happen very, very soon.

Speaker 5

Okay. And if as you've seen, you've been paying out handsome dividend, but if your call on the bull market was right, you will be flushed with so much cash. What do you do with the cash?

Speaker 1

We pay it to our dear investors, then you can decide what to do. That is that was kind of jokingly said, but that's basically how we operate. Unless we see an investment opportunity that we think will yield our investors a better return on equity, we will pay it all out.

Speaker 5

Okay. So you don't see any so you've done pretty we were the first one to take out all the ships from the yard, half completed VLCC and now you'll leverage your balance sheet. So you have a financial leverage, operating leverage. Do you still see any good asset acquiring opportunity? Or are we done with it?

Speaker 1

I think and I hope that we are in line with the rest of the markets that we need to see a confirmation in the rates in our markets before we have the conviction to do anything on the asset side. So basically, right now, we're content with the fleet composition we have. But if the market is going to continue to only pay us $40,000 to $45,000 per day, there is makes no sense to either buy nor order a ship at these price levels.

Speaker 5

Thank you, Lars, and all the best.

Speaker 1

Thank you very much.

Operator

Thank you. As there are no further questions, I would like to hand back to Lars Bastard for any closing remarks.

Speaker 1

Thank you, and thank you for listening in. Thank you for a row of very, very good questions. And we'll just keep our fingers crossed for the normal season pattern to start to contemplate. Thank you.

Operator

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

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