Frontline Plc 2026 Q2 Earnings Call

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

In the second quarter of 2026, Frontline achieved $152,700 per day on our VLCC fleet, $111,400 per day on our Suezmax fleet, and $92,400 per day on our LR2/Aframax fleet. So far in the second quarter of 2026, 86% of our VLCC days are booked at $156,900 per day, 79% of our Suezmax days are booked at $117,400 per day, and the LR2s are catching up, having booked 70% of the days at $81,000 per day. Again, all numbers in this table are on a load to discharge basis with the implications of ballast days at the end of the quarter this has. I will now let Inger take you through the financial highlights.

Thanks, Lars, and good morning and good afternoon, ladies and gentlemen. Let us turn to slide four and look at the profit statement. We report profit of $659.2 million or $2.96 per share, and adjusted profit of $580.2 million or $2.61 per share in the second quarter of 2026. As Lars mentioned, this is the best quarterly profit and adjusted profit ever recorded by the company. The adjusted profit in the second quarter increased by $235.3 million compared with the previous quarter, primarily due to an increase in our TCE earnings. Ship operating expenses decreased by $4.3 million from previous quarter, and that was mainly due to sales of eight VLCCs in the first quarter and two Suezmax tankers in the second quarter. An increase in supplier rebates, which is partially offset by an increase in general running costs. Administrative expenses decreased by $2.4 million from previous quarter.

This excludes the synthetic option revaluation gain of $5.3 million in the second quarter and the synthetic option revaluation loss of $5.8 million in the first quarter. Adjusted interest expense decreased by $4.8 million from previous quarter due to lower debt and decrease in interest rates. Lastly, depreciation decreased by $4.7 million from previous quarter due to sales of vessels. Let's look at the balance sheet on slide 5. Frontline has a solid balance sheet and a very strong liquidity of $1.2 billion in cash and cash equivalents, including undrawn amounts of revolver capacity of $901 million, marketable securities and minimum cash requirements bank as per June 30th. We have no meaningful debt maturities until 2030. Remaining new building commitments as per end June was $601.1 million and relates to the acquisition of the nine new buildings from affiliate of CMN.

The company has secured new building financing of up to $737 million as set out in the press release. Let's turn to slide 6. In the second and third quarter of 2026, we reduced our financing costs through a combination of margin reductions on existing facilities for the remaining tenures and a full refinancing of selected facilities, reducing the weighted average interest rate margin by approximately 52 basis points from 178 basis points at the end of the first quarter of 2026 to 126 basis points upon completion of the process in the third quarter of 2026. The reduction was driven by amendments, but with 24 basis points, refinancings with 21 basis points, and new building financing and asset sales with 7 basis points.

We have no debt maturities until 2028 and no meaningful maturities until 2030, supported by increased tenure across the portfolio as shown in the maturity chart. We can look at slide 7, fleet composition, cash break-even rates and OpEx. Upon delivery of the remaining VLCC new buildings and sale of two VLCCs, our fleet consists of 40 VLCCs, 19 Suezmax tankers, and 18 Aframax/LR2 tankers. It has an average age of 6.6 years and consists of 100% ECO vessels, whereof 69% are scrubber-fitted. We estimate that average cash break-even rates for the next 12 months of approximately $23,800 per day for the VLCCs, $25,700 per day for the Suezmax tankers, and $22,200 per day for LR2 tankers with a fleet average estimate of about $23,900 per day. This includes dry dock cost for seven VLCCs, seven Suezmax tankers, and eight LR2 tankers.

The fleet average estimate excluding dry dock cost is about $22,300 per day or $1,600 per day less. We recorded OpEx including dry dock in the second quarter of $9,200 per day for VLCCs, $9,000 per day for Suezmax tankers, and $13,300 per day for LR2 tankers. This includes dry dock of one VLCC and three LR2 tankers. The Q2 2026 fleet average OpEx excluding dry dock was $8,700 per day. Lastly, let us look at slide 8 and the cash generation. Frontline has a substantial cash generation potential with about 27,800 earning days annually. As you can see from this slide, the cash generation potential basis current fleet, TC rates and average spot market rates as of August 28th is $2.3 billion or approximately $10.35 a share, providing a cash flow yield of 24% basis current share price.

A 30% increase of these rates will increase the cash generation potential to $3.1 billion or $30.91 per share. A 30% decrease of these rates will decrease the cash generation potential to $1.5 billion or $6.80 per share. With this, I leave the word to Lars again.

Tanker stage. We see increasing risk in and around the Gulf area, both in the Gulf of Oman, in the Red Sea. We also see increased risk in the Black Sea, and the Houthis have become active again. Tanker rates remain high, and inefficiencies carry the weight of the shipping market. We also see high-risk premiums on certain trades, in particular inner AG, which is somewhat illiquid, but at least showing on the bottom left-hand chart. You can see how the now somewhat theoretical TD3C index is printing levels nearing $600,000 per day. We tend to look at the TD15, and it's being dwarfed in this connection. But if you look closely on the left-hand scale, it's actually showing very close to $100,000 per day. Oil balances are kept in check by aggressive inventory draws.

We are extremely surprised that the oil price manages to keep in this band between, say, $178 and somewhat north of 90. U.S., China, and the rest of the OECD are kind of the key sources of these inventory draws. The question is, of course, for how long can we draw? The tanker order book paused over the summer. Lead times from ordering to delivery is now moving into three and a half years. So we're talking about 2030 deliveries. We see this has kind of created a bit of a vacuum in the ordering market after a quite frantic activity in the first half of the year.

The long-term implications as fleets continue to age will be around the inventory refill story, energy security policies. In the case of some sort of relief or some sort of solution between the U.S. and Iran, sanctions relief could also play a part. We are in the midst of a storm, I would say, but the long-term implications are at least easier to read. If we move to slide 10 and try and analyze a little bit what's behind this, it's actually easier to analyze the market after the fact. We've had an 82% reduction in crude oil exports from inside the Strait of Hormuz. I know this is a big question mark, as certain agencies report higher exports than what's recorded out of the Middle East. Others are lower, in respect of transits by ocean through the Strait of Hormuz.

Frontline are amongst the school of thought that believe we're somewhere between 4.5 to 5.5 million barrels per day. China crude imports have created a cushion to the oil price, we believe, and it's actually reduced by 35% in the same period. What's happened is that we've seen huge growth in inefficiencies in the market to the tune of 23% increase in idling days per VLCC. I do note that this is not waiting time or time where owners like ourselves are fiddling around trying to figure out what to do. This is basically due to the trade itself, where inefficiencies are creeping into every aspect of the voyage, and on the contract and being paid, you're actually waiting. We've also seen a great increase in the trade between, particularly Latin America to the East of Suez.

This basically results in the effective fleet supply tightening despite a decline in volumes. The increased STS transfers off Fujairah and around Singapore and Malaysia also add to this. If you can imagine, the cargo flow that formerly used to be from inner Middle East Gulf to, say, Japan, is now like a three-time trip. You go firstly from inner range E to Fujairah in some sort of shuttling traffic. Then you, by way of STS, put the oil into another ship that takes it to Malaysia, where you again do an STS operation before a Japanese-controlled ship takes it into Japan. So basically moving the same barrels in an increasingly inefficient manner. We do see, though, that there is large gaps in the tracking data, and this also confuses us and most market analysts, as a lot of vessels are sailing dark, leaving a big blind spot.