Good morning and good afternoon to everyone, and welcome to Frontline's third quarter earnings call. These are indeed volatile times, although not as volatile as expected in freight markets. Q3 2021 marked the bottom of tankers post COVID-19. This is seasonally a low point in the markets, but everything seems to have been amplified in the current environment . Towards the end of the quarter, we actually started to see a recovery in demand for freight as export volumes grew, which has continued into the fourth quarter. Right now, we are, as the rest of the world,concerned about the implications of the Omicron variant of the COVID-19 virus, what OPEC+ will do in that respect, and whether something will come out of the ongoing Iranian nuclear talks in Vienna.
Well, let's start with the facts on Frontline's third quarter and look at the highlights on slide 3. Q3 2021 performance reflects the challenges the tanker market faced this quarter. It is, however, proof that our business model our efficient operations, our modern fleet, and very hard-working team managed to outperform most of our peers. In the third quarter, Frontline achieved $10,500 per day on our VLCC fleet, $7,900 per day on our Suezmax fleet, and $10,700 per day on our LR2/Aframax fleet. So far in the fourth quarter, we have booked 79% of our VLCC days at $21,600 per day, 72% of our Suezmax days at $17,900 per day, and 64% of our LR2/Aframax days at $16,000 per day.
All numbers in this table are on a load to discharge basis, but I do think they show that the markets have indeed recovered from the third quarter although rates have not yet reached elevated levels.I will now hand over to Inger to review the financial highlights.
Thanks, Lars, and good morning and good afternoon, ladies and gentlemen. Following the acquisition of eight VLCCs in the first half of the year, we have been busy on the financing side. In the third and the fourth quarter, we have entered into term loan facilities and obtained financing commitments for a total amount of up to $507 million to partially finance the acquisition of the two 2019-built VLCCs and also the 6 VLCC newbuilding contracts. These facilities will finance 65% of market value. They will carry an interest rate of LIBOR plus a margin of 170 basis points, and they will have an amortization profile of mostly 20 years, but also 18, commencing on the delivery date from yard.
When we factor in $33.4 million available under the term loan facility entered into in November 2020 to partially finance the delivery of the last LR2 tanker, we have established bank debts of up to $540.4 million. The company has also raised gross proceeds of $51.2 million under the equity distribution agreement and also net cash proceeds of approximately $67 million through sale of 4 LR2 tankers. Following this, the remaining commitments as per September 30th for Frontline's newbuilding program, consisting of 1 LR2 tanker and the 6 VLCCs and for the acquisition of the two 2019-built VLCCs, is fully funded.
Through these new financings, we reduce our borrowing costs, and we also reduce our industry-leading cash break-even rates, providing significant operating leverage and sizable returns during periods of market strength and help protecting our cash flows during periods of market weakness. Frontline has also extended the terms of the senior unsecured revolving credit facility of up to $275 million by 12 months to May 2023, leaving Frontline with no loan maturities until 2023. Let's turn to slide four and look at the income statement. Frontline achieved total operating revenues net of voyage expenses of $69 million and adjusted EBITDA of $17 million in the third quarter of 2021. We reported net loss of $33.2 million or $0.17 per share and adjusted net loss of $35.9 million or $0.18 per share in the third quarter.
The adjustments consist of a $1.2 million gain on derivatives, a $0.2 million gain on marketable securities, and a $1.3 million amortization of acquired time charters. The adjusted net loss in the third quarter increased by $12.7 million compared with the second quarter. This increase in loss was driven by a decrease in our time charter equivalent earnings due to lower TCE rates and the recognition of a gain on the marketable securities sold in the second quarter of $4 million. This was partly offset by a decrease in ship operating expenses of $3.2 million, primarily as a result of lower dry docking costs. Let us take a look at the balance sheet on slide five.
The total balance sheet numbers have increased by $6 million in the third quarter, and the balance sheet movements in the quarter are primarily related to taking delivery of the LR2 tanker from Front Favou r, in addition to ordinary debt repayments and depreciation. As of September the thirtieth, two thousand and twenty-one, Frontline has $190 million in cash and cash equivalents, including undrawn amounts under our senior unsecured loan facility, marketable securities and minimum cash requirements. Frontline's remaining new building and vessel acquisition CapEx of $659.4 million as per September the thirtieth, two thousand and twenty-one, is fully funded by $540.4 million in estimated debt capacity and also the $118.2 million in cash raised through the ATM and the sale of the 4 LR2 tankers which I mentioned.
The company has also no debt maturities until 2023, as I also mentioned. Let's take a closer look at cash breakeven rates and OpEx on slide six. We estimate average cash cost breakeven rates for the remainder of 2021 of approximately $21,400 per day for the VLCCs, $17,800 per day for the Suezmax tankers, and $14,100 per day for the LR2 tankers. The fleet average estimate is about $17,600 per day. These rates are the all-in daily rates that our vessels must earn to cover the budgeted operating cost and dry dock, estimated interest expenses, TC and bareboat hires, installments on loans and G&A expenses.
We recorded OpEx expenses in the third quarter of $8,200 per day for the VLCCs, $77,200 per day for the Suezmax tankers and $8,800 per day for the LR2 tankers. We dry docked 2 LR2 tankers in the third quarter and expect to dry dock 1 VLCC and 1 Suezmax tanker in the fourth quarter. The graph on the right-hand side of the slide shows free cash flow per share and free cash flow yield based on current fleet and share price of November 26 at alternative TCE rates. Let's take an example.
If we assume historic Clarksons TCE rates for non-eco vessels in the period 2000 to 2021, November 2021, adjusted then for Frontline fleet scrubber and eco vessels, Frontline will have a free cash flow yield of 38%. Free cash flow yield potential increases with higher assumed TCE rates and also on a fully delivered basis. With this, I leave the word to Lars again.
Thank you very much, Inger. Let's move over to slide seven and look at the third quarter tanker market. Tanker rates bottomed out during Q3, and this is seasonally typically the weakest period of the year. I think it's safe to say that this is not a normal year. We actually haven't had any normal year since 2019. Global oil consumption averaged 98.6 million barrels per day, that's up 1.9 million barrels from the second quarter. Supply averaged 96.8 million, also increasing by close to 2 million barrels per day. We continued to grow them kind of very close to 1.8 million barrels per day of inventories.
OPEC+ supply rose an average of 1.4 million barrels per day. I think it's important here to note that a lot of the key OPEC suppliers came out of their peak demand period, which is when they burn fuel for electricity generation and basically for cooling. This normally happens in September, so towards the end of the quarter. We saw strong demand growth in North America and in Europe, while the Asian demand recovery was muted also in the third quarter like we saw in the second quarter. What was special about the quarter that we went through was that oil and energy prices were extremely volatile. We saw natural gas prices, coal prices, also other commodities that are affected by energy prices, rise rapidly during the quarter.
All the markets kind of performed strongly as we came to the end of the quarter. I think it's important to note here, if you look at the graph on the left-hand side at the bottom of the slide. Total world consumption is now actually not that far off from where we started, in January 2020 before the pandemic hit us. In December, we're actually. Some market commentators are actually arguing for us to end up in or at 100 million barrels per day. What we have seen, which is on the chart on the right at the bottom of the slide, is that oil in transit has developed quite well during the last couple of months.
We saw that during Q3, we remained at these kind of depressed levels where kind of oil in transit increased and then decreased again and increased and you have these kind of choppy movement. Now as we went into November, we started to see that this oil on water, which is basically a picture of demand or utilization in the tanker fleet, increased rapidly to where we are now. Let's move to slide 8 and have a look at the order books. Tanker ordering was obviously muted during third quarter. We saw 1 Suezmax order and 8 LR2 Aframax orders. No VLCC orders were reported as far as we could see in the quarter.
What did happen, though, was that the delivery window for ordering, any kind of useful number of tankers is now starting to get limited for 2024 even. 2023 is destined to show very few VLCC and Suezmax deliveries. Newbuilding prices are indicated at very high levels. There hasn't been much price discovery in this market, particularly for the VLCCs, as no kind of newbuilds has been ordered really during the last four to five months. It's obviously governed by a combination of high steel prices and low availability.
Basically the considerations that ship owners need to make now, if you are to go into the market and order a VLCC, say at $110 million, $115 million, or $120 million, depending on who you speak to, you're actually making a bet on steel prices come 2023. This is obviously a bet that a lot of people are hesitant to take at this point in the curve. The VLCC order book is now at 71 units. That's a little bit north of 8% of the existing fleet. We still have this situation where 113 VLCCs will be above or past the 20-year mark during that period as the current order book delivers.
For Suezmax, there are 41 units in the order book, and 116 will be passing 20 years using the same metrics. One thing that kind of changed a little bit during the third quarter is that recycling has started to show some promise. Let's move to slide nine. With the record high recycled steel prices, activity is finally accelerating. As you see on the chart at the top there, 2017 and 2018 were the last big periods for vessel retirement. Now in Q3 alone, we saw close to 0.76% of the global tanker fleet sold for recycling. We are in a situation now where alternative use for tankers is extremely limited.
As most of you may know that kind of in earlier markets, you've had the opportunity to either convert a ship for storage or even it could be converted into an FSO, so basically an oil-producing unit. These markets are obviously closed as it is right now. We also see that during the pandemic, it's becoming evident that the capacity for recycling was seriously contracted. Basically, there has been you know a COVID pandemic in countries like India, Pakistan, and Bangladesh. Year-to-date, we've seen 15 VLCCs, 11 Suezmaxes, 18 Aframaxes, and 8 LR2s that are reported sold for demolition. Broadly speaking, this amounts to actually close to 2% of the existing fleet.
Basically, we believe that this might accelerate going forward as the recycling values are still extremely strong. Let's move to slide 10. There's a lot of noise in the market currently, and parts of this presentation could be on the potential impact from the Omicron virus. I believe we'll need a few weeks to learn more about this variant to even know where we're heading. What we do know is that in the recent weeks, we've had kind of a message of U.S. releasing oil from their Strategic Petroleum Reserve. There are obviously other exogenous factors at play as well, but let's focus on this one. U.S. has released volumes from their SPR on a few occasions over the last 18 months.
Despite U.S. inventories being below five-year averages, this country is actually not particularly short of crude oil. After the recent releases, we have actually observed slightly higher exports with a significant part of the volume going to Asia, and particularly so in October and November this year. It's obviously not the SPR volume itself that is directly heading into Gulf Coast and being exported. It's basically there is an ample kind of supply of oil in U.S. What an SPR release creates is that you depress the local prices for crude, and this basically makes that crude attractive to Chinese or Asian buyers. China, India, and South Korea and Japan have pledged to join the U.S. effort and release from their SPRs. Apart from India, none have been very specific on volume.
We have to remember that these Asian countries are far more sensitive to severe supply disruptions and because they have very limited domestic production capacity. The Northern Asian region is facing record high energy prices as they now head into winter. Whether oil will be re-released at all from the SPR now, after having a $10 drop in oil prices is obviously a question. If it should happen, it could actually trigger a ton-mile increase. Let's move to the summary, and let's go through a couple of the things that are at play right now. Demand and supply of oil continues to rise, but the latest virus version is obviously now clouding the outlook.
Tanker markets have recovered since Q3 2021, but it's still challenged by oil supply not fully at pre-pandemic levels. Tanker recycling, I think this is a very important thing to note, that tanker recycling has finally started to make an impact on vessel supply. We have all these exogenous factors that we really don't know much about at this point. The U.S. SPR release, OPEC's strategy going forward. They just postponed their meeting for a couple of days in order to find out more on the virus outbreak. They resumed Iranian nuclear talks in Vienna. There's a lot of stuff that is going to happen over the next couple of weeks. Oil in transit continues to rise, and energy prices are at record highs as the Northern Hemisphere is heading into winter.
I think the most important part here is that Frontline's financial commitments are now fully funded with reduced overall funding costs, and we are indeed well-positioned as the story of this market unfolds. Finally, I've used this graph below before, and it shows year-on-year basically various segments and how their trades are performing. We do see that for tankers, it's actually showing a growth of 3.8% year-on-year in October compared to October 2020. Tankers have been lagging all the other asset classes in shipping for a while, but now we're actually starting to perform with them. With that, I'll like to open up for questions.
Hi, good afternoon, Lars and Inger. How are you?
How are you? Good, thank you.
Good. Thanks.
Thanks. I wanted to just ask about the 4 LR2s that were sold. Were they clean prior to the sale, or were they still relatively dirty?
No, they were trading clean.
Okay. I think last quarter, there was 7 dirty and then 13 clean. What's the composition of your fleet now?
It's actually quite 35% trading dirty and 65% trading clean.
Okay. Thanks for that. To drydocking, I think, Inger, you said one VLCC and two Suezmax in Q4, roughly. How many days would you estimate for these two?
How many days? Oh, around 20 days. That's the kind of standard. Yeah.
20 days for each. Okay. 40 in total.
Mm-hmm.
All right. Thanks. Lastly, a quick one for me, how much is remaining under the equity distribution agreement?
The equity distribution agreement is a total of $100 million. When we now have raised $41.2 million, the difference is $48.8 million then remaining.
All right. Great. That's it for me. I'll turn it over. Thanks, guys.
Thank you.
Thank you.
Yeah. Hey, thank you, and good afternoon, everybody. I guess I wanted to discuss a little bit more about the decision to sell the LR2s. What was it about those vessels maybe that made them more attractive than some of the other vessels in the fleet? Is it more of you know realizing the acquisition, what was that? Last year, on the Suezmaxes. It was the function of that, those vessels being in the sale and leaseback transaction, really the fact that those were product vessels versus crude or really what I'm wondering is, I think we're all optimistic that we're going to see a recovery in tanker rates in 2022, hopefully.
I guess what I'm wondering is could we see more of those similar types of transactions, maybe with some of your crude vessels?
Yeah, thank you. No, that's a fair question. Over the last year, we've obviously grown tremendously in our exposure to the VLCC market. This is something we've communicated for a long period of time, that this has been our ambition. Historically, we have seen that kind of the return we are able to give our shareholders is kind of the best return we're able to give is from the larger vessels. Kind of in that process, we've obviously reached far in order to increase that fleet quite a lot. Then, during the year, and this is kind of a weird one, the asset class that has appreciated the most is, in fact, LR2s.
Whilst all asset prices have risen, but the LR2s have been tremendously strong. Basically we saw this as an opportunity to capture value at the point in the curve. There could be that we'll kind of divest in other vessels as well. It's kind of our focus is to grow and maintain our VLCC position, because that's where we believe we get the best kind of bang for the buck. As the LR2 segment is a very interesting one.
we believe in that market, but we found it kind of prudent to capture this value as we felt kind of the price we could achieve on these four units, the oldest four we have in the fleet, Chinese built, our ability to capture value there. We basically took it.
Okay, great. Then, thank you for the presentation and in talking about, the VLCC market, your reference to historical prices. Really what I'm trying to understand is, as I look at the VLCC fleet today, let's just put those, 100 vessels that are, the 20-year-old vessels, you referenced 115 or whatever, over 100 let's say. Do we have any sense for how much of the, call it the modern VLCC fleet is scrubber fitted?
Actually, on the modern, I don't have that number in front of me, but what I've looked at is that at this point in time, about half of the VLCC fleet is scrubber fitted. I would assume that, the most modern vessels are basically as they come from the yard. But then most of the scrubber investments have probably happened on the kind of, non-eco, more thirsty units because that's where kind of it makes most economical sense. But I don't have that split kind of in front of me, but about half of the fleet is sailing with a scrubber.
Okay. Then just one more for me. As I think about you know what? I'll cue in if it comes to me. It just escaped my mind. Thanks for the time, everybody.
Okay. Thank you.
Thank you. Good afternoon, everybody.
Afternoon.
[cross talk]
Inger, I'll ask Greg's question for him. You got a lot done on the financing side in Q3, and it seems like you're all squared away now, which checks a big box as far as meeting the new build commitments. I'm just curious on the equity distribution, why did you feel necessary to issue equity at that size, given all the financing you had lined up, and the fact that you're basically covered now even without the more expensive equity?
Well, the movement we did there was accretive to the company in a way because the NAV of the Frontline share was far below the share price at the point in time we printed those shares.
Mm.
Refi was a good wise thing to do for the company.
Okay. On the macro side, Lars, clearly there's a lot of things we can't identify right now, and this question was probably more fitting two weeks ago before there's more things thrown out there. But everyone's put out this very optimistic view, ourselves included, on why things should get better. It's just, the spring is coiling, the inventories are really low, production's increasing, demand's increasing, the fleet's shrinking. Yet we're still, at these very low levels where every once in a while you get a little bit of an increase and you think, "Here we go. Here's the start of the cycle." Then it pulls back again.
Other than OPEC just being a little bit stingy with their releases, what has been kind of the limiting factor in letting this recovery from the third quarter trough really gain momentum? Other than the things you've addressed already, are there any other concerns you have about the sustainability going into early 2022?
I think, it's obviously there is not, probably not one correct answer to that question. But our experience is that, in some segments you are suddenly in a position to push, so you can kind of push rates northbound. But then other kind of parts of the pie or of the spectrum is experiencing kind of issues. Basically what we've had now for the last couple of weeks is that we've had really good demand in the VLCC space. We see Middle East exporting finally kind of according to the OPEC program. While prior we suspect that the OPEC countries have actually consumed or kept a lot of the oil in domestic or domestically.
You get West Africa with production issues. Suddenly that volume kind of tapers off. There's also been over the last couple of months a situation where, for the long-haul oil you need the Arbs to be open. Basically for Atlantic Basin oil to be priced in a manner where it's attractive to Asian refiners. That has not really been the case. This is basically as, demand recovery has happened relatively kind of quickly during this or the second half of this year, at least in Europe and in the U.S. Basically the local oils in and around Atlantic Basin have been kind of relatively well priced, basically meaning that they're, the Asian refiners can't really compete.
You've had a couple of these factors, during this fall. We're still shy of a couple of million barrels of production until we are at pre-COVID levels. Obviously, there are new ships that have been delivered throughout the year. I think it's a mixture of those three reasons. With regards to pricing and how crude price is priced, whether if it's going to go into Asia or stay local, that could rapidly change. With regards to the production increase, I think that's more risky now, whether if OPEC actually will increase volumes into Q1.
Mm.
One thing that's for certain is that, we are very close to a balance. We have yet to have kind of. I think I mentioned this before, that the market has like three or four cylinders and, we need to fire on all cylinders in order for it to get some traction. Regretfully, we had one cylinder fail when all the other cylinders go.
Okay. No, that all makes sense. If I could just follow up with one point there. I mean, all eyes are going to be on OPEC this week. Obviously. They tend to be really driving the sentiment in the tanker markets right now. Given what you noted about, the Arbs and, if the SPR release in the U.S. leads to lower domestic prices here, which could lead to more exports, which are longer haul. Does OPEC carry the same amount of sway in the tanker markets that it once did? Or is it more of a, more of a sentiment driver than an actual fundamental driver?
I think it's more of a sentiment driver than an actual, fundamental driver, to be quite honest.
Mm.
The proof is that throughout this year we've had OPEC, kind of both adding then suddenly not adding, then kind of delaying meetings. Also, kind of relatively small portion of production increases has kind of been reflected in their exports. We have OPEC producers that are actually in over-compliance, basically because they have production issues.
Mm-hmm.
I think it's more the headline. What we see in our little pond of global transportation of crude oil, we just see volumes gradually increase. Obviously if OPEC suddenly finds, that they don't want to increase in January, I think you'll have price action, and suddenly Atlantic barrels will then be attracted kind of, or be moved out to Asia again. For us on the tanker side, that's far more important than kind of what OPEC may decide for one month kind of.
Got it. All right. Very helpful, Lars. Thank you. Thanks, Inger.
Thank you.
Good morning, everyone. This is Chris Robertson on for Randy Giveans on for Randy. Thanks for taking our call.
Hi.
Hi.
Just to follow up on the ATM issuance there. Can you just talk about how you decided upon the amount that was issued in October? If, let's say rates stay weak in 2022, would you look to utilize that again with a further issuance?
Well, based on the current share price, we will not consider to utilize the ATM further.
Okay.
I'd like to add to that, kind of Frontline has had ATM programs before, and we've always been extremely disciplined and only acted kind of when it's accretive and, when the conditions are there for it. That should also kind of further answer that question.
Yes, definitely. Thanks for the additional color. That's it for us. Thank you very much.
Thank you.
Thank you.
Yes, thank you very much for calling in. Thank you for the time. Also, obviously, thank you to the entire Frontline team who's done a fantastic job again this quarter. Stay safe.
Yeah.