Ladies and gentlemen, thank you for standing by and welcome to Q4 2021 Frontline Earnings Conference Call. At this time all participants are in listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question, you will need to press star one on your telephone. I would now like to hand the conference over to the speaker today, Lars Barstad. Please go ahead, sir.
Thank you. Good morning and good afternoon to anyone or everyone dialing in. Welcome to Frontline's fourth quarter earnings call. We continued our drive through what ended up being a somewhat less exciting market than expected. Towards the end of the third quarter, we actually started to see a recovery in demand for freight as export volumes grew, which was continued into the fourth quarter. Regretfully, it was not enough to move the needle in the vessel supply and demand equation to make a significant change in rates in absolute terms. I think we just move straight on to the highlights on slide three. In the fourth quarter, Frontline achieved $16,500 per day on our VLCC fleet.
We had $14,200 per day on our Suezmax fleet and $13,900 per day on our LR2/Aframax fleet. So far, in the first quarter of 2022, we have booked 58% of our VLCC days at $21,300 per day, 65% of our Suezmax days at $19,600 per day, and 56% of our LR2/Aframax days at $18,800 per day. All numbers in this table are on the load to discharge basis. I'm thinking in order to make it clear to all listeners how we achieve these numbers when the benchmark indices are reported to show negative numbers, allow us to quickly move to slide four. We've said time over again that Frontline has a large, diverse fleet of modern tankers.
It was kind of made clear to us today in a call this morning that we should elaborate further on this. The thing is, with these indices that are supposed to represent the market performance, these are based on a methodology that is somewhat old-fashioned because the modern tanker will trade very differently from an older tanker. The economics of a modern tanker, and if you add the scrubber, is extremely different now with the record wide spread we have between high sulfur fuel oil and low sulfur fuel oil. The fleet of Frontline, the average age is five years. 79% of the fleet are eco vessels and 54% of the fleet have scrubbers installed.
If you look at the diagrams on the right-hand side of this slide, what we've done here is basically to take some benchmark indices that are classified for non-ECO vessels, non-ECO with scrubbers, ECO vessels, pure ECO, no scrubber. These are normally the vessels built after 2015, and then ECO with scrubber. Based on the average in Q4 2021, you can see on the VLCC side that the non-ECO, non-scrubber, no nothing will achieve $5,400 per day according to the index. An ECO with scrubber will achieve a premium of $12,500 per day, which is basically created by lower fuel cost. It goes on the Suezmax and LR2s. It's this you need to keep in mind when you look at Frontline as a share.
We both have a very modern fleet, and we have very low cash break-even levels. With that, I'll give the word to our CFO, Inger Klemp.
Thank you, Lars. Good morning and good afternoon, ladies and gentlemen. I think we should start or turn to slide five and look at the income statement. Frontline achieved total operating revenues, net of voyage expenses of $101 million in the fourth quarter and had an adjusted EBITDA of $51 million. We report net income of about $20 million or $0.10 per share, and adjusted net loss is about $5 million or $0.02 per share. The adjustments that we have made in this quarter are different items. We have a $5.3 million gain on derivatives.
We have a $0.5 million loss on marketable securities, a $5.1 million gain on sale of vessels, the recognition of the distribution from DNV of $13.4 million after tax, and also $1.3 million amortization of acquired time charters. The adjusted net loss then in the fourth quarter decreased by $31.1 million compared with the third quarter. The decrease was driven by an increase in our time charter equivalent earnings due to the higher TC rates and also by a reduction in ship operating expenses. This was partly offset by an increase in interest expense and depreciation due to delivery of three vessels in the fourth quarter. Let's take a look at the balance sheet on slide six.
The total balance sheet numbers have increased with about $130 million in the fourth quarter. The balance sheet movements in the quarter are primarily related to the taking delivery of the LR2 tanker Front Feature and VLCC FRONT DRIVA and FRONT NAUSTA, in addition to ordinary debt repayments and depreciation. As of December 21st, Frontline has $181 million in cash and cash equivalents, including undrawn amounts under our senior unsecured loan facility, marketable securities and minimum cash requirements. The remaining CapEx, newbuilding CapEx of $437.4 million as per December 31st, is fully funded by the $390 million in committed debt, and also by part of the net cash proceeds of $68.6 million through sale of four LR2 tankers.
The company has no debt maturities until 2023. Please move to slide seven, cash breakeven and cash generation potential. We estimate average cash cost breakeven rates for 2022 of approximately $22,700 per day for the VLCCs, $18,900 per day for the Suezmax tankers, and $16,000 per day for the LR2 tankers. The fleet average estimate is about $19,300 per day and includes dry dock of 16 vessels in 2022, with an impact of $740 per day. The distribution of the 16 vessels is five VLCCs, five Suezmax tankers, and six LR2 tankers.
These rates are the all-in daily rates ou tor vessels must earn to cover budgeted operating costs and dry dock, estimated interest expense, TC, and bareboat hire installments on loans and G&A expenses. We recorded OpEx expenses in the fourth quarter of $7,600 per day for VLCCs, $6,900 per day for Suezmax, and $6,100 per day for LR2. We dry docked one VLCC and one Suezmax tanker in the fourth quarter. The graph on the right-hand side of the slide shows the free cash flow per share after debt service and free cash flow yield based on current fleet and share price of $16 as of February 16 at alternative TCE rates. If we think about the slide that Lars went through on slide four, I think it was
Mm-hmm.
With respect to how our fleet, based on ECO and scrubber adjustments, show a very premium, TCE rates. That is also used in this slide. Based on historic Clarksons TCE rates for non-ECO vessels in the period 2000 to 2021, adjusted then for premiums on scrubbers and ECO vessels, Frontline has a free cash flow per share of $2.44, and a free cash flow yield of 32%. The free cash flow yield potentially increases, of course, with higher assumed TCE rates and also on a fully delivered basis. With this, I leave the word to Lars again.
Thank you, Inger. Let's move to slide eight and do a recap on the Q4 2021 tanker market. As you see the headline there, we'll start there. Oil in transit is approaching the heights of 2018 and 2010 to 2019. If you look at the graph at the bottom, and in particular the line, the dark blue line where you have a red circle, you'll basically see the dots of volume of oil in transit gradually increasing throughout the fourth quarter. Just a small note, if you look at the yellow line on the left-hand side of that chart, that's actually January and preliminary numbers for February, where we are now.
Global oil demand was estimated to have averaged 99.7 MMbpd in Q4, and that's an increase of 1.5 MMbpd compared to the third quarter. We continued to draw on inventories, and this to the tune of 1.4 MMbpd during the fourth quarter, as demand continues to outpace supply. I'd like to make a comment there, because if we rewind 12 months, when I was sitting here having this call, I was being very optimistic, and primarily due to the fact that we were expected to stop drawing on inventories in August, which basically boded for an interesting second half of the year. Well, that hasn't happened. We've continued to draw way beyond anybody's expectation.
Projected demand growth for 2022 will predominantly be non-OECD, if one believes EIA's numbers, and we're going to reach very close to 103 MMbpd by the end of the year. The current oil price signals tightness in the market. There are production issues, or has been, in Libya, Nigeria, Angola, and overall, the OPEC+ is overcompliant. This means that they're you know, when they have, kind of pre-decided production levels, they're actually not able to reach them. Basically, the unwinding of the OPEC+ cuts is going much slower than expected. Nevertheless, oil in transit has continuously risen since October 2021 and is now up 20% from lows. This could be pretty directly equated to tanker demand. Basically, tanker utilization is improving.
Despite increased activity and these growing volumes, we have yet to reach the turning point for it. Let's move to slide nine and look at the tanker order books. This is an obvious one. As vessels are delivering and no orders are being placed, the order book is shrinking. We also have this very unusual situation where 6% of the global VLCC fleet is now above 20 years. 2022 is indeed a large delivery year, but by the end of 2022, there will be more than 80 VLCCs due for recycling in the same period. We have a big question mark on net fleet growth in the end as this plays out. Suezmax, same picture with 12% of the fleet or 72 vessels are either above or passing 20 years in 2022.
The LR2 order book is more populated, but again 15% of the fleet will pass 15 years. The thing with LR2s is that they're obviously useful lifetime is far more than 15 years. In the clean trade, charterers do not prefer a vessel that's older than 15 years to carry a clean cargo, basically due to the fear of contamination. It means that an LR2 above 15 years will normally kind of change to become a Suezmax. The VLCC, Suezmax, and LR2 order books stand at 8%, 7%, and 13% respectively. More importantly, meaningful capacity for new tanker orders is now moved out to 2025. Let's move to slide 10 and dig a little bit further into the current fleet composition.
Here I've been looking at the tankers that we are exposed to, the asset classes that we hold. As you all know, by 2023, IMO will impose new measures. We like to refer to them as tickets to trade. We're gonna get CII ratings on all vessels in the world. For those of you who've looked at those, it's A, B, C, D, E, which is basically the range. You need to be C or better in order to get the ticket to trade. The Frontline's own fleet overall weighted carbon intensity rating is A. That is the 2021 data. If you look at the chart to the left, you'll see how many ships in the tanker fleet that firstly, the ones that are over 20 years are challenged in the first place, that's 6% of the fleet.
If you add the ones that will be efficiency challenged, basically we're facing an EEXI rating which is below C, you can add another 17%. If you look at the non-ECOs that do struggle to trade economically in the current oil price environment, you're getting up to another 29%. CII is mentioned a few times on this chart, and CII is a measure for a vessel's carbon intensity and its average emission per volume transported. A vessel's carbon intensity is important to charterers if you are gonna charter the vessel if they have carbon footprint policies or when they have. This is also a relevant measure when we talk about carbon tax and the potential of shipping entering the EU ETS trading program.
Basically, I think we all can agree that the global fleet of VLCC, Suezmax, and LR2s is somewhat challenged over the next few years. The only, or the most efficient measure you can apply in order to reduce your CII, as in carbon intensity, is speed. Basically speeding down will basically reduce your carbon footprint. But to deal with EEXI, you would actually need to do a physical work on your vessel. You will basically need to cap its ability to produce power, which ends up reducing speed as well. It's important to note that at the Frontline fleet, we don't foresee any challenges with regards to maintaining kind of the IMO trajectory until at least 2025. Next, let's move to slide 11. Tanker recycling.
This is basically a bit that's been missing in our market for a while. With record high recycling steel prices, activity is finally looking to accelerate. The last two big recycling years were 2017 and 2018. Now in 2021, we actually have seen 2.3% of the overall tanker fleet above 10,000 deadweight, which is basically a measure for the carrying capacity of the tanker fleet, being reduced by 2.3% and we believe this trend will have to continue. The aging fleet is severely challenged in the compliance spot market and alternative use or opportunities for older tankers, and this is typically for storage or conversion, is virtually nonexistent.
If you look at the bottom graph there, recycled steel prices, I in fact tried to find longer history to see if we've ever been at these levels, and I simply couldn't find it, at least in the history I could access. We believe this combination of the regulatory challenges which I described on the previous slide, the very challenging market for non-ECO vessels and the recycled steel price should produce a positive outcome for a tanker owner. Let's move to slide 12 and look at Frontline and how we are addressing the ESG. As I think I mentioned a few quarters back, Frontline started its project, which we call the decarbonization journey towards IMO 2030 and 2050. We started that in 2019 already.
The first thing we did, which we referred to as the Veracity platform, was basically to find out where we are now. This includes digitalization. This includes making us able to record live from every vessel we control and feed that into a database where we can analyze not only carbon, but also the speed and consumption and incidents on all our vessels, basically to find out where we are. That's where and when we had that in 2020, we started to plan for how we improve it. Well, we have in the first place one of the youngest and most energy efficient fleet in the industry, and we're obviously at all times in compliance with increasing regulations, and we're making strategic initiatives towards decarbonization. We've among other things done successful trials of low carbon marine biofuel.
Frontline targets to reduce our carbon emissions by 3% per year, which equates about 55,000 metric tons. The thing is, why this actually works is that it also automatically gives us an increased earning potential. I don't think I need to go into depth that we actually, you know, we do share the UN Sustainable Development Goals on sea and the seafarer's wellbeing. We publish our ESG report obviously every year, which I encourage all the listeners to have a look at. We also, of course, do what we refer to as sustainability accounting following the SASB principles. Let's move to slide 13 and try to sum it up. Demand and supply of oil continues to rise. The Omicron variant seems to have a far more modest impact than we could have feared.
Tanker markets have in fact recovered since Q3 2021, but obviously to a modest degree, far too modest for our liking. We're still challenged by oil supply not fully at pre-pandemic levels. Tanker recycling, as I mentioned in this presentation, is finally starting to make an impact on the vessel supply. There is a lot of moving parts in addition. We've seen U.S. SPR releases. There is now discussions about the OPEC strategy going forward, and we have the Iranian nuclear talks. There's a lot of moving parts. Oil in transit continues to rise. Energy prices are at record highs, and oil is now flirting with $100 per barrel.
How that's gonna affect what I mentioned just now with regards to the SPR releases, with regards to OPEC strategy and with regards to the Iranian nuclear talks is creating some very interesting dynamics. Last but not least, Frontline's financial commitments are fully funded, and we've done so with a reduced overall financing costs. We think we're well-positioned as the story of this market unfolds. With that, I think we'll open this call for questions.
Ladies and gentlemen, we now begin the question and answer session. If you wish to ask a question, please press star one on your telephone. We have the first question from the line of Jon Chappell from Evercore. Please go ahead, your line is open.
Thank you. Good afternoon, Lars and Inger. Lars, first thing I wanna ask you about, you brought it up in the presentation and the press release, is that OPEC's obviously having a difficult time getting to their production quotas. Not Saudi Arabia, not U.A.E., but there's some other countries with probably some more structural issues. As you think about the supply that the tanker market needs to catch up with this recovery and demand, and countries in West Africa and other places can't really meet their quotas, where do you foresee this coming from, especially as the U.S. companies try to be more disciplined? And it could be an issue where the inventory draws lasts a lot longer than anticipated because we can't respond to that increase in demand with global supply?
Yeah. You know, I realized it was a question, but you basically answered it a little bit yourself. So the obvious answer, where you actually could relatively quickly have increased supply, and basically what we need is increased exports, you know. That is obviously the U.S. But the discipline amongst U.S. producers have been so far well not good for us, but good for the oil price. And you know, if that continues, this is a challenge. Obviously you still have barrels in the Middle East and countries, I would assume. Otherwise, we are in a lot more trouble than we'd like to think of.
I think that's the likely initial phase should we continue to be where we are now or the oil price should even rise further. I think OPEC will have to basically open the taps completely. OPEC, although they would like to have a very high oil price, I also think they have a huge respect for demand destruction. You know, oil price significantly north of $100 will put us in that position. That's kind of my thinking here. I also think that, you know, if we are in a situation where U.S. doesn't grow more, kind of, I believe EIA has about 800,000 bpd of U.S. production.
Regretfully, U.S. demand is also rising quite rapidly, so we don't know how much is gonna be left for exports. I think kind of you have a huge incentive to get something done with Iran.
Okay.
Yeah.
Well, that Iran thing kinda led to my second part, my second question as well. I mean, you've been pretty public calling out the illicit fleet, illicit trading fleet. A pretty interesting graph in here, you know, showing the difference between the non-ECO, the ECO, the ECOs with scrubbers, and then also the whole thing on the IMO 2023. It feels like that there's so much optimism in the market, you know, people are reluctant to scrap older ships because they're fully paid off and they can make a good return on the recovery. At what point do either regulations, economics, or maybe more importantly, just vettings and charterers, I assume you speak to the biggest ones, really put their foot down and force more removals of, you know, 15+-year-old ships?
Well, I think, you know, there are two different markets here. In the compliant market, the big charterers are already doing this. In the compliant tanker market, which we are a part of, you know, we're under scrutiny every day, and we obviously are doing all we can to protect ourselves from being exposed to, you know, sanction-breaking activity. You have a parallel market here that is making a lot of money. The reason why they make this money is because sanction crude is discounted crude. As long as that discount is there, you have an incentive to trade kind of sanction crude.
In my kind of simple analysis, that's how we can address this issue. In the event of, say, sanctions being lifted against Iran, all that volume will need to go on compliant vessels. Because the normal customers of Iran, and mind you know, historically that's been type India, you know, Northwest Europe, Korea and so forth, they simply cannot take that oil on a vessel that doesn't have its compliance in order. That would be a massive trigger to the demand for compliant tankers. I think that would be the death blow for this shadow market, to put it that way.
Okay. Thanks for the thoughts, Lars.
Thank you for your question. The next question is from Randy Giveans from Jefferies. Please go ahead.
Howdy, Lars and Inger, how are you?
We're good. Howdy, Randy.
Howdy.
Excellent. So looking at your fleet, let's start there. You know, you agreed to sell the four LR2s all delivered to the new owners. Thoughts on further asset sales as the asset values, right, continue to outperform spot rates?
Yeah. No, this is, you know, this is obviously an ongoing discussion, as you're all aware, we have, you know, we've done some investments on the VLCC side over the last year. We have to look at various avenues of, you know, kind of raising equity for that. We have done this for LR2 sales because we thought it was a very good opportunity at the time, and we'll continue to look at various opportunities. I would say that this was potentially a very kind of favorable both deal structure and time for us to do so. It shouldn't be regarded as, you know, a complete change of how we think about the market.
We would ideally like to keep as much earnings potential as we can, but we do believe that, or have historically seen that we get most bang for the buck in the VLCC market. But right now we don't have any immediate plans of further kind of selling LR2 or Suezmaxes for that sake.
Got it. Okay. Your quarter to date rates, Suezmax and LR2s are above break even, VLCC is still below. Any thoughts on catalysts to really move those higher? In the meantime, while we wait for the spot market to move, are you looking to maybe sign some six-month, 12-month time charters to secure some cash flow?
Well, I'll take your second question first. You know, we are of the opinion that freight markets are mean reverting, and the history shows us that they are.
Okay.
Obviously each top and each bottom has different durations, and obviously then we are somewhere in between. We don't see this as a time where you secure cash flow by doing long time charters. We would rather do that. If we are to do that, it's gonna be at a different point in the curve. We don't feel we're forced to do it because we have a solid financial position. We also have a fleet that actually gives us kind of some comfort in these really dire markets. As to the different earnings on the different asset classes, as you well know, this is related to basically what trades are working in the oil market.
What the Suezmax flow show is that oil has to a large extent been trading relatively short. I'm not gonna go too deep into details, but one effect of the energy crisis in Europe on natural gas means that refinery margins have been under pressure in dealing with high sulfur crude. It means that the natural home for U.S. barrels has been Europe, and that's predominantly a Suezmax trade, and it's then hurt the VLCC trade. Also the VLCC market is exposed to the fact that the majority of OPEC increases recently is coming in the Middle East, and obviously Middle East is closer to the key market being Asia, and ton miles has basically suffered for that.
Got it. Well, hey, thanks for that robust answer. That's it for me.
Thank you for your question. The next question is from Magnus Fyhr from H.C. Wainwright. Please go ahead.
Yeah, thank you. Good afternoon, Lars and Inger.
Hi, Magnus.
Just a question on, you know, on the dry dockings first. I guess you mentioned 16 ships due for dry docking in 2022. Should we expect them to, you know, be dry docked evenly through the year, or are you trying to speed up the dry docking given your positive market outlook?
The plan is actually now four in the first quarter, five in the second and the third quarter, and then two in the fourth quarter. That is the plan. But we can obviously try to adjust in line with the market, what happens in the market in a way.
Okay. I think you mentioned about $740 per day for dry docking. Is that around $20 million for those 16 vessels?
Yeah, it's a bit less than. It's about just below $18 million.
Okay. Very good. Just a question for Lars maybe. I mean, rates, you know, I think you guys booked the really strong rates during the quarter, and some of that was due to, you know, recognizing, I guess, from a revenue standpoint. Going forward, and with rates, you know, and thanks for laying out the premiums compared to non-ECO. Going forward, are you booking similar rates now, you know, that you did in the first quarter? I know the market's been weaker here in January, February, so just kinda get a feeling for if that premium is still there.
For the VLCCs, no, regretfully. I think one has to appreciate that. On the Suezmaxes, yes. LR2 actually is a bit more mixed bag, I would say. The Suezmaxes
Oh, yeah.
Have actually showed some promise over the last week and a half.
Okay, good. Do you see, you know, with the market being a little different this year, do you see any seasonality playing out, you know, with the 2Q, 3Q, typically the lowest quarter? Do you expect a kind of steady trajectory into the fourth quarter this year?
That's actually a really good question because as you know, in our industry we normally follow the seasonality and, you know, this is very rare or seldom that we actually move out of it. I think kind of as a lot of the challenge that we have in the tanker market is actually a reflection of the really, really tight supply situation in the oil market. I think we could, in theory, get a very, you know, we could kind of quickly end up in a very untypical market, basically due to the fact that, say, OPEC increased more than planned, something happens on the Iranian side. Basically, you know, I mentioned earlier, we're still growing from inventory.
I think if you look at an oil curve, it's quite obvious why, because crude today is, you know, as expensive as it's ever been in comparison to crude delivered, say, in May. The backwardation is super steep. Should something happen to that curve, you would actually start to see inventory start to build again. It's basically, you know, a rapid change in the oil curve would trigger a lot of activity. It's actually almost scary looking at the political tension between, for instance, Ukraine and Russia that the rest of the world dares run on such low inventories when you are, you know, with the risk of potential action against one of the biggest oil producers in the world.
All right. You know, you mentioned that most of the barrels from the U.S., you know, has gone to Europe, given that OPEC's been supplying, you know, Asia with crude. If OPEC starts struggling, you know, increasing production further, can you see a scenario where actually shale production start increasing more and that incremental barrel is going to the Far East?
Absolutely. I think I know where you're calling from, and it's something which is almost like, you know, at least we look at as a little bit ironic. What we've observed is that there is a correlation between U.S. SPR releases and U.S. exports, and those exports tend to end up in Asia. So basically, you know, obviously it's not the same molecules, but what you do when you release from an SPR is that you make a crude available in the local markets in the U.S. and then obviously allow players in the U.S. market to export more. So it's kind of an indirect supply into a strategic kind of inventory in either Japan or China, or even Korea.
That's basically what's been the backbone of the VLCC trade in Q4 and to some extent into January was actually this increased exports from the U.S. Gulf that was landing in Asia.
Great. Well, thanks, Inger. Thank you, Lars, and also thanks for a very informative presentation.
Thank you.
Thank you.
Thank you for your question. The next question is from Chris Tsung from Webber Research. Please go ahead.
Hi. Good afternoon, Lars and Inger. How are you?
Oh, we're good.
We're good, yeah. Thanks.
Thank you.
Great. First question I wanted to ask is just to touch on your presentation from slide four shows that in your fleet there's three non-ECO vessels, and the chart on the right that you guys laid out shows there's a significant premium with non-ECO vessels with scrubbers. I just wanna ask, is there a plan to install scrubbers to these three vessels? Or perhaps would you look to sell them as it looks like the average TCE in Q4 for non-ECOs with scrubbers still below cash break-even levels.
Well, this is an ongoing kind of discussion, and obviously having non-ECO, non-scrubber is, you basically choose do we sell them or do we install scrubbers to move them basically up the chain? I can't answer that on this call, but I'd say it's a valid question and it's kind of being discussed. You know, we like to call it the scrubber spread, right? You know, the kind of spread between high-sulfur fuel and low-sulfur fuel has obviously widened immensely, you know, in the last five to six months, basically making it very economic to install a scrubber.
There are practical considerations to be made, you know, taking a ship out to the market, which doesn't really matter too much in this market, but then you know, you need to find a yard and you need to time it and all that stuff. I assure you, this is extremely high on our minds, particularly for those vessels.
Great. Thanks. Just one more follow-up for me. The six VLCC newbuild, do you have an updated timeline or a schedule? Just trying to get a sense of the cadence for the deliveries.
Yeah. The first one will be delivered in Q2.
Q1.
Mm-hmm.
End of Q1.
Yeah.
End of Q1.
The end of Q1, but it's April, early April.
Yeah.
The rest will be obviously not. We're not pushing to have them as quickly as we can yet. They will be coming as pearls on a string in the second half of the year.
Okay, great. Thanks for that. That's it for me.
Thank you.
Thank you, guys.
Thank you.
Thank you for your question. We have the next question from Greg Lewis from BTIG. Please go ahead.
Yeah. Hi. Thank you, and good afternoon. Thanks for taking my question. I apologize if this was already asked. I was having trouble getting on. You know, just given Frontline's exposure and ownership of scrubbers, clearly the spread between high sulfur and low sulfur is widening. Are you hearing or seeing or at all concerned about availabilities of, you know, either grades or, you know, just as oil demand has picked up or any kind of color you could give around that and how you're thinking about that through the rest of the year?
Well, we haven't. Availability hasn't really been a big issue, but it has from time to time in certain ports, kind of, you know, such a situation that they actually need to book further ahead. This is more related to the players in the bunker market not wishing to hold inventory in a steep backwardation. Basically, they will, you know, try to limit what they hold and wait until basically an order has been placed for a certain amount of bunkers. This is creating some issues. You are right. In certain places, high sulfur is actually difficult to come by.
I think this is actually expected to ease as we move out of the winter in the northern hemisphere because some of the tightness in this market has been caused by, you know, straight-run fuel going into the power generation pool as gas prices have been so high. I don't know if that answers your question. You know, so far, we haven't seen kind of incidents where it's impossible to get hold of fuel, to put it that way.
Okay, great. Hey, so thank you for taking my question. Have a great day.
Thank you.
Yeah. Thank you for your question. We have the next question from Robert Silvera from Silvera Associates. Please go ahead.
Thank you for taking my question. My question is this. At what level do you see rates having to go to before you will reinitiate or initiate a dividend again, cash dividend?
Well, that's actually a difficult question to answer. I think historically, you know, we don't have, you know, like a fixed dividend policy, right? But we have,
Right.
It's more at the board's discretion. History shows that whenever Frontline has a meaningful positive net income, we will distribute dividends. I think you basically need to look at our cash break-even levels, which are all in cash break-even, and that could maybe give you some guide to what levels you should kind of look for. And that's, you know, $19,300 on average over the fleet. But you know, the minute the VLCCs start to make meaningful kind of earnings above $22,000-$23,000 a day and you know, say $19,000 for the Suezmax and $16,000 for the LR2s, Aframaxes, that's when we get into a position where we can start to distribute money.
Do you feel that it would be like 10% above those levels when you might initiate the dividend again? Or would it be only 5%? Can you give us some color on that, what level above?
Yeah, no, I wish I could, to be quite honest. I think I would ask this or answer this question a bit differently. You know, Frontline will always try as hard as we can to pay out dividends. We've actually had instances where we pay out dividends in a quarter where we've not really made money because we have visibility into the earnings in the following quarter. I wouldn't doubt the aggressiveness of Frontline in paying out dividends to shareholders, but I don't really want to get into a percentage discussion, if that's okay.
That's okay. I miss the days of 2003 and 2004.
Do we.
Okay. Thank you then. Thank you very much for a very insightful answering of questions and a presentation.
Thank you.
That's it from me. Thank you.
Thank you.
Thank you for your question. There are no further question at the moment.
Okay. I think we'll wrap it up.
Yeah.
Thank you very much for listening in. Have a good evening and a good day to everyone. Thank you.
That concludes the conference for today. Thank you for participating. You may all disconnect.