Frontline plc Q4 2025 Earnings Call - VLCC Surge Locks In Outsized Cash Generation

Conference Operator, Moderator: Good day, and thank you for standing by. Welcome to the fourth quarter, 2025 Frontline plc Earnings conference call and webcast. At this time, all participants are in listen-only mode. After the speaker’s presentation, there will be the question and answer session. To ask a question during the session, you need to press star one on your telephone keypad. You will then hear an automatic message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to our speaker today, Mr. Lars Barstad, CEO. Please go ahead.

Lars Barstad, CEO, Frontline plc: Thank you very much. Dear all, thank you for dialing in to Frontline’s quarterly earnings call. Discussions with the market actors in recent weeks, a recurring phrase has been heard. People basically saying, "What a time to be alive!" Frontline has been around through many cycles, the tanker markets do actually evolve over time. We will argue that we’ve never been in a cycle like this, where indices and freight derivatives weigh so heavily in the freight pricing mechanism. This fuels almost violent moves as we proceed. For every $200,000 per day fixture done physically, there is an exponential number of contractual obligations that are triggered, giving this market a new dimension and very exciting dynamics. Before I give the word to Inger, I’ll run through the TCE numbers. Let’s move to slide 3 in the deck.

In the fourth quarter of 2025, Frontline achieved $74,200 per day on our VLCC fleet, $53,800 per day on our Supramax fleet, and $33,500 per day on our LR2/Aframax fleet. Far in the first quarter of 2026, 92% of our VLCC days are booked at $107,100 per day. 83% of our Supramax days is booked at $76,700 per day, and 67% of our LR2/Aframax days are booked at $62,400 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 incurs. However, for the VLCCs, there is little mystery left with such a high percentage in the book.

I’ll now let Inger take you through the financial highlights.

Inger Stensland, CFO, Frontline plc: Thanks, Lars, good morning, and good afternoon, ladies and gentlemen. Let’s turn to slide 4. Yeah. We report profit of $228 million or $1.02 per share, adjusted profit of $230 million, or $1.03 per share in the fourth quarter of 2025. The adjusted profit in this quarter increased by $188 million compared with the previous quarter, that was primarily due to an increase in our TCE earnings from $248 million in the previous quarter to $424.5 million in this quarter. That, again, was a consequence of higher TCE rates. We also had some decrease in finance and ship operating expenses, and also some fluctuations in other income and expenses.

Ship operating expenses, in particular, decreased $7.1 million from previous quarter, mainly due to an increase in supplier rebates of $7.1 million. Look at the balance sheet at slide 5. The balance sheet movements this quarter are mainly related to ordinary items and also prepayment of debt under revolving, reducing credit facilities. Frontline has a solid balance sheet and strong liquidity of $705 million in cash and cash equivalents, and that includes undrawn amounts of revolver capacity, marketable securities, and also minimum cash requirements, as of in the bag, as per December 31, 2025. We have no meaningful debt maturities until 2030. In January 2026, we sold 8 of our oldest first-generation Eco VLCCs for a total sales price of $831.5 million.

As the commissions and repayment of existing debt on the vessels, the transaction is expected to generate net cash proceeds of approximately $477 million. In parallel, we acquired 9 latest generation scrubber-fitted Eco VLCC new buildings from affiliate of Hemen, for an aggregate purchase price of $1,224 million. We will pay approximately 25% of the purchase price in the first quarter of 2026, and 75% is due upon delivery of each vessel. The company intends to finance this acquisition with cash and then 60% long-term debt financing. Let’s then look at slide 6. That’s the fleet composition and cash break even rates and OpEx. Our fleet consists of 41 VLCCs, 21 Supramax tankers, and 18 LR2 tankers.

has an average age of 7.5 years and consists of 100% Eco vessels, whereof 57% are scrubber fitted. We estimate average cash break-even rates for the next 12 months of approximately $25,000 per day for VLCCs, $23,700 per day for Supramax tankers, and $23,800 per day for LR2 tankers. That gives a fleet average estimate of about $24,300 per day. This number includes dry dock cost for 5 VLCCs, 2 Supramax tankers, and 8 LR2 tankers. The fleet average estimate, excluding dry dock cost, is about $23,300 per day or $1,000 less.

We record OpEx, including dry dock, in the fourth quarter of $9,600 per day for VLCCs, $7,600 per day for Supramax tankers, and $12,400 per day for LR2 tankers. This number includes dry dock of three VLCCs and three LR2 tankers. The Q4 2025 fleet average OpEx, excluding dry dock, was $7,600 per day. Lastly, let’s look at slide 7, cash generation. Following that, we entered into one-year time charter agreements, and we also had fleet renewal in the first quarter. The spot days for the next 12 months is about 24,400 days. Frontline has substantial cash generation potential, with 27,700 earnings days annually.

As you can see from this slide, the cash generation potential bases current fleet, TC rates, and TCE as of February 27, is $2.8 billion or $12.51 per share, which provides a cash flow yield of 34% bases the current share price. A 30% increase from this current spot market will increase the cash generation potential to $3.7 billion or $16.84 per share. Likewise, a 30% decrease from current spot market will decrease the cash generation potential to $1.8 billion or $8.19 per share. With this, I leave the word to Lars again.

Lars Barstad, CEO, Frontline plc: Thank you very much, Inger. Let’s move to slide 8 and look at the current market highlights. Oil demand seems to be growing healthily outright, but with key focus on non-sanctioned molecules, creating substantial year-on-year changes in trade, as shown on the illustration or the graph on the right-hand side of the slide. We have a very politically laden market environment. We talk about U.S.-India trade, U.S.-Iran-Israel discussions, and U.S.-EU-Ukraine-Russia talks. Venezuela liberation and further pressure on Russia, in addition to Iran tension, creates strong tailwinds for us operating in the compliant market of oil transportation. We’re also in an environment where weakening U.S. dollar is supportive of global oil demand, and the inflationary economic environment is supportive of the commodities in general. Asset prices for ships is appreciating firmly.

Order books are building materially in 2029 and onwards, but with the 20-year age cap observed, future supply remains manageable. Let’s move to slide 9 and look at the flows. Global crude oil in transit continues to be at elevated levels. On the graph on the right, we’ve added the TD3C Baltic Index, for, you know, by some referred to as the Dow Jones of the freight markets. There you can see how sensitive this index seemingly is to the oil trading on the Seven Seas. In this picture, we see sanctioned crudes moving slower, particularly for the Russian barrels, or being stored, particularly for the Iranian barrels. This creates an increased dark fleet utilization, and the dark fleet then needs new capacity or attract new capacity into the dark vessel pool.

These vessels are pulled out of the compliant fleet. OPEC Middle East exports is growing firmly also adds to this increased demand for compliant and approved tonnage. Despite the eye-watering freight levels we’re facing right now, we see very few charters, in fact, none, breaking this 20-year age cap, which supports the case that we have been arguing for years. Strong import growth to Far East and India contradicting the energy transition narrative, and especially for China. I think people are starting to get familiarized with the energy addition, not transition term. Long haul arbs are challenged. Just to explain what an arb is, that’s basically the price difference between one continent to another in respect of oil.

Which basically, if it’s at a wide enough point, a trader or an oil major can make a profit moving the oil over long distances and selling it in a different market. Freight is, of course, a key component in this, and one example, if the freight from for a VLCC from US Gulf to China is $18 million, the charter is actually exposed to $9 per barrel freight. Basically, this spread between the two oil markets need to accommodate that. This has put some pressure on these arbs, and we’ve seen fairly little volume moving from the US to the Far East. Again, if oil needs to move, or when it needs to move, these differentials will just have to price to accommodate this spread.

The incremental marginal barrel is now compliant. We’ve also discussed this in previous calls, is that we don’t see any kind of fantastic production growth in Iran. We don’t see any kind of fantastic production growth coming out of Russia, but we do see compliant oil production and exports growing. The big factor is, of course, OPEC reversing cuts, but then you have countries like Brazil, Guyana, performing extremely well. These are the new molecules coming to market, and they need compliant ships. Let’s move to slide 9 and look a little bit at the fleet development. The order book continues to grow.

We’re basically in a market where decades high prices for modern tonnage, if tonnage is even there for sale, that is on the water, meaning that the vessel can trade straight away, is so high that it pushes actors into the yards. Other asset classes, as LNG, containers, bulkers, continue to populate yards order books. We do see tanker ordering accelerating for 2029, especially in China. As the chart on the top right hand indicates, it shows basically the efficiency loss of a vessel as it ages. The curve starts to dip around 10 years of age and then further deteriorates into almost ignorable when it gets to 20 years.

With this in mind, as we move forward and move into 2039, we’re gonna meet the generations of ships that were delivered around 2010 and onwards. This is a large population of ships, that then again, will be 20 years of age and exposed to this deteriorating efficiency curve. With that in mind, although ordering is accelerating and we have a kind of high amount of ships expected to come in 2029, and it’s basically being added for every day, it’s not alarming with this in mind, considering the fleet age or the age of the fleet and the fleet profile. We see it as we have 2-3 years of a very good runway before the supply could become a worry. We also expect, going forward, that yard capacity will grow, and especially in China.

It is not necessarily new yards, but it is yards that have not built tankers, or at least not been specialized in tankers, but they are now adding berths in order to cater for this industry. We believe there is another trend that will evolve as we proceed here, considering or assuming this rate environment is sustainable, that Korea and Japan will increase its focus on building tankers in general. We also see in special, as the margins on these contracts start to compete with what they can achieve for containers or LNGCs. Let’s move into slide 11, where we have the familiar tables. I am not going to spend too much time on this slide, only to say that in our methodology, and we try to be consistent, we use data that is based on when an IMO number is registered.

This means that these statistics will always be a little bit slow to react. The general assumption in the market is that the order book to fleet ratio for VLCC is probably already at 20%, This will become more and more evident as these contracts are being registered and the IMO numbers are being created. With that, I think we move on to the summary. I’ve changed the headline here. VLCC take the center stage, Suezmax and Aframax to follow, question mark? It’s actually not much of a question mark, because the Suezmaxes are already on the way, and the Aframaxes is boiling. We are in a fundamentally tight market condition that yields extreme volatility. Oil demand and supply is developing positively, especially for compliant molecules. The global tanker fleet age profile and efficiency loss tighten the supply-demand balances.

Asset prices are on the move as both spot and period markets support the investment decisions. The volatile political landscape fuels energy insecurity, conditions where tankers tend to thrive. Frontline’s efficient business model stand to produce material shareholder returns as we proceed. Thank you very much. With that, I’ll open up for questions.

Conference Operator, Moderator: Thank you so much. Dear participants, as a reminder, if you wish to ask a question, please press star one one on your telephone keypad and wait for your name to be announced. To withdraw a question, please press star one and one again. Please stand by while we compile the Q&A queue. This will take a few moments. Now we’re going to take our first question. It comes line of Jon Chappell from Evercore ISI. Your line is open. Please ask your question.

Jon Chappell, Analyst, Evercore ISI: Good afternoon. Thanks very much. Lars, so many things to ask you, but I’m not gonna be greedy. I’ll keep it to two. The first thing is, obviously, we’re in a parabolic situation right now. We’ve seen this once or twice before, but as you said, what’s the underlying factors seem to be very different this time. Rates don’t go to the moon. There’s a certain point where there’s a ceiling. What’s the catalyst to, you know, provide a plateau and maybe a little bit of an easing from here? Is that a geopolitical event? Is it a seasonal event? Is it a Sinopec event? What takes a little bit of the froth out of the market, to which would still be very fantastic rates, but maybe lower than where they’re moving this week?

Lars Barstad, CEO, Frontline plc: No, it’s an extremely good question. I think the answer is kind of seasonality. There is also, you know, kind of normal seasonality. We’re actually not, you know, kind of poised markets during this time of the year. Many times due to US refineries going into turnaround, allowing for more barrels to be exported. We’re kind of, we’re actually going into that phase now. There will be potentially a few more months where we actually can sustain these rates, depending on how the flows work. You know, there is gonna be a summer lull, you know, and it’s almost inevitable.

Whether if it’s a summer lull that moves from $200,000 a day to $100 or, you know, that’s almost impossible to gauge.

Jon Chappell, Analyst, Evercore ISI: Mm-hmm.

Lars Barstad, CEO, Frontline plc: I also think one needs to note that, you know, there’s one major importer in this market, being China, and they have built an enormous amount of inventory over the years. They could for any reason, choose to basically turn down the speed a little bit for a period of time.

Jon Chappell, Analyst, Evercore ISI: Mm.

Lars Barstad, CEO, Frontline plc: This will also create volatility. But this is... I expect this to occur, but it’s of course, extremely impossible or extremely difficult to say when something like that might happen.

Jon Chappell, Analyst, Evercore ISI: Definitely. Thanks for that. The other one is also maybe a bit difficult, but it’s just something I’ve been wondering about. Nobody’s done what your Korean friends are doing right now for, like, seemingly 50 years, and that includes your shareholder, who many people probably would have anticipated would have been the one to try this. Why hasn’t anyone tried to corner the VLCC market in the past? Where could it go spectacularly wrong for them? You know, just what are the risks, I guess? I guess the final thing is, how do you position Frontline so that you’re not affected by if it does go spectacularly wrong for this player?

Lars Barstad, CEO, Frontline plc: Yeah. No, it’s a good question. It’s, you’re right, it hasn’t really been done in a material manner in the tanker markets for at least longer than I can remember. There is a parallel story from the mid-2000s involving a certain person from Taiwan, this was in the dry bulk space. The key to his success in dry and the potential key to the success that the Korean actor might have, is actually that you go in a market that is already fundamentally tight, you don’t need much to weigh it, kind of, or to slow the supply side of tanker capacity before you get these violent moves.

As most people are familiar with, if you look at how freight prices just empirically, you know, the minute you go from 90% utilization to 95, you know, how freight prices, the moves are exponential. You know, that would be kind of, you know, be my explanation to why this is possible. I’m not gonna comment on why, you know, Mr. Frederiksen hasn’t looked at this or. The thing is, you know, we are a stock-listed public company. This is, of course, easier to do if you are a private entrepreneur in this market, and, of course, willing to risk a substantial amount of money in such a game.

Where it can go wrong, in these situations, and we’ve seen them before, potentially to a smaller scale, it ends up being, you know, it’s almost like a game of chicken. You know, who can hold the longest? This is what makes me extremely excited of over the months to come and the summer and so forth. We’ll see some very interesting dynamics kind of come to play. One thing I’m 100% certain of, is that there will be volatility.

Devin Sangoi, Analyst, Tetch Investments: That’s all very helpful. Thank you, Lars.

Lars Barstad, CEO, Frontline plc: Mm.

Conference Operator, Moderator: Thank you. Now we’re going to take our next question. The next question comes line of Sherif El-Maghraby from BTIG. Your line is open, please ask your question.

Sherif El-Maghraby, Analyst, BTIG: Hey, good afternoon. It seems like charters are seeing what you’re seeing, and willing to take more ships on term. Would you say that’s the case and the TC market’s more active, or is it just that rates have risen to a level that ship owners are more comfortable with?

Lars Barstad, CEO, Frontline plc: No, I think, as I kind of touched upon in the introduction today, is that, you know, this market has evolved quite a lot in the last 20-25 years. By example, if you look at the Middle East market, for instance, for VLCC, you know, transport from, you know, pay in Manila, from Middle East to Asia. You know, this market used to have a lot of physical liquidity. What happened over the years is that more and more actors are using the index itself to price the freight. Basically, doing contracts, floating contracts, that prices off the Baltic Index quote. To the point where actually very little liquidity is actually transacted in the market.

Visit, you know, price visibility has been quite difficult, actually, sometimes. To do a parallel, you know, for every barrel, physical barrel of Brent oil that is produced, you know, it tends, it trades tenfolds on paper. We’ve seen a little bit of the same kind of tendency or trend in freight. This, you know, this becomes a problem then if everybody are kind of pricing their freight off an index that runs out of control.

Then suddenly you need to hedge, and then you need to access the paper market, or you need to buy back hedges for the guys who have taken ships on time charter, and basically hedge the, you know, parts of the curve in that exposure and so forth. You end up with a very vibrant FFA market, which every FFA broker today would you know, testify to. You get these kind of ebb and flows out on the curve from panic to some sort of quiet until the panic kicks in again. Because over the last couple of weeks, we’ve seen, you know, you see the index, it’s just relentlessly printing what is physically actually being done.

It’s not like 10 cargos are fixed today, it’s 2 to 3 cargos maybe fixed today. The amount of pricing exposure around that quote is enormous, and this triggers kind of this almost like self-propelled move going forward. I think it’s important to note, this is, you know, this is not manipulation. The market is fundamentally extremely tight. Of course, you could argue that maybe freight rates are moving ahead basically due to this tightness, you know, as the panic ebbs and flows.

Sherif El-Maghraby, Analyst, BTIG: Well, that’s very interesting. Something else that I thought was interesting and was your comments specifically about new tanker yard capacity coming online. I apologize if you mentioned this and I missed it, but do you have a sense of what the turnaround time on these projects might be and when first ships might hit the water?

Lars Barstad, CEO, Frontline plc: No, it’s 2029. A yard that is now marketing kind of a new berth that they’re going to build, but it’s not like a greenfield. Because the yard exists, it is there. They’re just kind of introducing a new berth that can say, accommodate the VLCC build. That is 2029, so 3 years now.

Sherif El-Maghraby, Analyst, BTIG: Got it. Lars, thank you for your time.

Lars Barstad, CEO, Frontline plc: Thank you.

Conference Operator, Moderator: Thank you so much. Dear participants, as a reminder, if you wish to ask a question, please press star 11 on your telephone keypad. Now we’re going to take our next question. It comes line of Devin Sangoi from Tetch Investments. Your line is open, please ask your question.

Devin Sangoi, Analyst, Tetch Investments: Hi. Hi, Lars. I just want to ask you, what will be your strategy on, you know, spot versus time charter as you go through this interesting times? That’s all. That’s my first question.

Lars Barstad, CEO, Frontline plc: Yeah, no, it’s a good question. As we said before, you know, we kind of, you know, our proposition to our investors is of course, to give you spot returns. Basically, you don’t have to buy a ship, you can just buy Frontline. You know, at times we will choose to use elevated markets to try and secure revenues. We’ve also kind of, we don’t have a fixed policy or anything, but we have like a golden rule of one-third. In theory, you know, our board would be comfortable under certain conditions that we get up to, you know, time charter coverage of 30%.

We are, of course, in, you know, as you’ve seen from the stuff we did, you know, we reported the 7 one-year time charters. You know, in the report today, we also reported another 1 that was done like a week later. We are in these modus operandi to try and secure some longer term income. We are so constructive about this market that we’re not really engaged in, yet at least, in the longer term. Because we actually do believe that there is still some to go for the longer term contracts. They’re also appreciating quickly. You know, I’m not gonna exclude anything.

You will not find Frontline in a situation where we’ve put, you know, 50% of our exposure out on time charter, because that’s not really what our investors are after, we believe.

Devin Sangoi, Analyst, Tetch Investments: Sure. I see the dark fleet, which we’ve been struggling, and finally it’s coming with sanctions and whatever was needed to be done has been done now. In this, though the probability is 50%, if Russian crude oil and if the war stops and the sanctions are lifted, it’s also going to get into a compliant fleet. Do you foresee in such scenario what will happen to the market?

Lars Barstad, CEO, Frontline plc: Yeah. If you’d asked me this in, like, September 2022, I would have said it would be, you know, like an immediate kind of bearish kind of proposition. So much time has passed and, you know, if the Russian barrel becomes a compliant barrel, you know, kind of you, you’ll probably get half of the capacity back into the compliant on the shipping side, into the compliant fold. The other half will either be. Well, will actually be disqualified basically due to age. This is the same for the Iranian, or the fleet servicing the Iranian oil. You know, it’s a lot of ships, yes, but these are ships that were supposed to be recycled years ago, basically due to age.

Very few of them are actually gonna come back into kind of compliant trade. Also the scrutiny in the compliant market on ships history is extremely kind of tough. It’s not very easy to kind of whitewash a tanker that’s been involved in illicit trades. One point I need to make, you know, we’ve actually seen this before when sanctions were eased, to, you know, towards Iran in 2016. They have a national fleet, national tanker company, NITC, and of course, any part of a sanctions lifting, kind of solution will also involve, you know, nationally controlled shipping companies. For Russia, that would be Sovcomflot and potentially others. Again, you know, just analyzing those fleets, age is the problem.

actually we would welcome these molecules into the compliant fold.

Devin Sangoi, Analyst, Tetch Investments: Sure. The last problem is that if this sustains and obviously, and you do the best to make out of, the cash becomes a cash pile. Obviously, you’re paying out large part of it, do you think at what point in time you will start deleveraging balance sheet or you will stay levered?

Lars Barstad, CEO, Frontline plc: No, our intention is to stay levered because for every share you buy in Frontline, you get like a 1.4 ship exposure equivalent, basically due to our leverage. We still believe that’s the model. And obviously, I can’t rule anything out, but we have, you know, no inclination to delever apart from what naturally happens when you pay down debt. The point of cash is actually going to you guys.

Devin Sangoi, Analyst, Tetch Investments: Okay. Congratulations and all the best for the future. Thanks a lot.

Lars Barstad, CEO, Frontline plc: Thank you very much.

Conference Operator, Moderator: Thank you. Dear participants, just a quick reminder, if you would like to ask a question, please press star 11. Dear speakers, there are no further questions for today. I would now like to hand the conference over to the speaker, Lars Bastar, for any closing remarks.

Lars Barstad, CEO, Frontline plc: Thank you. Thank you very much for listening in. I hope you are as excited as I am to what the future is gonna bring. I think it’s the tanker market’s turn now, let’s enjoy the ride. Thank you very much.

Conference Operator, Moderator: This concludes today’s conference call. Thank you for participating. You may now all disconnect. Have a nice day.